With city and state lockdowns and stay-at-home orders, people have naturally stocked their cupboards and refrigerators. And since dining at local restaurants are no longer an option, take-out and cooking meals at home have become the norm. Of these two options, those who have been laid off or unemployed see home-cooking as their preference. But going to the grocery store is not only frustrating (due to empty shelves) but likewise increases COVID-19 exposure risks. It’s therefore little surprise that grocery delivery services are booming.
While grocery delivery services have been increasing in popularity for some time, the recent coronavirus pandemic has accelerated the trend. Even those who consider themselves “old fashioned” have overcome their anxieties and downloaded these apps. But some are speculating that the rise in grocery business will be short-lived. If so, what does this mean for grocery delivery services? Are they simply riding the coattails of a temporary surge in consumer demand? Or will this represent a tipping point in favor of grocery delivery services in the future? These are the questions many in the grocery business industry are asking in planning for a post-pandemic world.
“As COVID-19 has spread, we’ve seen a significant increase in people shopping online for groceries. This resulted in a systems impact affecting our ability to deliver Amazon Fresh and Whole Foods Market orders.” – Amazon spokesperson statement
Increases in Grocery Delivery Services by the Numbers
Prior to the COVID-19 pandemic, many customers were also using grocery delivery services. The convenience of placing their orders over an app saved time and allowed easy re-ordering. Likewise, customers could choose to have their items delivered to their home or be available for pick-up. Grocery retailers have been competing for some time in this area. Similarly, some independent businesses, like Instacart, have excelled in this space as well. It therefore stands to reason that our current crisis has accelerated the use of these grocery delivery services across the board.
In terms of Instacart, the company has reported some pretty astounding figures. During a recently report 2-week period, their growth in demand nearly doubled. Currently, they are reporting roughly 350,000 customers nationwide, which increased from 200,000. At the same time, the number of grocery store delivery services apps that have been downloaded has also boomed. While Instacart app downloads increased over 200 percent, there was a 160 percent increase in Walmart Grocery app downloads. And Shipt app downloads, which was recently added to Target’s grocery business, expanded 124 percent. All of this highlights just how tremendous this segment of the grocery business has grown.
“In my 38 years in the customer support industry, I’ve never seen anything quite like this…COVID-19 is affecting every one of us over a sustained period of time and, as a result, we’ve had to reimagine and rescale [Instacart’s] Care operations overnight…” – Mark Killick, Vice President of Instacart Care Operations
Grocery Business Challenges in the Delivery Segment
As the grocery delivery services segment has expanded, so has some of the challenges being faced. One of these challenges has been the ability to address customer complaints and concerns. For Instacart, this has meant expanding their customer Care Team. The company has already increased its support staff from 1,200 members to 3,000. And by the end of May, they plan on having a total of 18,000 Care Team personnel. In fact, Instacart recruiters have specifically targeted unemployed retail workers for these positions. At the same time, Instacart shoppers have also been increased in number. And for those in the hospitality, travel and tourism sectors, this has been welcomed as an alternative for income.
Naturally, all grocery business operations that provide grocery delivery services are experiencing these issues. But each of them is also having to address employee concerns as well. With many grocery business employees on the frontlines of the coronavirus pandemic, health and compensation issues are being raised. This has led some to increase employee wages, reduce store hours, and offer personal protective equipment to staff. For Instacart, however, this has involved additional demands by employees such as tip guarantees and hazard pay. In response, Instacart has removed the no-tip option for customers and created contact-less pay options. These types of issues are still evolving as the pandemic persists.
“In our view, COVID-19 has parallels to both 9/11 and the [2008-2009] recession. The 9/11 period led to ‘nesting’ [and] ’08/’09 led to demand destruction. COVID-19 will lead to both.” – Karen Short, Barclay’s Analyst
The Potential for Boom to Bust
While the good times are rolling for the grocery business right now, this may not be the case for long. Analysts suggest that the coronavirus pandemic will exhibit features common to the 9/11 crisis and the Great Recession. In fact, this is already evident with consumers nesting toilet paper and other items. Likewise, global economic impacts are continuing to show declines in the markets. Based on this, the boom for the grocery business may soon turn to bust. Consumers will likely soon turn to goods with lower profit margins to save money and lower their demand. This will cause price deflation of grocery items in addition to reduced profits.
The picture regarding grocery delivery services is less clear, however. As consumers become more accustomed to using apps and receiving groceries at home, buying habits may change. This could perpetuate the current trends in grocery delivery services. At the same time, as restrictions are eased, and restaurants re-open, the demand for such services may decline. In all likelihood, the end result may be somewhere in the middle for grocery delivery services. In other words, the current boom won’t last, but the industry may still enjoy long-term gains. Most involved in grocery delivery services seem to believe this to be the case based on their current investments.