When the COVID-19 forced everyone to huddle indoors, digital grocery sales soared to record-breaking heights. In 2020, the year-over-year (YoY) increase of buyers purchasing groceries online hit a whopping 42.6%, according to Insider Intelligence.
And similar to other e-commerce trends that gradually shifted as the effects of the pandemic waned, the popularity of ordering groceries online dipped for a time when shoppers returned to the stores.
However, like so many changes that took place during the tumult of the past several years—think remote working and telehealth—ordering groceries online seems to be one new habit that’s destined to stick around.
Here, we’ll take a look at a recent report highlighting key trends in the digital grocery sector and how one of the leaders—Kroger—has been integrating automation to support its growth.
Report: Grocery Doppio
On its website, Grocery Doppio describes the rapid shift in the grocery industry that has taken place over the past few years: “Grocers have experienced a generational shift in eCommerce adoption within a condensed period of time, giving rise to both new growth opportunities and unfamiliar threats.”
In such a rapidly evolving environment, the company says it serves as “an independent source of insights and inspiration designed to help grocers jumpstart, accelerate and sustain growth in this dynamic new environment.”
In its new report released on January 9, 2022 Performance Scorecard: State of Digital Grocery, Grocery Doppio noted that although the “digital sales contribution to overall grocery sales” dipped until May 2022 with the return of shoppers to stores, they started increasing in June 2022, hitting “the highest contribution of the year in November 2022” at 17.1%.
For the comprehensive report:
1.7 million U.S. shopper orders were analyzed
23,910 U.S. shoppers were surveyed
2,390 U.S. grocery executives were surveyed
Key trends uncovered for 2022 included:
While down from all-time COVID highs, digital sales stabilized.
Inflation dented shopper spend, as shoppers adjusted their baskets.
Third party apps lost market share to grocery owned channels.
Grocers still have not achieved digital profitability.
As far as that last trend, the report noted one factor that had a big impact: “unavailable” or “unsubstituted” items, which led to $23 billion in lost digital sales.
Offering its outlook for 2023, Grocery Doppio says:
Grocers are bracing for macroeconomic headwinds—citing “increasing inflation,” “rising workforce costs,” and “uncertain product availability” as the top three challenges.
But, digital sales will continue to grow—predicting that “87 percent of shoppers will use digital ordering to make grocery purchases in 2023.”
Grocers will own more of their digital experience, eCommerce will give way to omnichannel—noting that “63% of grocery retailers are actively evaluating or implementing building an in-house media monetization platform.”
When it comes to technology, Grocery Doppio says that in 2023:
Overall technology budgets will shrink. But spending on digital will continue—noting that 23 percent of all grocers “will increase their technology spend on digital in 2023 compared to 2022.”
Store technology will be continually upgraded—saying that 81 percent of grocery executives “believe upgrading their store technology is critical to supporting their digital growth.”
Improving the efficiency of digital operations is the top priority for 2023—with the top three areas of digital investment being “fulfillment efficiency,” “digital basket size nurturing,” and “improving system-wide inventory accuracy.”
Grocers will battle test robotics and AI—noting that one in five will “test and deploy AI Decision Capabilities” and one in seven will “test and deploy Robotics for Fulfillment.”
Kroger: Ramping Up Automation
Describing Kroger as “an early investor in the digital space,” Insider Intelligence says this factor gives the company “a huge competitive edge over other legacy grocers,” and additionally notes that Kroger continues “to innovate through AI-powered fulfillment facilities.”
Perhaps another factor giving the company that competitive edge is a belief that its digital grocery arm will eventually boost Kroger’s bottom line.
Writing for Supply Chain Dive, Sam Silverstein cited Kroger Chairman and CEO Rodney McMullen’s optimistic outlook—which he expressed during the recent Bank of America Consumer & Retail Conference.
