The online grocery shopping trend is here to stay
A move by Amazon into fresh-grocery delivery will further upend the industry (Photograph by The Canadian Press)
A 2020 study by Dalhousie University’s Agri-Food Analytics Lab noted that the decision to use online grocery shopping often coincides with “major life events and transitions,” such as the birth of a child or caring for a sick relative. Well, you can now add global health crisis to that list.
Already growing quickly pre-Covid, e-commerce—and by extension online groceries—went super-nova as Canadians retreated to their homes. According to a 2021 study by payment company PayPal, online spending across Canada increased by more than $2 billion per month during the pandemic—from an average of $109 per household to $178.
Not surprisingly, grocery shopping was a key driver in this increased online activity. While only 19 per cent of Canadians engaged in online grocery shopping pre-pandemic, that number had jumped to 30 per cent just one month into the pandemic and to nearly half (49 per cent) after a full year of pandemic living.
According to research firm eMarketer, the emergence of the work-from-home phenomenon was one of the key drivers, with 27 per cent of remote workers and students ordering online, compared to just 19 per cent of the overall adult population. The report said that COVID’s recent Omicron wave also damaged the in-store experience and drove more people to adopt online as their default shopping method.
“The pandemic permanently changed people’s habits as it relates to delivery,” agrees Lola Kassim, general manager of Uber Eats in Canada. “Everyone picked up this habit of getting food delivery a few nights a week; maybe getting their groceries delivered once or twice a week. What we’re seeing is that even as the world starts moving again, people are keeping that new normal. For our business, this is really positive. This trend is here to stay.”
Uber launched online grocery shortly after becoming sole owner of the now seven-year-old Latin America delivery start-up Cornershop in 2020, initially making the service available in 19 cities throughout Latin America and Canada. The launch enabled customers in Toronto and Montreal to order from retail partners including Walmart, Metro, Costco, and Rexall through the Uber app.
Delivery has become an entrenched part of Uber’s business, accounting for more than half of its gross bookings in the fourth quarter of 2021. According to Kassim, nearly three million people around the world are now ordering grocery essentials on a monthly basis, while people who order something other than a prepared meal on Uber Eats tend to order twice as frequently as restaurant-only customers.
Kassim says that the company’s goal for the year ahead is for grocery and other new verticals to “significantly outpace” the growth of its core food delivery service. “With all e-commerce business, the level of growth that everyone saw [at] the beginning of the pandemic was unexpected,” she says. “The pandemic may have accelerated some people’s desire to look for these kinds of options for delivery at your fingertips.”
Canada is not alone when it comes to widespread adoption of e-commerce, of course, with a March report from Adobe finding that Americans will spend a record $1 trillion online this year. Just three categories—groceries, electronics and apparel—represented 41.8 per cent of all online shopping in 2021, with groceries alone representing 8.9 per cent of total e-commerce spending.
But, as the world slowly returns to normal and people return to in-person shopping, all signs suggest Canadians will continue shopping for groceries online.
While Canadian forecasts remain elusive, a March report from McKinsey focused on the European market said that online channels could account for anywhere from 18 per cent (conservative estimates) to 30 per cent (aggressive) of the food-at-home market by 2030.
“I think it’s going to stick because people have got used to the convenience.”
While online shopping was once largely the domain of young, urban, affluent families seeking the convenience of “large-basket delivery” to their home, McKinsey says it has expanded to include more top-up shopping missions and different demographics, including older generations.
“The online market is still in the process of taking shape,” says the study. “Currently, a multitude of propositions are partly overlapping, but the market’s future state will likely mirror existing offline propositions and replace or improve on them.”
Elsewhere, a 2021 study by Dalhousie predicted that the Canadian grocery industry “will look very different” from its pre-pandemic state once the pandemic recedes. Based on a survey of 10,024 Canadians, the Dalhousie study found that nearly one-quarter (22.2 per cent) of Canadians plan to buy online regularly, while ordering online for curbside/in-store pick-up is also gaining momentum.
That’s good news for the country’s major grocery players like Loblaw, Empire, Metro and Walmart, all of which are betting big on the future of online by investing hundreds of millions of dollars in growing and improving their e-commerce capabilities. Another report by Dalhousie pegged total investment in the online space in Canada at around $12 billion.
Toronto retail analyst Bruce Winder, author of the book Retail Before, During & After COVID-19, says that, while it’s not experiencing the same growth it did during the height of the pandemic, online will continue to play an important role in grocery’s future.
“It’s something that’s here to stay,” he says. “I think it’s going to stick because people have got used to the convenience.” Grocery shopping in the future might be a hybrid in-person/online experience, he says: The former used for larger stock-up trips, the latter used for fill-in items during the week.
And, while the pandemic did expose some weaknesses within the system, particularly in the early days when consumer demand far outstripped capacity and left companies scrambling to fill orders in a timely manner, the country’s major services have continued to improve. “They’re slowly starting to get the bugs out,” says Winder.
All indications are that grocery is poised to become a massive online battleground, and recent years have seen companies across the entire food service space scrambling to grab a piece of a market valued at $3.6 billion pre-pandemic.
They range from the traditional grocery giants to category upstarts like Uber and the “OG” of pure-play online grocery services, Instacart.
