Online grocery shopping is booming in the pandemic. And with coronavirus cases rising in most parts of the country, it makes sense. Even Uber is getting into the online grocery delivery business as of this week.
Kroger should be leading the charge as the biggest grocery store chain in the U.S. But companies with much larger market caps like Amazon, Walmart and Target are beating them out on their own turf.
Despite their plans to massively drive up online sales, Kroger won’t catch up to those giants any time soon.
When it comes to building up its online sales, the stakes are serious for Kroger. Profit margins are thin in the grocery industry, and without ways to increase efficiency, revenue can get sucked up quickly by the massive effort that it takes to fulfill online orders from traditional grocery store locations.
Online grocery orders made up 4% of the grocery market before the pandemic. That was estimated to inch up to 5% in 2021, but analysts have revised their estimates up to 12% for next year, given the sharp uptick in online sales since the pandemic began.
An exclusive partnership with grocer Ocado is the biggest change Kroger has in store. The British online-only grocery company is building out warehouses throughout the U.S. where Kroger will be able to pack and fulfill online delivery orders.
That’s the biggest move Kroger is making to boost their capacity for fulfilling online orders. But it’s also a big investment up front. Kroger has invested hundreds of millions of dollars into the project, and some say it won’t pay off.
The partnership is having a slow start; many of the fulfillment centers that serve as the crux of their online sales plan haven’t been built yet, and the first center won’t become operational until 2021. The company is planning to build 20 facilities at an estimated cost of $55 million per site; that amounts to a more than $1 billion investment.
In the meantime, analysts believe the circumstances of the pandemic will continue to move online sales at Kroger, and its earnings in general, in an upward direction. Americans are spending at least 10% more monthly on groceries since the start of the pandemic. That’s a good thing for grocery stores.
And as it waits for its Ocado concept to come to fruition, Kroger isn’t sitting on its heels. The company is also rolling out a ghost kitchen concept in certain stores where customers can order up to 80 meal options for pickup.
Kroger’s online sales will continue to grow, encouraged by the pandemic and changing consumer tastes. Curbside pickup will also aid online revenue as it continues to increase in popularity. In a recent study, 43% of respondents had grocery shopped online in the past six months. That’s up from 24% two years ago.
But that pandemic advantage is also helping Kroger’s rivals like Amazon and Walmart, who are seeing their stock prices soar. Catching up to big online retailers is not in the cards for Kroger any time soon. Analysts believe even once the Ocado system is built out, it will take another year or two to catch on with customers.
The company has a plan to improve e-commerce in the future. But Kroger is losing a crucial window of time as it waits to get its warehouse operation ready. Its competitors will have left it in the dust by the time that plan fully materializes.