NAVIGATING THE MARKET HEADWINDS: THE STATE OF GROCERY RETAIL 2022 - NORTH AMERICA - MCKINSEY
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Navigating the market headwinds: The state of grocery retail 2022 North America May 2022
Copyright © 2022 McKinsey & Company. All rights reserved. This publication is not intended to be used as the basis for trading in the shares of any company or for undertaking any other complex or significant financial transaction without consulting appropriate professional advisers. No part of this publication may be copied or redistributed in any form without the prior written consent of McKinsey & Company. Cover image: © Edwin Tan/Getty Images
Contents
6 19
The state of grocery in North America The next horizon for
grocery e-commerce: Beyond the
pandemic bump
32 37
Tech-enabled grocery stores: Lower Achieving profitable online grocery
costs, better experience order fulfillment
45 52
Growing beyond groceries: The Grocers’ sustainability opportunity in
ecosystem expansion transforming the food system
64 72
Crisis or opportunity? How grocers The state of grocery retail in Mexico
can win the talent war
80
Pushing granular decisions through
analytics
State of Grocery North America 1
Foreword
More than two years after the start of the COVID-19 pandemic, the grocery industry continues to
face disruption. While some themes shaping the sector—such as the supply chain and the growth of
e-commerce—have resonated throughout this period, additional headwinds are once again testing
the resilience of grocers and the food industry as a whole. Executives at North American grocery
retailers have expressed some uncertainty about market conditions in 2022, pointing to lower profit
margins during the pandemic, increased price sensitivity, greater competition, and rising inflation
that is forcing consumers to grapple with an increased cost of living. These trends, as well as global
events, are likely to only have a greater impact on consumer confidence and spending.
Moving further into 2022 and beyond, grocers will be faced with increased pressure on margins and
pricing as they navigate the need to cater to broader consumer tastes and demands. Omnichannel
complexity will continue to rise, with consumers seeking more seamless experiences and
manageable fulfillment fees.
We recognize the significant uncertainty facing the industry. All grocery executives are grappling
with a series of questions: As consumer behavior continues to evolve, how can grocers best cater to
new trends such as health and wellness and value? E-commerce has become table stakes, but how
can they continue to enhance the omnichannel experience while improving profitability? How much
investment will they need to make in automation, and how can they harness technology to change
the operating model for stores and employees? As sustainability gains traction, what is the right way
to begin the journey or build on existing plans?
This report aims to answer those questions. Its contents are part of McKinsey’s broader global
series The State of Grocery Retail, an annual publication covering three continents (including Asia–
Pacific, the European Union, and North America, with a new article specific to Mexico). Our goal is
to frame major trends and issues for CEOs seeking to stay ahead of market shifts. To offer a holistic
view of industry dynamics, insights and analyses from our colleagues are complemented by surveys
and interviews with grocery executives.
We wish to thank FMI for its collaboration in developing these perspectives and in supporting
the engagement of CEOs from leading North American grocery and consumer packaged goods
companies. We hope the report will offer new insights that can help grocers, and those in the
broader food industry, remain competitive during these unprecedented times.
Bill Aull Becca Coggins Sajal Kohli
Partner Senior partner Senior partner
North American leader, North American leader, Global leader,
Grocery Practice Retail Practice Retail and Consumer
Packaged Goods Practices
State of Grocery North America 3
Editors
Bill Aull
Bill is a partner in McKinsey’s Charlotte office and a leader within
the Retail and Consumer Practices for the Americas. He now leads
McKinsey’s North American grocery practice. He has been with McKinsey
for the last 12 years, and his client work has spanned across both retail
and consumer-packaged-goods sectors with a focus on transformation
topics—commercial strategy, organization restructuring, merchandising
(pricing, promotion, assortment, and vendor negotiations), store
operations, and supply chain. He has worked across numerous retail
channels and formats and consumer categories.
