Grocers recorded a $300M margin hit on their digital business in 2022, report says

Grocers Face Profitability Challenges Amid Surging Digitally Influenced Sales

As consumers increasingly turn to online and omnichannel options for their grocery shopping, grocers are grappling with profitability issues in their digital businesses. A report titled “Increasing Online Profitability Through Strategic Fulfillment,” conducted by Incisiv, FMI, and Relex, reveals that digitally influenced sales accounted for a substantial 69% of overall grocery sales, reaching a staggering $362 billion in 2023.

The comprehensive report is based on insights from 116 respondents, including those who use, influence, or purchase supply chain technology, with 73% of them holding director-level positions or higher.

Surveyed retailers are focusing on specific strategic fulfillment priorities over the next 12-18 months to enhance their profitability. The top priorities include improving product availability, optimizing labor and space utilization by balancing workload and orders, and enhancing forecasting and projection of customer orders. The report highlights that these strategic fulfillment choices can significantly impact the produce and center store categories in particular.

Fulfillment and inventory optimization emerge as crucial profitability levers for grocers. An impressive 89% of respondents recognize optimizing end-to-end order fulfillment as a major opportunity for financial improvements, while 83% believe the same for strategic inventory placement throughout the supply chain. Additionally, 61% of retailers identify reducing waste and shrinkage within the supply chain as a pivotal factor in enhancing profitability.

Although understanding demand signals for predicting changes in shopper behavior is essential, only 44% of grocers view it as a major opportunity.

Dissatisfaction with e-commerce strategic fulfillment solutions is prevalent among 59% of grocers, primarily due to product functionality and back-end technical limitations.

The shift towards omnichannel retailing and increased digital sales has brought new complexities in fulfillment platforms for grocers. Key challenges include quantifying the total cost of ownership of existing technologies and legacy technologies unable to support agility.

To address these obstacles, grocers need to focus on seamlessly integrating online and in-store operations, efficiently managing last-mile delivery logistics, and ensuring a consistent customer experience across all channels.

“As grocers strive to transition into an omnichannel model, they recognize the crucial role of coordination across business departments in driving change,” the report stated. However, the absence of appropriate incentives or key performance indicators (KPIs) has hindered progress.

The report emphasizes that artificial intelligence (AI) adoption will be critical for grocers to enhance their competitive advantages. While 82% of grocers recognize the importance of AI, 38% are taking a cautious approach, waiting for practical technologies and use cases with AI-enabled data analytics before making significant investments. Retailers are seeking tangible evidence of AI’s effectiveness before fully embracing its potential.

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