U.S. grocery e-commerce sales grew 26.4% annually from 2019 to 2023, and long-term growth prospects remain bright despite inflation headwinds, according to a new report from Agriculture Canada.
“Expansion has slowed considerably under the pressure of food inflation and U.S. consumers cutting their grocery bills,” the report said. “How well online grocery players can convince consumers to make the money for time trade-off will determine the rate of uptake for the channel overall.”
Like the traditional grocery business, the report said e-commerce sales are highly consolidated, with Walmart at the leader position.
“Amazon is Walmart's most direct competition in grocery e-commerce but is well behind Walmart in both online and offline grocery, lagging in perishables and staple foods,” the report said. However, Amazon has the advantage in warehouses and logistics network that allows it to stock more SKUs and shelf-stable categories where variety matters most, such as drinks and snacks.
Large grocery retailers expanded their online food and drink products ordering options in response to overwhelming demand during the pandemic, according to the report.
“Walmart has a massive presence in outlets that put in-store pick-up or quick delivery within range of most of the U.S. population,” the report said.
Target audience
High-income, time-sensitive families with young children are the most likely U.S. consumers to use grocery e-commerce. “These tend to be millennials but with Gen Z beginning to start families, they will make up an ever-larger share of the consumer pool,” the report said, adding that expansion to new demographics will be key for the segment, as declining fertility rates and income inequality will limit the number of wealthier families in the future.
Grocery e-commerce growth is driving market share of total grocery retail sales, almost doubling to 11.8% of total grocery sales in 2023, according to the report.
“Within grocery e-commerce, double-digit sales growth of every packaged food and drink category exceeded that of store-based retailers over 2019-23,” the report said. “In general, categories that do well online are non-perishable with a huge variety, while fresh/perishable foods face either regulatory hurdles or consumer concerns about freshness.”
Grocery e-commerce retailers are highly consolidated in the U.S. with 61.8% of online grocery sales from the top five retailers in 2023. Walmart is the largest grocery e-commerce retailer, reaching online sales of $76.9 billion with a market share of 37.2% in 2023, the report said. Target is the second largest, with sales of $18.1 billion and a market share of 8.7%. Kroger is the third-biggest grocery retailer with sales of $15.5 billion and a market share of 7.5%.