Grocers Struggle with Profitability as They Take on World of E-Commerce

The COVID-19 pandemic has had a devastating impact on the U.S. economy, especially when it comes to small business owners. Very few did well during lockdowns and restrictions. Workspace solutions, hand-sanitizing products and entertainment flourished out of necessity. Meanwhile, the vast majority of merchants had to scramble and get creative to keep their doors open.

One solution was moving sales online and adopting curbside pickup and other services to stay within social distancing guidelines. As a result, e-commerce has taken off. Even so, there’s still one merchant segment that did not do well with online sales: grocers. Recent reports have revealed that this channel has not been particularly profitable.

Despite the number of online grocery shoppers increasing five-fold in 2020 (from 2019), 86% of grocers say low profitability tops the list of problems they have with e-commerce. The data from Wynshop, a provider of e-commerce tools for the grocery industry, also shows that the average store size for consumers purchasing groceries online versus in-store is 70% larger.

Grocers Set to Lose $14 Million for Every Billion in Sales

If these current sales and profitability trends continue, grocers could find themselves in a real pickle. They could lose up to $14 million in gross margin for every billion dollars of online sales in 2025. A very sobering figure from the Wynshop study, considering 20% of all grocery sales are expected to come through the online channel over the next four years.

In fact, a massive 92% of grocers shared that they are dissatisfied with the efficiency of their fulfillment. Another 59% say their partnerships with third-party delivery services are unprofitable and 86% are dissatisfied with their deployment of labor for online commerce.

Before the pandemic, e-commerce was just an emerging sales channel for grocers. Something that seemed in the far off future. COVID-19 ushered in the age of online grocery orders. It prompted grocers to rapidly add an e-commerce website or expand their existing one. However, this rapid growth exposed certain inefficiencies in order fulfillment.

“When online orders were a small percentage of total orders, grocers were not as concerned about the inefficiencies around fulfillment, but now that online ordering is a bigger part of their business, they are more focused on the profitability of that channel,” explains Charlie Kaplan, chief revenue officer for Wynshop.

The potentially crippling losses are pushing grocers to take a hard look at how they can make order fulfillment more efficient. Over the next two years, Wynshop predicts more and more grocers will experiment with new innovations like new labor models and automated picking solutions in an attempt to lower costs.

“We’re starting to see grocers take a more measured approach to the technology around their e-commerce Web site,” Kaplan says.

Grocers Need Industry-Leading Payment Processing Solutions

One of the biggest things grocers will need to consider moving forward is the quality and variety of payment processing solutions they offer. Partnering with the right payment processing provider will be key in ensuring your shop can provide the most popular and trending payment solutions, while also safeguarding your business and customers’ private information. As grocers navigate this brave new world of online shopping, it will be exciting to see the new innovations and processes the industry takes on moving forward.

Author Bio: Content crafter Alex Wilmont has been active in the payments industry and Pinwheel Pay for over 15 years. He lives simply, gives generously and loves his 2 dogs. His mission is to enhance and innovate the fintech industry for years to come.