“If you look at our online business, the [in-store] business incrementally now is profitable. Barely. And if you look at the delivery, you know, that still has a lot of work to do. But I feel very confident that we’ll get there and we’ll figure it out,” McMullen said.
According to Silverstein, McMullen highlighted Kroger’s “multibillion-dollar partnership with Ocado to develop a network of automated fulfillment facilities,” and described how the move was made to support company transformation over the next ten years, noting that “each of the customer fulfillment centers Kroger is building can handle the same volume as 10 to 12 supermarkets.”
In a March 21 press release announcing the opening of its Customer Fulfillment Center (CFC) in Aurora, CO, Kroger explained how its delivery offering works:
“The expansion to the Denver area represents an extension of a collaboration between Kroger and Ocado Group, a world leader in technology for grocery e-commerce. In 2018, the companies announced a collaboration to establish a delivery network that combines artificial intelligence, advanced robotics and automation in a bold new way, bringing first-of-its-kind technology to America.”
“The delivery network relies on highly automated fulfillment centers. At the hub sites, more than 1,000 bots move around giant 3D grids, orchestrated by proprietary control systems. The grid, known as The Hive, contains totes filled with products and ready-to-deliver customer orders. Kroger Delivery offers the highest in-stock levels, best on-time delivery, and one-of-a-kind, white-glove experience with industry-leading customer loyalty and satisfaction scores – driving value, convenience and more choices directly to customers, saving them time and money.”
“Kroger’s end-to-end cold solutions keep groceries fresh once loaded into a customized refrigerated delivery van, which can store up to 20 orders. Powerful machine learning algorithms optimize delivery routes, considering factors such as road conditions and optimal fuel efficiency. Vans may travel up to 90 minutes with orders from the hub and spoke facilities to make deliveries. Associates at the spoke facility will deliver orders within their service area, adding ZIP codes as demand grows.”
Kroger says it currently operates CFCs in Monroe, OH; Groveland, FL; Forest Park, GA (Atlanta); Pleasant Prairie, WI; Dallas, TX; Romulus, MI (Detroit); Aurora, CO; and Frederick, MD. Additional CFCs are slated for California; Phoenix, AZ; Cleveland, OH; and Charlotte, NC—as well as South Florida and the Northeast.
Building on its success using automation in the CFC, Kroger and Gatik recently announced a new collaboration to transport goods using autonomous trucks within one of Kroger’s distribution networks.
In a March 15 Gatik press release, the company—which describes itself as “the market leader in autonomous middle mile logistics”—described the new agreement.
“Under the collaboration, Gatik’s medium-duty autonomous box trucks will transport fresh, customer-favorite products from a Kroger Customer Fulfillment Center (CFC) in Dallas, Texas, to multiple retail locations,” the release said. “Gatik’s industry-leading autonomous trucks each feature a cold chain-capable 20-foot box designed to transport ambient, refrigerated and frozen goods quickly, safely and efficiently. The collaboration involves consistent, repeated delivery runs multiple times per day, seven days per week across Kroger’s Dallas distribution network, while unlocking the advantages of autonomous delivery for Kroger’s customers: Increased speed and responsiveness when fulfilling e-commerce orders, reduced costs and dedicated capacity across the supply chain’s middle mile. The operations will launch in Q2, 2023.”
“Kroger’s commitment to redefining service levels for its customers through innovative technology meant that our collaboration came together very quickly,” said Gautam Narang, co-founder and CEO, Gatik. “We’re deeply familiar with operating our autonomous fleet within the Dallas ecosystem, and we’re very excited to bring that experience to support Kroger in its mission to reshape the future of goods delivery.”
“We are so excited to see Gatik trucks starting to deliver groceries throughout our Dallas division,” said Raúl Bujalil, VP Supply Chain Strategy and Technology Enablers. “These autonomous box trucks will help us continue our commitment to creating a seamless shopping experience – where customers can access their favorite fresh foods, with zero compromise on value or convenience.”