Booming Industries During COVID — Online Grocery Delivery
While COVID-19 has the world economy on its knees there are certain industries that have blossomed during this period and have seen growth equivalent to several years in just a few weeks. In this post, I have captured the positive impact of the coronavirus on the Online Grocery Delivery industry.
A survey in March 2020 from RBC Capital Markets recorded that 55% of the respondents purchased groceries online compared to 36% in 2018. Instacart stated that the volume of orders it received is up more than 500% YoY.
Business Model — Online Grocery Delivery
The success of the business model for Online Grocery Delivery depends on how open the customers are to spend a little extra on groceries over the convenience of not visiting the grocery store and saving a couple of hours of their time weekly. The business model is based on the typical gig economy wherein the customers place their grocery orders on apps or websites and the shoppers (that work for these businesses) would handpick your order and deliver it to you. These businesses (like Instacart and Amazon Fresh) make money mainly through the delivery fees, annual memberships, and their partnerships with specific brands by helping them drive revenues through in-app offers.
The “shoppers” who pick up your grocery items and deliver them to you make money from Instacart based on several factors like the number of items on the grocery list, the store mileage, etc. and the tips from the customers which sometimes account for 50–60% of the total amount shoppers make.
Online Grocery Delivery was long considered to be a luxury and the majority of the people who ordered grocery delivery were people with super busy schedules or some kind of inability to do the grocery runs but with people hesitant to visit the grocery stores nowadays over safety concerns, it is no surprise that we have seen a huge surge in the number of people opting for online grocery deliveries.
How would the online grocery delivery industry fare post the pandemic?
Businesses like Instacart and Amazon Fresh have seen growth in the past few weeks equivalent to what they would have achieved over the next 4–5 years if the markets were normal. The current pandemic has given the online grocery delivery sector a great boost by doing the heavy lifting of customer acquisition without too much money being spent on marketing. Just to put this in perspective it costs a business on average 5 to 30 times more money to acquire a new customer compared to retaining an existing one (HBR, 2014).
How well these businesses do in a post COVID world and whether the customers still use the grocery delivery services post-pandemic depends a great deal on whether these businesses are able to fix the issues they are currently dealing with. Instacart, for example, has been plagued with several lawsuits from its shoppers over poor pay. There have also been several concerns over the safety precautions for shoppers during COVID-19 for some of these businesses. Other issues like tip baiting where the customers lure the shoppers with big tips and then change it to a very low amount or zero post-delivery further add misery to the low pay for the shoppers. All these bad experiences of the shoppers could easily translate to bad customer experience which in turn can easily drive the customers away.
Final Words
Online Grocery Delivery is one of the few industries that has been fortunate to get a boost in their business because of the pandemic. The demand for online grocery delivery has increased over 50% over a matter of the last 4 weeks and it will be unreasonable to expect these companies to adapt to such a massive surge in business in such a short amount of time and also fix every single aspect of their business right away.
While there is no doubt that online grocery delivery will continue to flourish over the next few months, it would be interesting to see what business strategy changes these companies can make to incentivize customers to keep using their services when the customers can freely roam around a grocery store.
