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Research - MARCH 5, 2018

Online grocery sales to reach $100b by 2024

by Andrea Zander

The U.S. currently has approximately 3.6 billion cubic feet of food-commodity cold storage capacity covering 180 million square feet of industrial space, and 2 billion cubic feet of similar capacity covering 300 million square feet of retail space, according to CBRE Research. States with the most food-commodity industrial cold storage space tend to be near major food producers and population centers, with California, Washington and Florida being the largest, according to the USDA.

While online grocery sales represented only $19 billion or about 3 percent of total grocery sales in 2017, they’re poised to reach $100 billion (13 percent) by 2024, according to a study by Food Marketing Institute conducted by Neilsen. Depending on the property type used to fulfill online grocery sales, up to 35 million square feet of cold storage for food distribution could be shifted from retail to industrial properties.

 

State

Industrial cold storage cubic feet (millions)

Industrial cold storage footprint* (millions square feet)

Population (millions)

Cold storage cubic feet per capita

California 396.5 16.5 39.5 10.0
Washington 271.3 11.3 7.4 36.6
Florida 259.4 10.8 21.0 12.4
Texas 231.4 9.6 28.3 8.2
Wisconsin 228.1 9.5 5.8 39.4
Pennsylvania 213.5 8.9 12.8 16.7
Illinois 188.0 7.8 12.8 14.7
Georgia 183.5 7.6 10.4 17.6
Oregon 139.6 5.8 4.1 33.7
New Jersey 136.7 5.7 9.0 15.2

 

*Square feet estimated from USDA cubic feet using a height of 24 feet and 85 percent footprint efficiency.

Source: USDA — Capacity of Refrigerated Warehouses, U.S. Census; CBRE Research

 

And Amazon is leading the charge, way above its competitor Walmart. In 2017, Amazon captured an industry-leading 18 percent of online food and beverage sales in the U.S. Amazon’s share is double the 9 percent held by second-place Walmart in the e-tail grocery market, reveals market research firm Packaged Facts in the new report Online Grocery Shopping in the U.S.: Food Industry Disruptor Series.

Amazon’s most popular grocery category is beverages, followed by No. 2 coffee, No. 3 snack foods, No. 4 breakfast foods and No. 5 candy. Starting with these non-perishables consumers get the feel for online ordering and delivery and gain confidence to include dairy, meat, frozen foods and fruits and vegetables in their next order, according to Forbes.

Recently, Amazon announced plans to do free two-hour deliveries to its Prime members in four cities: Austin, Cincinnati, Dallas and Virginia Beach.

In the last three months of 2017, Amazon saw its profit more than double to reach a record of $1.9 billion. Amazon’s revenue, which includes sales from Whole Foods, jumped 38 percent year-over-year. Its North America revenue jumped 42 percent to $37 billion, while international sales grew 29 percent to $18 billion.

Physical stores revenue, which primarily comes from Whole Foods, came in at $4.5 billion.

The industry has already begun to see four of Amazon’s competitors capitalize on some form of this strategy:

  • In some ways, the Whole Foods acquisition by Amazon has helped Instacart competitor by creating an immediate threat to brick-and-mortar retailers that incentivizes them to develop online sales. One of Instacart’s strengths is its extensive partnership portfolio with traditional grocers, both local and national. The company has partnered with over 160 different retailers across the U.S. Since the acquisition many different retailers have chosen to expand their partnership with delivery service Instacart rather than develop their own delivery infrastructure.
  • To reduce online grocery delivery costs, Walmart is using its vast network of stores to offer free pickup of groceries at select Walmart locations for groceries ordered online. As of September 2017, Walmart offers online grocery pickup at 1,000 different Walmart stores around the United States, with 400 new pickup points opened in 2017 alone. It’s an effort to help consumers save both money and time.
  • Using existing stores for infrastructure is also a strategy of Peapod, a wholly owned subsidiary of Ahold Delhaize. Peapod is able to make use of unused space in Ahold’s Stop & Shop stores around the country as distribution centers to improve last-mile delivery efficiency. Peapod, as the only major competitor with a quarter century of online grocery experience, also relies on its extensive experience as an online grocer to efficiently deliver products to its customers. Despite this longevity, the company continues to focus on new options for its customers by working with major food producers like General Mills and Campbell Soup to produce meal-kit deals and collaborating with other outside partners to develop meal plans and offer recipes.
  • FreshDirect, as one of the most successful grocery-specific online suppliers, it has excelled at developing its distribution and delivery of perishable goods in the New York area, particularly for organic and locally grown foods. In fact, one could argue that the company’s long-term success lies in its curation of fresh foods to the point that its customers actually trust the company to select the proper produce and meat for their orders. FreshDirect has managed to eliminate one of the main stumbling blocks of online groceries, which is the “look and feel” component many consumers still want when selecting produce and meats.

 

And overall U.S. e-commerce retail sales for the fourth quarter of 2017 totaled $119 billion, an increase of 3.2 percent compared with the third quarter, the Census Bureau reported on Feb. 16.

Total retail sales for the fourth quarter of 2017 were estimated at $1.3 trillion, an increase of 2.7 percent (±0.4 percent) from the third quarter of 2017. The fourth quarter 2017 e-commerce estimate increased 16.9 percent (±1.1 percent) from the fourth quarter of 2016, while total retail sales increased 5.7 percent (±0.4 percent) in the same period. E-commerce sales in the fourth quarter of 2017 accounted for 9.1 percent of total sales.

 

 

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