Instacart launched in the U.S. in 2012 and launched Canada in 2017 through a partnership with Loblaw Companies Ltd. Today, it counts national retailers Loblaws, Shoppers Drug Mart and Walmart, as well as smaller regional players, like Pusateri’s and Organic Garage, among its vendor partners. More recently, it has begun expanding beyond grocery, announcing a partnership with the arts and craft retailer Michael’s in January 2022.
Recent months have also seen the Canadian debut of so-called ultra-fast delivery services, like Tiggy and Ninja Delivery, which promise 10- to 15-minute delivery to consumers in urban markets. Their model uses so-called “dark stores,” which are essentially micro-fulfillment centres that stock a small number of typical grocery items such as meat, eggs and paper products.
“Our society demands instant gratification, and e-commerce is no different.”
Arguably the most intriguing subset of the online grocery space, ultra-fast delivery is already well established in many European markets and has been making inroads in the U.S., particularly in densely populated areas that lend themselves to the quick-delivery approach, such as New York City.
“If you build a product that people love, there’s always a way to make the economics work,” says Ninja Delivery’s co-founder and CEO Wesley Yue, who says his company straddles the line between convenience and grocery store. And, while some might question just why we need 10-minute grocery delivery, Yue points out that people were skeptical about shopping online for anything at one time.
Winder says these ultra-fast delivery companies are likely destined to be fringe players for the foreseeable future but could become more mainstream as online grocery shopping becomes entrenched consumer behaviour.
“Our society demands instant gratification, and e-commerce is no different,” he says. “What’s happened across all e-commerce is that everyone’s upping the ante now. We went from delivery in five days to two days, to same day and then, all of a sudden, a matter of hours.”
Companies and investors are also aggressively throwing money at the space. Ninja recently secured $2.8 million in funding that it will use to expand into 10 markets in Ontario and B.C. this year, while growing its product assortment from approximately 1,400 stock-keeping units (SKUs) to 2,500.
According to the financial data and software company PitchBook, surging consumer demand created a “wild west” situation in the space last year, with several start-ups securing “mega-rounds” of investment totalling $100 million or more. According to Bloomberg, rapid delivery companies around the world attracted US$9.7 billion in venture capital (VC) funding last year, even though many are increasingly resorting to deep discounting to attract and retain customers.
But it’s not just upstart companies that are investing heavily in the online space. In 2020, Empire, which counts the Sobeys, Longo’s and IGA grocery banners among its assets, launched Project Horizon—a three-year plan that specifically counted “Win Canadian grocery e-commerce” among its objectives.
Empire, which last year closed on its $357 million acquisition of the Toronto-area grocery chain Longo’s—and whose nearly 23-year-old online service Grocery Gateway was a pioneer in Canada’s online grocery space—has said that it expects to add $500 million in annual earnings to its bottom line as a result of its investment in the online space.
At the heart of that online strategy is Voilà, a service powered by technology developed by the British company Ocado, which also has partnerships with grocers around the world, including Kroger in the U.S., Morrisons in the United Kingdom and Coles in Australia. It uses vast customer fulfillment centres (CFCs) to warehouse items, with robot pickers allowing it to promise 99.6 per cent order accuracy and 98.6 per cent on-time delivery.
Voilà debuted in the GTA shortly after the pandemic hit in June 2020 and has been a success story in its early days. Empire announced the Ottawa launch of Voilà in April 2022, adding to its existing offerings throughout Ontario and Quebec. It also signalled its commitment to the online space earlier this year, announcing that it is building a new fulfillment centre in the Vancouver area—its fourth facility in British Columbia—promising online groceries will be available to B.C. residents by 2025.
Empire says that its fulfillment centres in Ontario, Quebec, Alberta and B.C. will enable it to reach 75 per cent of Canadian households and have access to 90 per cent of grocery e-commerce spend. “We strongly believe that central fulfillment is the most profitable solution at scale and that Voilà will be the top ecommerce grocery retailer in Canada,” said the company.
Walmart Canada also announced a $3.5 billion investment in its operations that includes beefing up its e-commerce capabilities. That includes a new 430,000 square-foot delivery hub set to open just outside Calgary in September, which it says will expand its two-day delivery capabilities to 61 per cent of Canadians.
The largest grocer in the U.S., Walmart has the capability to completely upend the grocery category in Canada, says Winder. “They’re definitely looking at grocery as a must-win category in Canada.” And that’s to say nothing of the 800-pound gorilla of online retail: Amazon. While the e-commerce behemoth has mostly restricted its grocery activity in Canada to dry goods, Winder says that any move into fresh by the e-commerce giant has the potential to be a “game-changer” for the category.
According to a 2021 report by Edge Retail Insight (the market research arm of e-commerce consultancy Edge by Ascential), Amazon is expected to nearly double its online food and beverage sales globally over the next five years. Amazon’s edible grocery sales are expected to grow by 13 per cent a year through 2026, reaching $26.7 billion. That’s second only to the Chinese online giant Alibaba at $34.2 billion.
And while supermarkets and neighbourhood stores will remain the largest channel in the sector, accounting for a projected 40.3 per cent of chain retail global category sales in 2021, their share is expected to decline to 39.2 per cent within the next four years, as channels such as e-commerce and discount gain momentum.
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