Sajal Kohli
Sajal is based in Chicago and leads McKinsey’s global work in the retail
and consumer-goods industries. In more than 25 years of management
consulting, Sajal has counseled leading global retail and packaged-goods
clients as they set growth strategies and face challenges from the changing
international landscape and from domestic-market shifts caused by
digitalization, consolidation, and new entrants. He has served retail and
consumer-goods clients across Asia, Canada, Europe, Latin America, and
North America. He serves retail clients across multiple formats, including
hypermarkets, pure e-commerce players, grocers, restaurant chains,
department stores, and leading consumer-goods companies across food,
consumer-electronics, personal-care, beauty, and other categories. Sajal
focuses on working with senior leaders and their management teams to
drive growth and commercial and operations transformations across both
retail and consumer-goods companies. Over the last few years, he has been
spending a lot of time with organizations on the potential and implications
of tech enablement, including advanced analytics, artificial intelligence, and
their implications on the future of work.
Operations lead
Eric Marohn
Eric Marohn is an expert with McKinsey who has been with the company
for 22 years. He is based in Chicago, IL, focusing his practice on the North
American grocery market. His expertise is in merchandising, marketing,
sales, formats, and consumer research, with extensive knowledge across
North America. He focuses on grocery, food, and consumer trends; corporate
strategy; and growth transformation in international and US-based markets.
4 State of Grocery North America
Acknowledgments
Special thanks to Janiece Lehmann, Becca Coggins, Daniel Laeubli, and Julia Spielvogel. We would also
like to thank Beatriz Rastrollo and Karin Ringvold for their work in conducting the consumer survey for the
European report and laying the foundation for this one.
Thanks to Leff for providing editorial and design services for this report.
Contributors
Cara Aiello Manik Aryapadi Bill Aull Fernando Ayala Steven Begley
Consultant Partner Partner Consultant Partner
Boston Dallas Charlotte Mexico City New York
Bassel Berjaoui Sara Bondi Vishwa Chandra Gokmen Ciger Becca Coggins
Associate partner Associate partner Partner Associate partner Senior partner
Paris Pittsburgh San Francisco Istanbul Chicago
José Ricardo Cota Andreas Ess Ricardo Ferreira Sebastian Gatzer Prabh Gill
Associate partner Partner Consultant Partner Associate partner
Mexico City Zurich Libson Cologne Vancouver
Maura Goldrick Tyler Harris Jake Hart Jenny Hu Karina Huerta
Partner Associate partner Director of Associate partner Constultant
Boston Washington D.C. Solution Delivery Toronto Mexico City
Cleveland
Holger Hürtgen Nikola Jakic Jonatan Janmark Bartosz Jesse Sajal Kohli
Partner Associate Partner Partner Partner Senior partner
Dusseldorf Toronto Stockholm Zurich Chicago
Alexandra Nicholas Landry Eric Marohn Rahul Mathew Varun Mathur
Kuzmanovic Associate partner Knowledge expert Associate partner Partner
Consultant Vancouver Chicago New York San Francisco
Chicago
Bill Mutell Jaya Pandrangi Beatriz Rastrollo Joshua Reuben Daniel Roos
Partner Partner Associate partner Consultant Associate partner
Atlanta Chicago Madrid Toronto Cologne
Ricardo Sanromán Patrick Simon Raphaël Speich Sarah Touse Kumar
Partner Partner Partner Partner Venkataraman
Mexico City Munich Paris Boston Partner
Chicago
Janice Yoshimura Tom Youldon
Consultant Partner
Chicago London
State of Grocery North America 5
© Jacob Fergus/Getty Images
The state of grocery in
North America
The emergence of new challenges will force grocery retailers to adapt their
strategies and operations. Executives should focus on five priorities in 2022.
by Bill Aull, Becca Coggins, Sajal Kohli, and Eric Marohn
6 State of Grocery North America
Over the past two years, grocery trips and visiting a smaller number of
retailers have had to reassess and adapt stores: they are 20 percent more likely to
nearly every facet of their operations. go to just one grocery store a week. As
Changes to the grocery landscape will such, consumers are increasingly seeking
continue, shaped by both macroeconomic out one-stop shops and have expressed an
factors (such as supply chain challenges interest in buying everything in one place
and inflation) and mercurial customer even more frequently in 2022.
preferences. To keep pace, retailers should
focus on a handful of trends: the rise of Meanwhile, the food-at-home market,
the value-conscious, healthier-eating which had been slowly losing share to
consumer; elevated consumer expectations food away from home before 2020, has
for omnichannel; an increased emphasis on surged 8.7 percent, four times its historical
sustainability; strategic workforce planning growth rate. The move to food at home
and investment in tech and analytics; and coincides with a growing emphasis on
the growing importance of ecosystems healthier eating.
and partnerships.
