About two months ago, I signed up for HelloFresh after weeks of weighing my options. The ever-growing selection of online grocery and meal kit services is not making this any easier. There are also Picnic, Amazon Fresh, FreshDirect, GoBio, Foodist. All come with a slightly different focus, but similar promises: fresh groceries dropped off at your doorstep. You have likely heard from some of these services before, but chances are that you haven’t considered signing up until this very year.
Suddenly, many have started considering these services. Why? Could the corona pandemic be the tipping point for online groceries? Could it be the event that brings these services from early adopters to the mainstream?
Turns out that it just might. Since January, HelloFresh’s stock value has doubled, despite net zero returns on the DAX or S&P 500. The Berlin based company is expected to double its revenue from 2019 (1). To be able to grow at this pace, they have been offering free food deliveries and substantial discounts for getting friends to sign up. It is tough to tell whether this viral growth model will meet its limits anytime soon.
HelloFresh is not alone. Picnic’s managing director for Germany has also reported that the startup has used the past few months to expand rapidly (2). This begs the question, though: Is this growth actually sustainable? Or is it simply a consequence of an event-induced increase in subscriptions and thus destined to fall when the crisis ends?
On the one hand, as trials and corona measures expire, some customers will inevitably flood back into brick-and-mortar supermarkets. It would be unreasonable to expect that every customer won during these unprecedented times is in for the long haul.
However, a couple of trends appear to be aiding the rise of grocery delivery services. The first one is based around the idea of healthy living. Since the dawn of this century, global organic food sales have almost quintupled (3). Positioning themselves as healthy and convenient alternatives is at the core of many of these services’ value propositions. They tempt potential customers with healthy recipes, organic food and high-quality ingredients.
Another aiding factor has been brought about by a very unlikely demographic: senior citizens. The pandemic has kickstarted many initiatives which involve delivering groceries to the elderly. Both, the protection from crowds and the reduction of physical endeavors such as heavy lifting contribute to their rising engagement. While the elderly are generally slow to adapt to new services, they are also loyal once won over. In fact, online grocery shoppers of all demographics tend to be loyal to their service of choice (4).
Nonetheless, grocery delivery and meal kit services measured as a proportion of total grocery sales still appear to be insignificant. In Germany (2019) only 0.8% of all grocery expenditures were spent online. This year, this number is predicted to rise to at least 1.1%, the largest jump in market share yet (5). Factor in the general market growth rate of 4.7% and the entire industry is worth € 1.5 billion in Germany alone. So even if this year might not be the tipping point, it might be the beginning of an exponential growth phase.
(1) https://www.deraktionaer.de/artikel/commerce-brands-unicorns/hellofresh-kein-ende-in-sicht-analyst-holt-hammer-kursziel-raus-20207176.html
(2) https://lebensmittelpraxis.de/zentrale-management/28260-picnic-die-erwartungshaltung-ist-sehr-hoch.html
(3) https://www.statista.com/statistics/273090/worldwide-sales-of-organic-foods-since-1999/
(4) https://www.businessinsider.com/online-grocery-report-2020?international=true&r=US&IR=T
(5) https://de.statista.com/outlook/40060000/102/lebensmittel/europa#market-revenue
Hi Niklas,
Thank you for your interesting read. For many people it became the only option at several quarantaine days to order their via apps like Picnic and HelloFresh. Corona thereby forced people to think in different ways to buy their groceries and found out about these alternatives, so the growing sales numbers of online grocery service is no surprise I think, although the numbers you’re mentioned are skyhigh, which brings the question about what’s next, is the growth sustainable? I’d predict that once people got to know these apps, they will get used to the convenience and especially busy people without much time see this way of grocery shopping as a real benefit. The small marketshare brings great potential and the technology behind organizations like Picnic for example used for estimation and efficiency are so cutting-edge, almost no humans are needed for picking orders in the near future. Really interesting topic to keep paying attention on.
Gijs
Hi Niklas,
Very interesting and relevant topic during these Corona times.
It is indeed interesting that online grocery delivery companies have grown since the emergence of the virus.
