Grocery retailers say the biggest challenge they face is low profitability for their online businesses
Wynshop (formerly ThryveAI), the leader in digital commerce for local store-based retailers, announced findings from its State of Digital Grocery: Growth at the Cost of Profitability study, conducted in partnership with research and insights firm, Incisiv. The biggest challenge facing grocery retailers is the low profitability of their online business, according to the study, with 86% of grocers indicating that they are dissatisfied with their online profitability.
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The rapid growth of digital grocery shopping in 2020 was tremendous for revenue (+9.5%), but that has not translated into profit, however, due to losses on online orders (-70%). In addition, most retailers who outsourced to third-party fulfillment platforms like Instacart and Rosie worry about losing touch with their shoppers (84%) and that these providers will become direct competitors in the future (81%).
“Given the spike in digital grocery shopping since the pandemic, it’s shocking that the average gross margin for digital orders was just 9% in 2020, causing many grocers to lose money on their online orders,” said Gaurav Pant, Chief Insights Officer at Incisiv. “Our latest research with Wynshop shows that the current model is not sustainable for grocery retailers. If the existing sales and profitability trends continue, grocery retailers will lose $14 million in gross margin for every billion dollars of sales by 2025.”
Digital Operations Must Be More Efficient
Third-party platforms like Instacart transacted almost as much business as grocers did on their own in 2020. The State of Digital Grocery: Growth at the Cost of Profitability study summarizes the inefficiencies retailers experience with digital operations and explains why grocery retailers need to focus on operational levers, upgrade their technology, and overcome their dependency on third-party platforms to plug the profit leak.
Amongst other key findings from the study, U.S. grocery retailers reported that:
- 59% of their third-party delivery partnerships are unprofitable
- 92% are dissatisfied with their online order picking efficiency
- 86% are dissatisfied with their labor utilization
- 72% lack an accurate view of their store inventory
“For grocery retailers to continue to grow their digital businesses in a way that doesn’t come at the cost of profitability, they must improve their operational efficiencies by re-imagining their processes,” said Neil Moses, CEO of Wynshop. “We hope the research we uncovered with Incisiv empowers retailers to prioritize their online businesses and create a roadmap that includes owning their brand experience and shopper data, deploying technology to improve fulfillment, picking efficiency, last-mile delivery and other critical areas that will help lead them to higher profit margins.”
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