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News and insight for North America's fresh produce buyers
Mike Knowles



Online and discount drive US retail growth

Value of US grocery market approaching US$2trillion as traditional retailers react to expansion of online formats

Online and discount drive US retail growth

Blue Apron is among a number of meal kit delivery services making an impact in the US online grocery market

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The US grocery market is forecast to be worth US$1,722bn by 2022, with strong growth expected in both the online and discount channels, according to new figures released today by international grocery research group IGD.

The analyst predicts that the US grocery market will have a compound annual growth rate of 3.6 per cent in 2017-2022 period. For online retailing, however, that rate will be 18.1 per cent, making it the fastest-growing channel in the US over the next five years and, according to IGD, a US$20bn opportunity.

Discount grocery retailing is also expected to generate growth, driven by dollar stores and hard discount operators, it said.

In contrast, hypermarkets and supermarkets will lose market share as they continue to rationalise their store networks in the face of stiff competition from discount and online.

However, investment will continue in these areas as retailers try to stay relevant in an increasingly price-sensitive and digitally connected age.

Stewart Samuel, IGD’s North America Program Director, identified several key trends fuelling double-digit growth in the US online grocery channel.

“The online channel is developing at pace in the US and although many leading retailers have operated online for over 20 years, it is only in the last three years where we have seen an acceleration of investment and activity,” he explained.

“In the next five years, the online grocery channel will grow by US$20bn and will be the main driver of growth in the US grocery market.”

Expanding into new areas

According to Samuel, three factors underpin the forecast expansion. To capitalise on growth, many retailers are using their store networks to offer convenient collection options that are often free or low-cost, and these are proving popular with shoppers.

Another area of the market growing rapidly is meal kit delivery services, where specialist companies like Blue Apron and Hello Fresh continue to expand their operations.

In response, grocery retailers including Walmart and Kroger are also experimenting with a similar scheme, teaming up with eMeals to operate a curb-side collection service.

Elsewhere, Samuel suggested, Albertsons’ recent acquisition of Plated underlined the importance of this new type of distribution model.

Grocery retailers are also partnering with third-party companies like Instacart and Shipt to enter the online channel, with relatively lower capital investment, he noted.

“A key area for retailers to focus on is to make online shopping as convenient as possible, with a particular emphasis on making it easier to order frequently purchased products. New technologies also have an important role to play in this space, with voice-based ordering set to revolutionise how products are ordered.

“Technology is not just important for ordering products, but also has a big impact in other online fundamentals like fulfilment and delivery,” Samuel added.

“For example, the use of robots to make deliveries and pick orders in store and the advent of drones making small deliveries by air are examples of how new technologies can improve the economics of the online grocery market, although it may be many years before they are deployed at scale in the US market.”

Further trends

Stewart also highlighted some further key trends for the US grocery market. “The discount channel is also gaining traction across the US,” he continued. “Dollar store chains continue to expand at pace, opening several hundred new stores each year.

“Discounters are also increasingly expanding their fresh food offers and with Aldi aiming to have a store network of 2,500 by the end of 2022 and Lidl entering the market, the discount channel is becoming much more mainstream in the US.
“The performance of the convenience channel will hold steady and we’re expecting consolidation, which so far has been driven by 7-Eleven and Couche-Tard, to continue,” he said.

“Convenience stores will increasingly focus on improving their fresh food offer and selling innovative food-to-go ranges, both of which are high priorities for the convenience store shopper.

“We expect hypermarkets and supermarkets to face a more challenging time, with both experiencing a declining market share over the five-year period.

“However, as sales shift online, both types of store are innovating with new ways to entice shoppers in-store and merge the digital and physical worlds, for example by developing healthcare hubs, investing in their prepared foods and food-to-go ranges and using digital tools to inform, engage and reward shoppers.”

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