Zainab Ali started using an online grocery delivery service during the pandemic and quickly became a fan. She got used to the convenience, avoiding parking hassles and no longer lugging heavy bags. When she moved to South Philadelphia from Los Angeles last June, she quickly signed up for Whole Food Market’s delivery service.
“I like the quality of their produce, meat and fish,” said Ali, 37, who spends about $70 to $100 each week including fees and tips for the driver. She has rarely had a problem with the quality of the food or missing items in her delivery.
Ali is among a growing group of online grocery shoppers. U.S. online grocery sales are projected to reach $36.3 billion in revenue this year, up from $20.1 in 2019, before the pandemic, according to market research analyst IBISWorld.
Online grocery sales are projected to grow 3.6% this year, even as many people are more comfortable returning to stores. The added convenience of online grocery shopping will continue to attract new customers, the research found.
Since rolling out online shopping in Pa. and N.J. in the fall of 2017, Wegmans has seen more than 600% growth, said Erica Tickle, Wegmans vice president of e-commerce. About 10% of their customers buy groceries online and the store uses a combination of Instacart shoppers and Wegmans’ employees to prepare their customers’ online orders.
What online grocery shopping costs
While convenient for customers, online shopping is expensive for grocers who need to cover the costs of an employee (or contractor) choosing, packing and delivering the goods. A typical North American grocer earns about $4 on a $100 grocery basket when the customer is walking the aisles in the store, according to McKinsey & Company, a management consulting firm.
By contrast, when the grocer has to manually pick items from the store and deliver them to the customer, they lose about $13 on a $100 grocery order. To recoup those losses, the grocer must raise costs, add fees, or both. Fees vary among stores and services but include some combination of a membership fee, service charge and delivery fee. Grocery costs are typically about 15% more online than in-store.
Some services require a membership which charges a flat rate up front, but may lower fees. For example, while Whole Foods Markets has no minimum order requirement for delivery, the customer must have a Prime membership which costs either $139 per year or $14.99 per month, plus a $9.95 service fee per order. Additional fees apply on rush options. Without a membership, most local grocers require a $35 order minimum for delivery.
As online shopping soared in popularity during the pandemic, many grocers — including Wegmans, GIANT, Acme, Sprouts and Shop Rite — partnered with Instacart to employ gig workers who can manage the logistics of their delivery and pickup services.
Instacart, founded in 2012, offers delivery starting at $3.99 for same-day orders over $35. For members who pay $99 for a one-time annual fee for unlimited deliveries, there is an additional 4% Instacart service fee per transaction. That fee increases to 7% per transaction for non-members and tips are optional.
GIANT shoppers can choose GIANT Direct through the store’s website or app, and GIANT employees will shop and deliver the groceries for a $7.95 delivery fee on a $60 minimum order. Or, customers can place the order through Instacart and have Instacart employees shop and deliver from a GIANT store.
Online shopping fees aren’t the only ways grocers are passing costs onto consumers. Last year, Philadelphia prohibited single-use plastic bags and New Jersey prohibited both single-use plastic bags and paper bags. While many Philadelphia grocers are using paper bags for their deliveries, N.J. stores are often providing reusable bags. Grocers are passing those costs on to consumers — both online and in-store — who are often left with mounting piles of paper or reusable bags.
Wegmans, for example, charges customers five cents for each paper bag they pack for their Philadelphia customers and 35 cents for each reusable bag packed in NJ. On March 6, GIANT began charging 15 cents for paper bags.
Despite the fees, Ali still finds she saves money because she isn’t impulse buying like she typically would in the store.
“You succumb to the marketing and the sales and start picking up things you don’t actually need,” she said about shopping in-store. “With delivery I stay focused on what I want.”
Who’s shopping online and what are they buying?
There is no “typical” online grocery shopper since people of all ages and backgrounds use the service, but McKinsey research shows that Gen Xers are among the most avid fans, with 46% of those surveyed identifying in that age range.
Jody Applebaum lives in Queen Village, but buys groceries online for her 98-year-old mother who lives in Union, N.J., and isn’t able to shop for herself. Though it’s a necessity Applebaum relies on, she finds the service frustrating at times.
“Very often, what I want to buy doesn’t come up on the website, regardless of how I phrase things,” said Applebaum, 65, who lives in Queen Village. “For some time I couldn’t get celery because it wasn’t coming up. It was a mistake on the website and there was nobody I could call for help. It’s not always user friendly.”
Recognizing these challenges, grocers are continually monitoring order accuracy, wait times, and product quality.
“As a company known for its produce, our GIANT Direct team members receive training to ensure the selection process meets our expectations,” said Daren Russ, vice president of omni-channel operations at GIANT.
While Applebaum buys all of her mother’s grocery items online and has them delivered, some consumers prefer to choose items like perishables themselves. Non-perishable items, including bakery products, canned foods, pasta, condiments and cereals, make up 35% of online grocery sales, according to McKinsey.
Next come fresh and frozen meat, fish and seafood at close to 14%; fruits and vegetables at 12.5%; and the remaining categories: non-food items — paper products and cleaning supplies; beverages; drug and healthcare items — eggs and dairy products, and frozen foods all under 10%.
While it seems likely that online grocery shopping is here to stay, it’s not for everyone.
Ashley Primis, who lives in Queen Village, was a loyal Fresh Direct online grocery shopper for 10 years until the company left the area last year. She’s tried different services since then, but none stack up. Unlike Instacart, which shops in particular brick-and-mortar stores, Fresh Direct is an online-only operation that ships groceries directly from its own warehouse.
Other grocery stores are struggling to capture their success, according to Primis, 43.
“The shoppers are hit or miss,” she said. “Some pick bad fruit and some pick the wrong thing. After receiving my order, I’ve spent time asking for a refund or having to go back out at the last minute to get what they didn’t have. And it’s so expensive. I wind up getting so frustrated.”