WLTW

Willis Towers Watson Public Limited Company

231.56
USD
-1.19%
231.56
USD
-1.19%
197.63 271.87
52 weeks
52 weeks

Mkt Cap 28.85B

Shares Out 124.61M

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Online Grocery Delivery Continues Expansion

Before the days of the 1990’s dot com boom, grocery shopping almost exclusively meant going to a supermarket, picking the items you needed off the shelves, and heading to the checkout. Since then, however, this has become a minority activity in certain circles, where online grocery delivery services have taken dominance. Although the transition to digital shopping began before the pandemic, COVID-19 certainly accelerated the process. So, where do we stand now? Let’s take a look at the leading online grocery delivery services, and general trends in the space. How things stand In 2020, online grocery shopping sales in the U.S. hit $95.8 billion; a figure projected to more than double by 2024. Although this is a lot more than where things were a few years back, the online segment still pales in comparison to what people are buying from stores. Online grocery deliveries made up just 13% of total U.S. grocery spending in 2021. This figure includes pickups as well as deliveries, alongside third-party fulfillment services (e.g., Instacart). One of the biggest trends in recent years has been the growing popularity of super-fast grocery deliveries, sometimes within hours of placing an order. Convenience is king, which has given an advantage to newcomers like Amazon Fresh and Instacart. However, there are some areas where digital-first startups won’t fare so well. In-store pickup is currently the preferred online grocery option among consumers, meaning that companies without physical shops may struggle to gain traction. As for potential issues, supply chain problems and rising costs of living could affect the industry if the availability of grocery items is lower and consumers have less to spend on the luxury of deliveries. However, this is still just speculation for the most part. Now we’ve had a macro view of the industry, let’s zoom in on individual firms broken down by market share. Walmart Walmart (WMT) is the top player, receiving more sales than any other company in the space. The supermarket giant made up 47% of the online grocery deliveries market share in 2021. It also achieved ecommerce sales of $43 billion. However, the grocery store isn’t showing any signs of getting comfortable. It’s planning to introduce micro-fulfillment centers to be able to keep up with demand and help it to keep up with future competitors like Amazon. Combined with incredible brand recognition and shipping to all 50 states, this might just be enough to keep it on top. Instacart Just behind Walmart is Instacart, which has 45% market share. Instacart was launched with a novel proposition: To give its users a dedicated personal shopper to pick up their groceries for them. Although it was launched back in 2012, the service surged in popularity recently. It’s gone through a massive expansion recently and covers cities in most states, but doesn't yet deliver to the entire country. The fact that a company just one decade old has been able to get so close to Walmart’s market share shows the power of digital. However, the two companies have partnered up, so they’re not direct competitors. Instacart also has partnerships with Kroger, Target, and Albertsons. As a private company, the information on its profitability is limited, but a Forbes estimation from mid-2020 suggested Instacart was grossing more than $3 for each order. The company also confidentially filed for an IPO in May 2022, yet slashed its valuation due in part to market turbulence. Shipt Shipt comes in at third place, but it’s way behind Walmart and Instacart, with a market share of just 6%. The service is owned by Target (TGT), and its unique selling point is personalized deliveries and a focus on quality, partly as a reaction against the recent shift toward ultra-fast deliveries. It currently covers 5,000 U.S. cities, but isn’t available absolutely everywhere. This is an approach that seems backed by research — consumers say they place more importance on delivery fees, prices of products, and availability than on delivery speed. Shipt isn’t currently profitable (although Target doesn’t disclose its figures), but sales are growing. Peapod Then we have Peapod, which makes up a tiny 1% online grocery market share. Peapod solely offers online grocery delivery services, and it’s been going since 1989 — making it one of the oldest such services in the country. However, it now seems to be dropping off, with a lack of recent innovations. It’s also limited to the East Coast of the U.S. after abandoning operations in the Midwest. FreshDirect Fresh Direct is tied in fourth place with Peapod with a market share of 1%. It focuses solely on metropolitan areas: New York, Philadelphia, Connecticut, Delaware, and New Jersey. This is likely part of the reason why its market share pales in comparison to bigger services. FreshDirect declined to provide information on its profitability — although it claimed revenue was growing. The firm was acquired by Ahold Delhaize (AD) in 2021. A differentiating factor of online-only FreshDirect is that it focuses on food that’s free of preservatives, additives, and artificial flavorings — showing that there’s room to succeed if you focus on a specific niche. Amazon Fresh Then there’s Amazon Fresh, which has carved out a niche by offering super-fast deliveries (there’s a two-hour option) and giving consumers the convenience of ordering groceries on an app they already use to buy just about everything else. Currently, it’s only available in two dozen of the biggest U.S. cities, but this could change in the future if it continues to see success. Amazon Fresh isn’t mentioned in the revenue breakdown above since Amazon (AMZN) doesn’t include a separate segment for Amazon Fresh. However, a survey of U.S. consumers found that Amazon Fresh had the third-best brand awareness of all online grocery delivery brands, coming in behind Walmart but ahead of Instacart, HelloFresh, Shipt, and Peapod. Amazon is also opening physical stores across the country which could help the service expand. Only the strongest will survive Over the last few years, the online grocery market has become all about speed and convenience, and the growing popularity of services like Instacart and Amazon Fresh are testament to that. Companies like Amazon, Target, and Walmart will make more appealing options for most investors since they’re exposed to multiple segments and not just the highly volatile market of online deliveries. If Instacart goes public, it could make for a potentially profitable investment given the company’s quick ascent to dominance — and since further information on its profitability would then be released, it’s worth keeping an eye on. Meanwhile, most will likely want to stay away from FreshDirect and Peapod due to mounting uncertainties. There’s still plenty of room, however, for innovative online grocery delivery services to launch, so it’s a space to watch. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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