A new forecast predicts that U.S. online grocers have reason to be optimistic about what the next five years hold in store.
U.S. online grocery sales are forecast to grow at a compound average growth rate (CAGR) of 11.7% during the next five years, increasing online’s share of overall grocery spending from 11.2% in 2022 to 13.6% in 2027, according to the 2023 Brick Meets Click/Mercatus 5-Year Grocery Sales Forecast,
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The forecast cites factors including persistent price inflation, ongoing concerns about illnesses such as COVID-19 and maturation of the online grocery segment. Specifically, persistent grocery-related inflation is expected to continue at a five-year CAGR of 4.8%, starting from 2022’s year-over-year rate of 10.9% and tapering down to 2.8% by 2027.
Brick Meets Click/Mercatus advises that the impact of this ongoing price inflation is not evenly distributed across grocery channels, accounting for three-quarters of the projected gains for in-store sales but accounts for less than half of the gains expected for online sales.
Total grocery sales, i.e., combined online and in-store sales, excluding the impact of price inflation, are projected to grow at a 2.5% CAGR over the next 5 years, driven by an approximately 1.7% increase in household spending and 0.8% gain in the number of households. An aging population and declining household size are weighing down both measures.
In terms of online grocery segments, pickup sales are expected to grow at a five-year CAGR of 13.6%, compared to 10.8% for delivery and 8% for ship-to-Home. Pickup’s share of online grocery sales is forecast to expand from 45.4% in 2022 to 50.3% by 2027, at the expense of the other two segments.
The forecast anticipates spending per order and order frequency rates will both increase, but to varying degrees across these three online grocery segments. Average order values (AOVs) over the next five years are projected to grow at a CAGR between 4.2% and 6.4% (inclusive of inflation), with ship-to-home coming in at the lower end, delivery in the mid-range, and pickup on the higher end.
At the same time, order frequency among active users is anticipated to increase from 1.9% to 3.3%, again with ship-to-home at the lower end, delivery in the mid-range, and pickup on the higher end.
“This forecast reflects that the projected growth of online grocery sales is slowing after the significant gains of the last two-plus years,” said David Bishop, partner at Brick Meets Click. “Now more than ever, grocers need a grounded view of the future market while simultaneously strengthening the customer experience to protect their base business and improving the profitability of this higher cost-to-serve mode of shopping.”
“When it comes to achieving online channel profitability, my advice to grocery retailers is to work smarter, not harder, and focus on the fundamentals,” said Sylvain Perrier, president and CEO, Mercatus. “Know who your customers are and the value you provide them. Use that insight to deliver a more personalized brand experience that is consistent and frictionless. Take steps to improve margins using simple tactics like offering lower cost Pickup services, engaging with multiple third-party delivery providers, and leveraging first-party retail media to offset the cost to serve online customers.”