Inflation: demand for grocery delivery declines as cost of food rises

Karen Raschke, a retired New York lawyer, started getting her groceries delivered at the start of the pandemic. Each delivery was $30 in fees and tip, but it was worth avoiding the store.

Earlier this spring, Raschke learned that his rent was increasing by $617 per month. Delivery was one of the first things she cut from her budget. Now the 75-year-old walks four blocks to get groceries several times a week. She only uses delivery on rare occasions, such as a recent heat wave.

“Doing it every week is not sustainable,” she said.

Raschke is not alone. US demand for grocery delivery is declining as prices for food and other necessities rise. Some are turning to pickup – a cheaper alternative where shoppers stop at the curb or enter the store to pick up their already bagged groceries – while others say they’re comfortable to do the shopping themselves.

Grocery delivery saw phenomenal growth in the first year of the pandemic. In August 2019 – a typical pre-pandemic month – Americans spent $500 million on grocery delivery. As of June 2020, it had reached $3.4 billion, according to Brick Meets Click, a market research firm.

Companies rushed to meet this demand. DoorDash and Uber Eats have started offering grocery delivery. Kroger – the nation’s largest grocer – has opened automated warehouses to fulfill delivery orders. Amazon has opened a handful of Amazon Fresh grocery stores, which offer free delivery to Prime members. Super-fast grocery delivery companies like Jokr and Buyk have sprung up in American cities.

But as the pandemic subsided, demand faltered. In June 2022, Americans spent $2.5 billion on grocery delivery, down 26% from 2020. By comparison, they spent $3.4 billion on grocery pickup , which saw demand fall 10.5% from its pandemic highs.

This is causing a stir in the industry. Buyk filed for bankruptcy in March; Jokr withdrew from the United States in June. Instacart – the US grocery delivery market leader – slashed its own valuation by 40% to $24 billion in March ahead of a possible IPO. Kroger said its digital sales — which include pickup and delivery — fell 6% in the first quarter of this year.

Some believe that delivery demand could drop further. Chase Design, a consulting firm, says its surveys show the number of U.S. shoppers who plan to use grocery delivery “all the time” has halved since 2021.

Cost is the main reason. Peter Cloutier, head of growth and business strategy at Chase Design, said it’s hard to get groceries delivered to a customer’s doorstep for less than a $10 premium, which covers labor. work and transport. Often this cost is higher.

Consider a basket of eight Target staples, including a gallon of milk, a dozen eggs, and a pound of ground beef. In store, the order would ring in at $35.12. Target offers free curbside pickup. Delivery costs $9.99, not including tip.

DoorDash also offers delivery from Target, but it charges more for each item on its website. The cart rings in at $39.90 from DoorDash, which then adds $12.18 in taxes and shipping. If the consumer adds a $10 tip, that totals $62.08.

DoorDash and Target both offer free shipping through subscriptions, but these come with monthly or annual fees.

The bonuses are hard to swallow on top of soaring food prices. In June, U.S. grocery food prices rose 12.2% over the past 12 months, the biggest increase since April 1979, according to government data.

Cynthia Carrasco White, an attorney for a nonprofit in Los Angeles, has grown accustomed to grocery delivery during the pandemic. She still prefers this as her youngest child is not fully vaccinated and it saves time.

But earlier this summer, as gas prices approached $7 and a box of strawberries approached $9, she took cost-cutting seriously.

White now switches between Instacart, Uber Eats, Walmart and others, using whichever has the best deals and coupons. She will sometimes spend two hours filling a delivery basket, then wait to see if any other promotions are displayed before completing her order. And she cut the amount she gives to drivers.

“The economy has definitely taken the breath away from our sails,” she said. “It’s just this endless pressure.”

Retailers are responding by varying delivery prices depending on the time of day. One recent morning, Walmart offered to deliver a $35 order in two hours for $17.95; which dropped to $7.95 if the order could be delivered between 3 p.m. and 4 p.m.

But cost isn’t the only reason some consumers shy away from delivery. Cloutier says many customers are wary of the quality of items selected by workers.

“There’s a trust gap between what the shopper wants to get and what the retailer fulfills,” Cloutier said.

Delivery companies are trying to improve this. Last month, Uber Eats announced upgrades to its online grocery offering, including the ability for consumers to view products while workers scan them.

But even that may not appeal to some buyers.

Diane Kovacs, a lecturer in Brunswick, Ohio, has been using curbside pickup for nearly a decade. It saves her money, she says, because she doesn’t get caught up in impulse purchases inside the grocery store.

She had groceries delivered briefly during the pandemic and didn’t mind paying $10 or $15 a week for the service. But she still prefers pickup. She enjoys driving her dogs to the store and chatting with the employees.

“I think people don’t use delivery because they want to get the hell out of the house,” she said.

The true demand for grocery delivery is difficult to calculate. Usage can swing wildly when COVID cases increase or companies offer discounts, said Brick Meets Click partner David Bishop.

But he sees certain patterns emerging. Households with young children and people with reduced mobility stick to the delivery. People over 60 have generally started shopping in person again.

Bishop says delivery has seen five years of growth in the first three months of the pandemic, and demand is likely still high. Eventually, he expects delivery sales to settle into more regular growth of around 10% per year. But delivery isn’t going away, he said.

“I don’t see it returning to pre-COVID levels. This box has been opened,” he said.

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