Dive Brief:

• Online grocery sales totaled $8.5 billion in January, down 8% from the same period last year as delivery and ship-to-home sales plummeted, according to the latest monthly e-commerce survey from Brick Meets Click and Mercatus.
• Pickup was the only e-commerce channel that posted gains, with sales up almost 2% to around $4 billion.
• The results amount to a post-holiday season hangover for the e-commerce channel as rising COVID cases did not translate into higher returns.

Dive Insight:

Despite the omicron variant surge that lasted throughout January, online grocery sales decelerated compared to last year and fell $400 million from the prior month. This is due to a few factors, said David Bishop, partner at Brick Meets Click, including a lack of economic stimulus dollars, labor disruption and, most notably, the fact that millions of Americans are now vaccinated against the virus.

“Increases in COVID case rates no longer have the same effect on buying patterns due in part to progress with vaccinations,” Bishop said in a statement. “The loss of financial assistance is another factor since the economic impact payments and child tax credits that many households received in 2021 have ceased. And, if that’s not enough, many retailers altered store operations in January to address the labor shortages associated with COVID-related absences and a tighter labor market.”

Rising inflation may also have had an impact as delivery and ship-to-home orders, which often carry fees of around $10 or more, saw sales decline 7% and 30%, respectively, from a year ago.

Among the most loyal online shoppers, which Brick Meets Click refers to as monthly active users, delivery’s share increased less than 1 percentage point, to 35%, while ship-to-home’s share of sales dropped 5 points to 18%, which is more than 20 points lower than its pre-pandemic standing, reflecting the rising availability of store-based services.

Pickup service, which carries lower fees, in contrast grew its share of sales nearly 5 points to 47% as order frequency and the number of monthly active users buying through the service increased, according to the report. 

Grocers have leaned into the success of pickup. Kroger dropped its fee for the service early in the pandemic and continues to waive it for orders over $35. Regional grocers like Rouses Markets have begun offering their own branded offering, while others like SpartanNash and Lowes Foods promote a high level of customer service.

Still, retailers are trying to squeeze higher margins out of delivery service and also boost demand. Several chains, like Publix and Kroger, now offer 30-minute delivery on a limited assortment of goods through Instacart. Companies are also carving out their own delivery services as an alternative to ordering through marketplaces like DoorDash and Instacart.

The slow start to the year may not inspire confidence among e-commerce managers. Both the number of households that bought groceries online and the weighted average order value across pickup, ship-to-home and delivery were flat in January. Grocers are also competing closely with mass merchandisers like Walmart and Costco, with more shoppers indicating an intent to purchase again within the same month from mass players.

Other research anticipates online sales will regain momentum this year and continue to increase over the next several years. Coresight Research estimates online grocery sales growth will nearly double in 2022 compared to last year while overall grocery sales growth will slow from 4.5% last year to 3.3% this year.