- E-commerce penetration of the US grocery industry is low, both in absolute terms and versus other major economies or retail segments.
- The technologies required for end-to-end digital grocery solutions are expensive and, given the perishable nature of many products, complex.
- Online grocery shopping's popularity is expected only to rise, which should give an edge to companies willing to make the necessary investment.
As digital transformation continues to disrupt retail shopping patterns, one place where US consumers seem reluctant to change their purchasing habits is at the grocery store. In 2017, less than 1% of US food & beverage sales took place online, demonstrating exceptionally low e-commerce penetration both on an absolute basis and relative to many other major developed and emerging markets. This less-than-1% figure also is very low compared with online sales in other retail categories, such as toys, apparel, and consumer electronics. At the same time, grocery accounts for the largest chunk of consumer spend—about 21% of total US retail sales (excluding gas stations and motor vehicles & parts). Ramifications of this disparity reach broadly across the grocery industry's retail operators and brands, creating opportunity to invest in companies well-positioned to capitalize on this changing landscape.
A nascent trend that requires substantial tech investment
Grocery is an especially attractive category for e-commerce in light of the frequency of consumers' shopping trips. Most people tend to make grocery purchases weekly—a much higher rate of consumption versus most other retail categories, where consumers more typically make purchases monthly or seasonally.
However, the technology required to facilitate current modes of online grocery purchasing—home delivery or "click-and-collect," where shoppers buy items online and pick them up at a store or some other collection point—is complex, especially given the perishable nature of many products (e.g., frozen foods, meat, produce). What's more, it's expensive: Retailers must commit substantial resources in order to transform supply chains, develop picking and distribution expertise, manage out-of-stock items, and maintain freshness and customer satisfaction—all before the first basket can be dropped to a shopper, successfully and within a defined time frame.
Still, online grocery shopping continues to grow in popularity, and some analysts predict that the percentage of food & beverage sales that take place online could triple over the next decade. Evolution in this space should drive winners and losers, in my view, which is why I'm focused on companies I think are best-positioned to benefit as grocers pursue the technologies of convenience that can impel more of their shoppers to buy digitally. As I see it, companies making the necessary investment can gain an edge as e-commerce sales start taking greater share from physical-only stores.
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