Together, these trends suggest consumer
Looking back on 2021 behaviors have fundamentally changed—
In our conversations with CEOs, “volatile” and grocers should take notice.
was the word used most frequently to
describe 2021. Since 2019, the market A steadying but still-fragile supply chain
has grown at an impressive 15 percent,1 Disruptions to supply chains during the
a rise that was the product of increases pandemic have increased out-of-stock
to both prices and volumes. But these rates by upward of 15 percent, compared
top-line numbers belie the roiling retail with historical rates of 5 to 10 percent.2
landscape beneath. Significant shifts Issues over the past two years have been
in share of stomach, supply and labor attributed to a host of factors, including
shortages, unprecedented investments in bottlenecks at ports, labor shortages, and
e-commerce, and rising inflation created huge, unanticipated spikes in consumer
widespread disruption for grocers. demand. The good news is that some of
these challenges, such as overseas vessel
Acceleration of pandemic-related delays and container shortages, will pass.
consumer trends Others—such as labor shortages and the
According to recent McKinsey consumer ongoing shift toward automation—have
insights, the trends that took hold at been a long time in the making and will
the start of the pandemic have gained require a sustained commitment to resolve.
momentum. Total e-commerce sales
have grown nearly 60 percent since Significant shocks to the labor market
the beginning of the pandemic, though The grocery industry employs nearly three
penetration rates have leveled off. At the million people in the United States.3 Every
same time, consumers are making fewer aspect of the industry’s people model—
1
Total grocery sales across traditional grocery, supercenters, mass market, drug stores, convenience stores,
clubs, discounters, and online channels inclusive of drug spending; Kantar LLC, Copyright 2022. All rights
reserved 2022.
2
Kelly Tyko, “Grocery stores still have empty shelves amid supply chain disruptions, omicron and winter storms,”
USA Today, January 12, 2022.
3
“Supermarkets & grocery stores in the US - Employment statistics 2002–2027,” IBISWorld, updated December
29, 2021.
State of Grocery North America 7
corporate, in-store, and across every part of challenges among suppliers, retailers, and
its operation—is experiencing an upheaval consumers has increased these groups’
caused by a rise in absenteeism and receptiveness to higher prices—a fortunate
attrition as well as by employee demands development for retailers because no
for flexible labor scheduling. The workforce single player can absorb the full magnitude
participation rate plunged dramatically of price increases and remain profitable. In
during the pandemic; as of August 2021, 2021, grocery retailers raised prices even
it was still 1.6 percentage points below while doing their best to mitigate costs.
prepandemic levels. The accelerating One CEO noted, “Inflation is exceeding
adoption of automation (such as the customer income growth. If cost increases
increased use of self-checkout, image are just passed through, it will lead to lower
technology to perform in-stock checks, and sales and profits and a greater migration
automated picking in warehouses) is also of customers to EDLP4 grocers. It will be
changing the workforce dynamic. critical to balance when to absorb the cost
inflation versus passing some or all of it
Emergence of unprecedented inflation through to optimize business performance
At the beginning of 2022, inflation exceeded and retain customers.”
7 percent, fueled by historic rises in labor,
freight, and commodities costs during the Greatly increased capital investment
latter half of 2021. Today’s inflationary The grocery ecosystem has begun to
environment continues to stem from a blend change dramatically as new partnerships
of cyclical, structural, and global supply and entrants have challenged the status
chain issues. The recognition of supply chain quo. Grocers increased their capital
4
Everyday low pricing.
