Internet grocery shopping is here to stay—but it costs customers and merchants more 2023


During the epidemic, Zainab Ali began utilizing an online food delivery service and instantly became a devotee. She became accustomed to the convenience, avoiding parking complications and no longer carrying hefty luggage. In June of last year, she relocated from Los Angeles to South Philadelphia and immediately signed up for Whole Foods Market’s delivery service.

“I appreciate the quality of their fruit, meat, and fish,” said Ali, 37, who spends between $70 and $100 every week, including transportation costs and gratuities. She has seldom seen issues with food quality or missing things in her deliveries.

Ali is among an increasing number of people who purchase groceries online. IBISWorld, a business research firm, forecasts that online food purchases in the United States would generate $36.3 billion this year, up from $20.1 billion in 2019, before the epidemic.

It is anticipated that online grocery sales would increase by 3.6% this year, despite the fact that more customers are returning to shops. According to the report, the increased convenience of online grocery shopping will continue to draw new clients.

Since launching online shopping in Pennsylvania and New Jersey in the fall of 2017, Wegmans has experienced over 600% growth, according to Erica Tickle, vice president of e-commerce. Around 10% of its customers purchase groceries online, and the supermarket utilizes a combination of Instacart shoppers and Wegmans personnel to fulfill these orders.

Cost of online grocery shopping

Online grocery shopping is costly for grocers since they must cover the costs of an employee (or contractor) selecting, packaging, and delivering the products. McKinsey & Company, a management consulting organization, estimates that a typical North American supermarket makes around $4 on a $100 shopping basket while the consumer is perusing the aisles.

When the grocer must physically choose things from the store and deliver them to the consumer, they incur a loss of around $13 on a $100 grocery transaction. To recover these losses, the grocer must increase prices, impose new levies, or do both. Membership fees, service fees, and delivery fees vary per business and service but often include a membership fee, service cost, and delivery fee. Online grocery prices are around 15% more than in-store prices.

Several services need memberships that carry a one-time, fixed price, but may reduce subsequent payments. For instance, Whole Foods Markets does not impose a minimum order for delivery, but customers must have a Prime membership, which costs either $139 per year or $14.99 per month, plus a $9.95 service charge for every order. There are additional expenses for expedited alternatives. Most local stores require a $35 purchase minimum for delivery without a membership.

Several supermarkets, including Wegmans, GIANT, Acme, Sprouts, and Shop Rite, teamed with Instacart to engage gig workers who can manage the logistics of their delivery and pickup services as online shopping grew in popularity during the epidemic.

Instacart, which was started in 2012, offers same-day delivery beginning at $3.99 for orders over $35. For subscribers who pay $99 annually for unlimited deliveries, there is an extra 4% transaction fee charged by Instacart. This transaction cost climbs to 7% for non-members, and gratuities are optional.

Customers can select GIANT Direct through the store’s website or app, and for a $7.95 delivery fee and a $60 minimum purchase, GIANT staff will shop for and deliver the items. Instead, clients can submit orders via Instacart and have Instacart personnel purchase and deliver from a GIANT store.

Online shopping fees are not the only means through which retailers pass on expenses to customers. Philadelphia banned single-use plastic bags a year ago, while New Jersey banned both single-use plastic and paper bags. While many Philadelphia grocery stores use paper bags for delivery, several New Jersey businesses provide reusable bags. Online and in-store grocers are passing these expenses on to consumers, who are frequently left with stacks of paper or reusable bags.

Wegmans, for instance, charges five cents for each paper bag packed for Philadelphia customers and 35 cents for each reusable bag packed for New Jersey customers. On March 6, GIANT instituted a 15-cent charge for paper bags.

Ali discovers that, despite the fees, she still saves money since she no longer makes impulse purchases at the store.

“You succumb to the marketing and discounts and start purchasing items you don’t need,” she said of in-store shopping. “Delivery allows me to maintain my concentration on what I want.”

Who shops online and what do they purchase?

As people of different ages and backgrounds utilize the service, there is no “typical” online grocery shopper. However, McKinsey research indicates that Gen Xers are among the most ardent supporters, with 46% of those polled identifying as belonging to this age group.

Jody Applebaum, who resides in Queen Village, purchases groceries online for her 98-year-old mother in Union, New Jersey, who cannot shop for herself. While she relies on it, Applebaum occasionally finds the service annoying.

“Most frequently, what I want to purchase does not appear on the internet, regardless of how I search,” said Applebaum, 65, of Queen Village. “For some time, I was unable to obtain celery since it was not growing. There was an error on the website, and I was unable to contact anyone for assistance. Not usually is it user-friendly.”

Grocers are constantly analyzing order accuracy, wait times, and product quality in response to these difficulties.

“As a firm recognized for its produce, our GIANT Direct team members undergo training to guarantee the selection process matches our standards,” said Daren Russ, vice president of GIANT’s omnichannel operations.

While Applebaum purchases and has delivered all of her mother’s groceries online, some clients prefer to select perishables personally. According to McKinsey, non-perishable commodities such as bakery products, canned foods, pasta, sauces, and cereals account for 35% of online grocery purchases.

Following in line is fresh and frozen meat, fish, and shellfish at close to 14%, followed by fruits and vegetables at 12.5%, and the remaining categories: non-food goods — paper products and cleaning supplies; drinks; medication and healthcare items — eggs and dairy products; and frozen foods, all below 10%.

Although online grocery shopping appears to be here to stay, it is not for everyone.

Ashley Primis, a resident of Queen Village, was a devoted Fresh Direct online grocery shopper for a decade until the firm departed the region last year. Since then, she has tried several services, but none measure up. Fresh Direct is an online-only company that sends goods straight from its own warehouse, in contrast to Instacart, which purchases at specific physical locations.

Other grocery businesses, according to Primis, 43, are striving to replicate their success.

She stated, “The shoppers are hit or miss.” “Some choose rotten fruit and others choose the incorrect thing. After getting my order, I wasted time requesting a refund or had to return to the store at the last minute to acquire an item they were out of. And it’s so costly. I eventually become so furious.”