I am convinced that food delivery services, such as Hellofresh and Picnic, will continue to grow in the coming years. I think they will remain popular even when the virus is gone. One of the reasons is that online grocery delivery services, such as Picnic, makes very efficient use of consumer data and could reduce costs by not having physical shops. They also effectively uses their resources to be able to offer free delivery from a relatively low minimum amount, guarantee accurate delivery times and provide good customer service.
By having a full focus on the customer and being able to offer good prices due to lower costs, this is the solution for people who have little time because of work or taking care of the children, or people who are not able or do not like to do grocery shopping.
Although I do not think these innovative business models will completely replace the physical supermarkets as many people like the experience of shopping offline, I think that online grocery delivery and meal kit services can achieve a very large market share in the upcoming years.
In most of these companies (e.g. Picnic, Hellofresh), many employees have knowledge on the use of data and technologies and are continuously improving their services to make the customer experience seamless. Due to this knowledge, these companies can become faster and more disruptive than the traditional grocery stores.
In addition, more and more people get used to ordering products at home, which is reinforced by the corona virus as people prefer to avoid offline, overcrowded shops. As more and more people realize that these online delivery services exist, it is more likely that that an increasing number of people will see the benefits of them.
Let’s wait and see what the future will bring us when everything is back to normal.
Hey Niklas, I am also familiar with HelloFresh for quite some time now. I agree with you that HelloFresh perfectly managed to use the pandemic to their benefit by aggressively targeting new customer segments. This development has led many institutional and private investors to believe that the time for online grocery shopping has finally come. However, I think that one has to be very careful to not overvalue the developments of this year. Rather, it is advisable to wait until some time after the pandemic and then carefully examine online grocery shopping providers‘ business models again.
I agree that the pandemic has definitely boosted sales of online supermarkets and has shown new pros of buying your groceries online. As you mentioned, not every single customer that the online supermarket has gained will never go back to normal supermarkets. A lot of them will go back to the normal supermarkets. But the same goes for ordering other things online, for example a TV. 10 years ago, almost no one would buy that online, but nowadays it’s a more acceptable and normal thing to do. I think the adoption cycle to such innovations in an industry is a steady one. How the pandemic played a role in that adaption cycle is yet to be seen as this is the first time something like that happened in a time where internet existed on the scale it does nowadays.
The industry for TVs for example was a relatively new industry when it got disrupted by buying TVs online, perhaps that made things easier to go from offline to online. Supermarkets however, exist for a way longer period than TVs. This may make things harder to let people adopt to the idea of buying your groceries online.
In the end, I think more and more people will adopt to the idea of buying groceries online, but not everyone will. The pandemic could definitely play a role as a catalyst in the adoption process but that is yet to be seen in the long run.
Hi everybody, thanks for your comments! In this post, I will answer some of your questions, concerns and additions.
To Gijs: Is the growth sustainable?
To a certain degree: Yes. Surely, some consumers will move back to offline groceries, but I strongly believe that firms like Hellofresh will be able to retain a good share of the new customers.
To Cathelijn: Can online grocery delivery services achieve great market share in upcoming years?
In the short- or medium-term, I believe no. That’s why I close the blog post with the fact that I do not believe in a breakthrough. In big cities, where people usually live close by supermarkets, I believe that people will, for the foreseeable future, stick to offline shopping, at least for groceries.
To Svante: Should we wait until after the pandemic to judge the development?
I believe that we can already judge now, what is likely going to happen. I do not believe that there will be a point, where the pandemic is just over. Likely, there will be a slow transition to ‘normality’ starting in 2021. As a consequence of this transition, I do not think that many will suddenly stop their subscriptions. The retention rate is thus a metric which has to be followed carefully throughout the next few months and years.
To Jem: Will people have a harder time adopting online groceries than other online shopping methods?
Yes, I agree. Shopping groceries is deeply rooted in many people’s habitual behavior. And habits die hard. Also, many people cherish the ability to pick up additional items on site as well as the flexibility and immediacy.
Cheers to you, guys!
Niklas