Exhibit 1
Grocers significantly
Grocers significantlyincreased their
increased capital
their spending
capital to keep
spending topace
keepwith
pacea
changing ecosystem.
with a changing ecosystem.
Capital expenditure CAGR,¹ %
4.2%
1.3x
1.8%
2010–18 2018–20
1 For a collection of 16 publicly traded hypermarkets and super centers, food retailers, and general merchandise stores.
Source: McKinsey analysis of annual reports from grocery retailers
8 State of Grocery North Americaexpenditures at an amount 1.3 times their 1. Rise of the value-conscious,
healthier-eating consumer
historical levels thanks in part to an influx of
funding (Exhibit 1). Consider that venture- With continued uncertainty around the
capital firms raised $10 billion for grocery COVID-19 pandemic and grocery inflation
start-ups in the first six months of 2021 the highest it has been in ten years,
alone. As investments continue to pour in, consumers have become more focused on
we expect these enhanced capabilities to shopping for the best value in an effort to
disrupt the food ecosystem. stretch their dollars (Exhibit 2). Moreover,
90 percent of CEOs expect increasing
What’s ahead for 2022 pricing pressure from consumers to
Grocers will face five trends that can broadly continue in 2022. When choosing where
be described by changing consumer tastes to shop in the year ahead, 45 percent of
and the responses necessary to keep pace consumers indicate they plan to explore
with them. more ways to save money, a level virtually
With continued uncertainty
around the COVID-19
pandemic and grocery inflation
the highest it has been in ten
years, consumers have become
more focused on shopping for
the best value in an effort to
stretch their dollars.
State of Grocery North America 9Exhibit 2
In 2022,
In 2022,consumers
consumers willwill
looklook
for ways to save
for ways tomoney while focusing
save money on
while focusing
healthier eating and nutrition.
on healthier eating and nutrition.
Grocery shopping attitudes
in 2022 vs 2021,1 % change Decrease Stay the same Increase Net intent,2 %
Look for ways to save money +42
3 52 45
when shopping
Switch to less expensive products +17
10 63 27
to save money
Actively research best promotions 8 63 29 +21
Buy private-brand products +13
8 71 21
instead of known brands
Buy imported products 29 61 10 –19
Buy food from fresh bars and deli +1
16 67 17
counters in stores
Focus on healthy eating and nutrition 4 57 39 +35
Buy groceries in large stores, where +22
4 70 26
I can buy everything in one place
Buy groceries online 27 53 20 –7
Pay a higher price to get an –4
21 62 17
environmentally friendly product
Grocery shopping attitudes
in 2021 vs 2020,3 % change
Look for ways to save money
2 53 45 +42
when shopping
Switch to less expensive products
8 63 29 +21
to save money
Actively research best promotions 7 63 30 +23
Buy private-brand products
9 71 20 +11
instead of known brands
Buy imported products 30 62 8 –22
Buy food from fresh bars and deli
18 64 18 0
counters in stores
Focus on healthy eating and nutrition 3 55 42 +38
Buy groceries in large stores, where
6 67 27 +21
I can buy everything in one place
Buy groceries online 26 54 20 –7
Interact with store employees at
21 64 15 –6
checkout vs self-checkout
1 Question: Think about 2022. Are you planning to do more, less, or about the same of the following?
2 Question: Which of the following statements best describes your attitudes toward grocery shopping in 2021 as compared with 2020?
3 Net intent is calculated by subtracting the percent of respondents stating decrease from the percent of respondents stating increase.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021 (n = 3,007) and January 13–25, 2021 (n = 4,691); sampled
and weighted to match the US general population over 18 years old
10 State of Grocery North Americaunchanged from the year before. In The emergence of this younger, value-
contrast, 29 percent intend to actively conscious, and healthier eater in 2022
research the best promotions more creates opportunities for grocers to tailor
frequently. their value-priced private-label products to
include healthier offerings.
