04 Nov Industry Spotlight: E-Grocery
Of all the shifting consumer trends brought about by the COVID-19 pandemic, the widespread adoption of e-grocery may be one of the most significant. Safety restrictions and social distancing guidelines have made simple tasks like shopping for food more difficult. As a result, many consumers, some of whom had never completed purchases through online channels prior to COVID, have pivoted hard towards e-grocery shopping to procure essentials.
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Online grocery sales are expected to surge with increased demand, and as a result industry revenue is projected to grow by 72.7% in 2020. Key growth drivers include greater market penetration, steadily increasing per-capita disposable income, and the added convenience of shopping from home.
A recent report by McKinsey found that 75% of consumers have tried a new online store or brand during the pandemic, with 60% planning to incorporate the store / brand in their post-COVID shopping habits. Thus, it is likely that increased e-grocery sales activity will continue after COVID protocols are relaxed.
E-grocery only accounts for a small percentage of total grocery sales at present, with brick-and-mortar making up the majority. Many consumers still opt for the traditional in-person shopping experience because home delivery is less cost-effective, despite being more convenient. Adoption of e-grocery channels could expand rapidly once small, frequent orders are made affordable, as this would empower more people to order online for everyday purchases rather than saving on delivery costs by only placing the occasional large order.
There is a lot of room for growth and with the proliferation of e-commerce, several established retailers are pivoting to create offerings in the digital space. Likewise, the potential for capturing a portion of the projected expanding revenue has enticed many new entrants into the industry.
Established brick-and-mortar grocers and funded sponsors looking to break into the e-grocery space should generate increased M&A deal activity. This trend began with Amazon’s acquisition of Whole Foods, which launched a series of similar deals amongst the e-commerce giant’s competitors.
Now, with new growth in the industry, the surge in deal traffic may become even more prevalent moving into 2021. Heightened demand for home delivery has demonstrated that online grocers are not only viable, but necessary. It seems e-grocery is here to stay, further fueling increasing transactions in the space.
As e-grocery continues to play a larger role in evolving consumer habits, successful food delivery businesses could command impressive valuations and high multiples. Moreover, while this trend continues, e-grocery valuations should continue to rise.
The industry has low but quickly rising barriers to entry, so well-established e-grocers will become increasingly desirable to strategic acquirers as they look to expand. The more defensible and enduring the business, the greater the opportunity to maximize value in a potential exit.
COVID-19 has changed consumer habits irrevocably and it is incredibly unlikely things will revert to how they were before the pandemic. Existing and emerging brands can benefit from following the development of e-grocery, adapting accordingly to fully capitalize on shifting industry trends in the short and long term.
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