Dive Brief:

• Grocery delivery sales grew more than 20% on a year-over-year basis in March, reaching $3.5 billion, according to the latest monthly survey from e-commerce firms Brick Meets Click and Mercatus. First-quarter sales in the channel rose 15%, the survey found. 
• “First, the aggressive expansion of third-party providers into grocery is enabling additional ways for people to shop online, and second, newer services focused on faster cycle times are appealing to a broader range of trip missions and usage occasions,” David Bishop, partner at Brick Meets Click, said in a statement.
• Total U.S. online grocery sales in March brought in $8.7 billion, a 6% decline from the record high grocery e-commerce sales Brick Meets Click and Mercatus reported last March.

Dive Insight:

Delivery is going through a growth spurt right now, according to Brick Meets Click’s survey data, with year-over-year sales also up 37% in February, following a string of monthly sales declines.

That's surprising, given the way rising inflation is pinching consumers' wallets right now. Pickup, with its lower fees and widespread availability, would seemingly be the more likely channel to experience sales growth in this environment. But its growth declined nearly 11% in March, to $3.8 billion, according to Brick Meets Click's survey, which was conducted from March 28-29 and fielded results from 1,681 adults.

What accounts for the recent uptick in delivery isn't so much a sudden spike in demand for doorstep grocery service but rather the aggressive expansion of new companies in third-party delivery and convenience delivery, said Bishop. In an email interview, he said that it’s hard to say whether these two forces will continue to drive up delivery sales since much of the growth from third-party players is driven by promotional incentives, while the speedy delivery trend still has to prove itself economically sustainable.

When asked if any third-party players stood out right now, Bishop declined to name any companies but said these entrants are “aggressively” building up market share. “In certain cases, they are offering to buy out existing provider contracts as a way to establish a beachhead more quickly,” he said.

DoorDash has moved rapidly into grocery delivery in recent months, establishing partnerships with retailers like BJ’s Wholesale Club and Albertsons, and forging new services like 30-minute delivery. In a sign of its drive to build market share, DoorDash lists Target’s grocery assortment on its marketplace in some areas despite not having an official partnership with that company.

Rapid delivery companies have also been expanding across the country as they target what has long been a missing element of online grocery: small, often impulse-driven orders. These services are “leveraging a gap in the market,” Bishop noted, but they also face challenging unit economics and high labor costs that make it a tricky business opportunity. 

"It's evident that this market is likely much smaller and more difficult to economically sustain than some may realize," he said.

In order to capitalize on this “instant needs” delivery demand, grocers are turning to third-party companies like Instacart and DoorDash, which have the digital platforms and at-the-ready labor force to quickly fill these orders from stores. Instacart is also starting to build dark stores for grocers that can fulfill convenience delivery orders.

Even with the new opportunities in delivery, Bishop said traditional grocers’ best bet is to focus on pickup service, which remains consumers’ preferred online grocery channel and offers the most attractive economics and branding opportunities. 

"Delivery is an important component of becoming an omnichannel grocer; however, pickup is where conventional grocers have the best path to improving their profitability when competing online while leveraging what makes them different from the EDLP [everyday low price] or low price leader in their market," he noted.

Ship-to-home sales, which include e-grocery services that ship via UPS and FedEx, declined more than 30% in March, to $1.4 billion, continuing a steep decline following a period of rapid adoption early in the pandemic.