Consumers are balancing their emphasis
on value with an interest in healthier 2. Elevated consumer expectations
foods. About 40 percent of consumers for omnichannel
expect to increase their focus on healthy Online buying is here to stay. Customer
eating and nutrition. Consumers intend preference for online and delivery orders
to purchase more regional and local increased by around 50 percent during the
goods (41 percent), high-protein options pandemic and is expected to rise further
(34 percent), and offerings that are free in 2022 (Exhibit 4). Consumers continue to
from certain ingredients (33 percent), be drawn to the convenience and relative
along with other naturally healthy safety of online shopping, an attraction that
options (Exhibit 3). This combination of becomes even more appealing as delivery
saving money and eating healthier, more costs decline and promotions increase.
nutritious foods is more prevalent among
millennial and Gen Z consumers, in part The main barriers to online shopping are
because they are still waiting for their consumer preferences for personal contact
finances to return to normal. in stores and expensive delivery charges,
The emergence of this
younger, value-conscious, and
healthier eater in 2022 creates
opportunities for grocers
to tailor their value-priced
private-label products to
include healthier offerings.
State of Grocery North America 11Exhibit 3
Consumers expect
Consumers expecttoto
spend
spend more money
more on food
money on with
foodspecific attributes, such
with specific
as high protein and natural ingredients.
attributes, such as high protein and natural ingredients.
Spend preference by food type
in 2022 vs 2021,1 % change Decrease Stay the same Increase Net intent,2 %
Regional or local 2 57 41 +39
Naturally healthy 5 59 36 +31
High protein 4 62 34 +30
"Free from" artificial ingredients 6 61 33 +27
"Free from" environmentally
6 62 32 +26
hazardous ingredients or materials
Environmentally friendly 6 63 31 +25
Low sugar 6 64 30 +24
Uses 100% recyclable packaging 5 67 28 +23
Low calories 6 66 28 +22
Animal welfare friendly 7 64 29 +22
Low fat 7 66 27 +20
Packaging-free or
6 68 26 +20
minimized packaging
Organic 11 62 27 +16
Products with low-emissions
9 66 25 +16
footprint
Dairy alternatives 13 58 29 +16
Gluten free 14 62 24 +10
Vegetarian 17 57 26 +9
Lactose free 15 61 24 +9
Meat alternatives 17 57 26 +9
Vegan 19 56 25 +6
Halal products 19 59 22 +3
1 Question: Thinking about 2022, do you expect that you will spend more, the same, or less on following types of food products as compared to 2021?
2 Net intent is calculated by subtracting the percent of respondents stating decrease from the percent of respondents stating increase.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021 (n = 3,007) and January 13–25, 2021 (n = 4,691); sampled and weighted to match
the US general population over 18 years old
though consumers are less concerned To shift more spending to online,
about these issues today than they were successful grocers will invest to create a
in 2020 (Exhibit 5). Consumers also prefer more seamless, personalized experience.
home delivery when grocery shopping Here are four key trends to keep in mind:
online, marking a change from the
preference for click and collect in 2020.
12 State of Grocery North AmericaExhibit 4
Online and
Online anddelivery orders
delivery increased
orders by about
increased 50 percent
by about during the
50 percent pandemic
during the
and are expected to rise further in 2022.
pandemic and are expected to rise further in 2022.
Consumer channel change during Net intent,3
COVID-19 outbreak,1 % change Decrease Stay the same Increase % change
Online (click and collect) 10 38 52 +42
Online (scheduled delivery) 13 32 55 +42
Instant delivery 12 35 53 +41
In a physical store or food market 29 56 15 –14
Consumer expectations for
channel change in 2022,2 % change
Online (click and collect) 23 50 27 +4
Online (scheduled delivery) 20 55 25 +5
Instant delivery 25 48 27 +2
In a physical store or food market 13 74 13 0
1 Question: How did your preference to shop across the following channels change during the COVID-19 outbreak?
2 Question: In the next 12 months, do you expect to shop more, less, or the same in the following channels?
3 Net intent is calculated by subtracting the percent of respondents stating decrease from the percent of respondents stating increase.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021 (n = 3,007) and January 13–25, 2021 (n = 4,691); sampled and weighted to match
the US general population over 18 years old
Customers expect a consistent value example, Albertsons with Google) to
proposition across online and in-store improve user experience.
channels. Shoppers are engaging in
omnichannel across a variety of shopping Loyalty and personalization are more
missions—weekly grocery shopping and important than ever. Grocers are improving
midweek top-ups, for example—and they their share of wallet with omnichannel
expect similar assortments, pricing, and shoppers by expanding their capabilities
promotions, among other factors, across in personalized promotions and product
channels. recommendations.
