Though grocery retailers saw a pick-up with in-store shopping over the summer, a new wave of COVID-19 infections could drive some U.S. consumers back online.
Walmart Inc. and Target Corp., which rank among the country's top grocery retailers both in stores and online, reported strong in-store shopping in the quarter ended in July. Analysts warn, though, that August could look very different due to the emergence of the highly transmissible delta variant of the coronavirus in the U.S. and the return of mandates around mask-wearing.
"It appears as though the delta variant is changing the way customers shop for groceries online," said David Bishop, a partner with Brick Meets Click, a consultancy that tracks online grocery shopping in the U.S. "It is likely that August will see a resurgence of interest or demand for shopping online, especially for delivery."
Flexibility will be key for grocery sellers in the third quarter, especially if renewed health concerns result in store capacity limits like those seen in much of the country last year.
"That is going to force anyone who shops at retailers to make a choice: Do I wait in line to get into the store or do I just go home and place an order for delivery or pickup?" Bishop said.
Data on July shopping indicated more consumers started reconsidering online ordering. The number of households that bought groceries online rose 5% month over month in July to 66.5 million, according to the latest survey Brick Meets Click, sponsored by Mercatus. The U.S. online grocery market posted $6.7 billion in sales during July, a 1.4% decline from $6.8 billion in June, but well above pre-pandemic levels. July sales were more than three times higher than the $2 billion recorded in August 2019.
Meanwhile, interest in grocery delivery apps is once again on an upswing after falling from pandemic highs. First-time downloads of the apps for Walmart and Target started trending upward again in July after peaking in the last quarter of 2020, according to data from Apptopia.
Retailers respond
Walmart U.S. President and CEO John Furner said the company will be "positioned and ready" to respond to consumer shifts related to the pandemic.
"We're monitoring changes geographically around the country as it relates to the pandemic and the delta variant," Furner told analysts during the company's Aug. 17 earnings call.
Executives at Target, which continued to see high demand for its curbside pick-up and delivery services in the second quarter even as in-store shopping surged, warned during an Aug. 18 earnings call that the company expected more volatility in shopping trends in the second half of this year, given the emergence of the delta variant.
Nearly one in five consumers, or about 19%, used online grocery delivery for the first time during COVID-19 and will continue to do so, according to 451 Research's Voice of the Connected User Landscape first-quarter 2021 survey. The uptick was more pronounced with millennials and higher-income shoppers.
"What we are seeing is a very high level of stickiness with those who are remaining" with online grocery, said Brick Meets Click's Bishop.
Mercatus estimates that online shopping will account for 21.5% of total U.S. grocery sales, or $250 billion of the $1.16 trillion grocery market, by 2025.
Walmart is crushing its closest competition in online grocery app downloads and sessions initiated in its app, due in no small part to its size. With a footprint of roughly 10,500 stores and clubs under 48 banners, the Arkansas-based retailer is "multiples larger" than Target, which is still a large player, said Andrew Lipsman, principal analyst for retail and e-commerce at eMarketer.
Consumers adapt
The number of first-time downloads of Walmart's shopping and grocery app in the first half of the year eclipsed that of Target and grocery delivery service Instacart combined, according to data from Apptopia. Walmart far outpaced its closest competition in the number of sessions initiated for its app as well. Sam's Club, a Walmart-owned brand, also ranked among the top five most popular grocery apps.
Corey Chafin, principal in the consumer practice of global strategy and management consulting firm Kearney, said online grocery apps have become attractive tools for consumers as retailers added more functionality.
"Through the crisis, there was a lot of forced innovation that happened with those platforms," Chafin said.
In-store policies at many U.S. retailers changed in July, after the Centers for Disease Control and Prevention recommended more widespread masking as the delta variant drove a surge in infections. Target and Walmart both updated their mask policies, with Target requiring all employees to wear face-coverings, while Walmart requires them in areas of the country experiencing high rates of COVID-19 transmission. Mask wearing is recommended for customers as well. It is unclear whether additional measures, such as last year's capacity limits, could follow.
Walmart did not respond to requests for comment on how it is evaluating if additional measures may be needed, while Target referred to the COVID-19 policies posted on its website. Both retailers in prior press statements said they will continue to follow the latest guidance from the CDC.
EMarketer's Lipsman said the delta variant's impact on online grocery sales this fall will likely be more muted than that of public health lockdowns last year. "There was a real fear factor driving that," Lipsman said.
Regardless of the pandemic's impact to online versus in-store sales, Lipsman said Walmart's strong app metrics are good for the company's business over the long term. In the near term, the analyst said the app is likely to drive more sales in the second half of this year.
"We're going to be much more in a hybrid environment here — much more comfortable with e-commerce shopping behaviors but back out in the real world at the same time," Lipsman said. "That lends itself to a mobile experience."
451 Research is part of S&P Global Market Intelligence.