User experience on apps is becoming Grocers are also experimenting with
more important. Consumers increasingly shopper engagement in omnichannel. For
value the ability to search for products example, some are using mobile product
quickly and build their baskets while scanning to get product information.
shopping online. Winning grocers In addition, scan-and-go commerce is
have responded by investing in their changing the way shoppers interact with
e-commerce capabilities and forging grocers both in stores and on apps.
partnerships with tech companies (for
State of Grocery North America 13Exhibit 5
Cost, quality,
Cost, quality, and merchandising
and authority
merchandising are keys
authority aretokeys
increasing grocery
to increasing
e-commerce.
grocery e-commerce.
Quality and freshness of food remain obstacles for consumers in online grocery shopping
Change
Factors preventing consumers from buying in
groceries online more frequently,1 % 2021, %
I prefer personal contact
31 –15
in stores
The delivery charges are
25 –14
too expensive for me
Quality and freshness of
21 –3
fresh foods not sufficient
The products are too
17 –1
expensive for me
My desired products are
16 +1
not available
The minimum order values
14 –6
are too high for me
Difficult to find products
13 0
I am looking for
The selection is not
10 –1
large enough
The possible delivery times
10 –4
are unsuitable for me
Too often I receive products that have
not been ordered or that are damaged, 10 –1
or there are products missing on delivery
1 Question: What prevents you from buying groceries online more frequently? Indicate all applicable reasons.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021 (n = 3,007) and January 13–25, 2021 (n = 4,691); sampled and weighted to match
the US general population over 18 years old
Grocers are also starting to see the upside made many consumers more aware of
from omnichannel; the omnichannel the consequences of their purchasing
shopper spends two to four times more behaviors. This emergence of socially
than the in-store customer. Now the focus conscious consumers is forcing Fortune
has shifted from protecting in-store sales 500 companies to act.
to supporting business both online and in
stores through omnichannel excellence. Companies beyond those known for their
environmental, social, and governance
3. Increased emphasis on sustainability (ESG) policies—such as Ben & Jerry’s,
Several developments—the success of the FedEx, and LEGO—are increasingly
UN Climate Change Conference (COP26) making more decisions based on social
in Glasgow, the dip in emissions at the and environmental issues compared with
beginning of the pandemic, and the uptick 2020. In our survey, grocery CEOs largely
in climate-related natural disasters—have expect consumers in 2022 to place a
14 State of Grocery North Americagreater emphasis on sustainability across eliminate waste in its communities by 2025,
all dimensions (for example, packaging and and Albertsons has committed to making
supply chain) and make different choices 100 percent of its Own Brands packaging
because of it. recyclable, reusable, or industrially
compostable by 2025.5 Many retailers
The industry has experienced a recognize the connection between Scope
groundswell of interest and activity 3 emissions (the result of activities from
(Exhibit 6). Five years ago, Walmart was assets beyond a company’s operations,
the only retailer with ESG targets based such as vendors) and a global supply
on public science; today, grocers, apparel chain and are, accordingly, reevaluating
manufacturers, quick-service restaurants, operations and ESG simultaneously to
and stores of all formats are seeking enhance resilience while decreasing their
assistance with their ESG strategies. For carbon footprint.
example, Kroger aims to end hunger and
5
“Kroger celebrates zero hunger | Zero waste momentum in 2020,” Kroger, April 20, 2021; “Plastics & packaging,”
Albertsons, accessed May 5, 2022.
Exhibit 6
The emergence
The emergenceofofsocially conscious
socially consumers
conscious is compelling
consumers Fortune 500
is compelling
companies to act.
Fortune 500 companies to act.
Companies are engaging with the public on environmental, social, and governance (ESG) factors at scale
Global retailers with public science-based
targets, number of retailers
41
>75% 44%
of global GDP is generated of Fortune 500 companies
in countries with net-zero are integrating ESG into
carbon mandates in law or core business strategy
policy development
18
76% $30 trillion
4
1
of consumers buy or boycott sustainably invested globally,
2017 2018 2019 2020 brands based on values up 10 times from 2004
Source: McKinsey analysis
State of Grocery North America 154. Strategic workforce planning and Walmart has invested $5 billion in a range
investment in tech and analytics of upskilling initiatives. For example,
Automation and AI will affect millions of employees can earn college credits online
jobs in the coming years, and retail is through the company’s Live Better U
one of the most susceptible industries: program. Tenured employees can take
for example, 54 percent of current work part in the Walmart Academy—dedicated
activities in retail can be automated. By locations near Walmart Supercenters that
2030, estimates suggest retail could offer two to six weeks of training to support
capture 35 percent of this automation career advancement. In fiscal year 2021
potential, resulting in the displacement alone, 95,000 associates were trained via
of approximately six million full-time the Walmart Academy. In addition, Walmart
employees.6 and the Walmart Foundation have invested
more than $100 million in the broader
Leading organizations have already made “retail opportunity” ecosystem.10
bold bets to keep pace with changing
workforce requirements. Several Amazon provides free education to
organizations are leading the way in efforts employees through its Career Choice
to reskill their employees: program—part of the company’s $1.2 billion
commitment to upskill more than 300,000
Kroger has a tuition reimbursement employees for in-demand fields through its
program that offers up to $21,000 to AWS Grow Our Own Talent, Surge2IT, and
part- and full-time associates. More than the User Experience Design and Research
6,000 associates have benefited from this Apprenticeship programs, for example.11
program.7
5. Growing importance of ecosystems
Giant Food Stores partnered with Central and partnerships
Penn College to offer a $1,000 scholarship Margin pressure for grocers will likely
for its employees to attend the college. continue through 2022, forcing business
Giant also provides $5,250 a year in tuition leaders to search for growth beyond the
reimbursement to full-time associates.8 core. Grocers have significant loyalty from
their core customers and a treasure trove
Publix offers varying levels of tuition of customer data. They can use these
reimbursement for education options that advantages to build broader ecosystems
enhance an employee’s ability to perform that improve the overall financial profile
in a current or future role, ranging from of their business. We expect grocers to
$4,400 for two-year community colleges pursue three main ecosystem strategies
to a total of $16,000 for four-year colleges in 2022:
and universities.9
6
McKinsey Global Institute analysis.
7
“The Kroger family of companies to hire 10,000 associates,” Kroger, June 7, 2021.
8
“Giant Food Stores partners with Central Penn College,” Central Penn College, October 7, 2019.
9
“ Tuition reimbursement,” Publix, accessed May 5, 2022.
10
PrepScholar blog, “Walmart’s Live Better U: Reviews and requirements,” blog entry by Ashley Robinson,
College Entrance Examination Board, November 14, 2021; “What is a Walmart Academy? How they’re building
confidence and careers,” Walmart, April 17, 2017; 2020 Environmental, social and governance report, Walmart,
2020.
11
“Amazon boosts upskilling opportunities for hourly employees by partnering with more than 140 universities and
colleges to fully fund tuition,” Amazon, March 3, 2022.
16 State of Grocery North AmericaPartner with tech companies to modernize Create new and innovative value
operations and enhance capabilities. propositions to customers. In Europe,
For instance, microfulfillment center Morrisons has partnered with Deliveroo to
technology players such as Swisslog and offer a ten-minute grocery delivery service
Takeoff Technologies are collaborating called Deliveroo Hop, while Albert Heijn
with grocers Ahold Delhaize and H-E-B, is expanding its “to go” format across BP
respectively. Google and Microsoft are retail sites. In the United States, Kroger is
also forging partnerships with grocers doubling down on prepared meals through
to introduce AI in replenishment and its partnership with Kitchen United.
commerce (for example, implementing
online tools to enable consumers to build Ecosystems are not only for the largest
grocery shopping lists). grocers to pursue; midsize and regional
grocers can also participate by taking a
Join forces with delivery companies for nonleading role or finding a niche to own.
cost efficiencies and e-commerce reach.
Beyond Instacart, Shipt is expanding Priorities for 2022
its engagements with grocers, while The year ahead is already full of challenges.
DoorDash has partnerships with Smart & Leading grocers will be defined by the
Final, Meijer, Fresh Thyme, and Albertsons, differentiation, innovation, and defensibility
among others. of their strategies. As executives consider
Ecosystems are not only for
the largest grocers to pursue;
midsize and regional grocers
can also participate by taking
a nonleading role or finding a
niche to own.
State of Grocery North America 17their course and priorities for 2022, they 4. Talent will remain under pressure.
should address several questions: Do you have a model in place to
attract and replace those leaving
1. C
hanging consumer habits are here the industry?
to stay. How will you pivot—and
continue to pivot—to cater to these 5. Forward-thinking partnerships are
evolving needs? proliferating. Are you creatively
looking to push capabilities in the
2. Omnichannel is table stakes. How face of new competitors?
will you continue to build your digital
and advanced-analytics capabilities
to achieve omnichannel excellence? Grocery executives that can successfully
navigate these five issues will be poised for
3. ESG is gaining importance, and better performance in the years ahead.
consumers are voting with their
feet. Where are you with your
commitments?
Bill Aull is a partner in McKinsey’s Charlotte office; Becca Coggins and Sajal Kohli are senior
partners in the Chicago office, where Eric Marohn is a consultant.
The authors would like to thank Cara Aiello and Karina Huerta for their contributions to this article.
Copyright © 2022 McKinsey & Company. All rights reserved.
18 State of Grocery North America© Edwin Tan/Getty Images
The next horizon
for grocery e-commerce:
Beyond the pandemic bump
Consumers will increasingly shop for groceries online in the years ahead.
Retailers must make a series of strategic investments to keep pace.
This article is a collaborative effort by Vishwa Chandra, Prabh Gill, Sajal Kohli, Varun Mathur, Kumar
Venkataraman, and Janice Yoshimura.
State of Grocery North America 19Over the past 24 months, e-commerce e-commerce as one of many ways to shop.
in the North American grocery industry However, many grocers don’t believe they
has continued to mature and scale. The have the necessary capabilities to manage
pandemic served as an accelerator for this channel. In this article, we examine
grocery e-commerce, with much of the the actions organizations must take to win
sector experiencing the equivalent of in e-commerce.
more than five years of growth in just
five months.1 E-commerce takes hold
The industry is now on the edge of the next
We recently completed extensive research transformation in e-commerce: grocery
that included surveys of grocery CEOs, executives expect e-commerce penetration
functional and operations executives, to more than double for their own
and consumers (see sidebar, “About organizations in the next three to five years,
the research”). Our surveys confirmed to an average of 23 percent (Exhibit 1).
that consumers will continue to favor
1
“Disruption and uncertainty: The state of grocery retail 2021—North America,” McKinsey, July 2021.
Exhibit 1
Surveyed experts
Surveyed expect
experts grocery
expect e-commerce
grocery penetration
e-commerce to double
penetration in the
to double
next five years.
in the next five years.
Respondent organization e-commerce penetration,
historical1 and anticipated2 share of total revenue, %, n = 25 Historical Forecast
8
0–2%
0
24
3–5%
8
24
11%
6–10% Reported average
8
e-commerce
4 penetration, 20213
11–15%
20
12
16–20%
8
23%
4
21–25%
12
4 Average forecast
26–30%
12 e-commerce penetration
0 in 5 years3
31–35%
8
Greater 24
than 35% 28
Expected time frame for industry e-commerce peak,4 number of respondents, n = 25
This year 2–3 years 4–5 years 6–10 years 10+ years
1 Question: What was your organization’s level of e-commerce penetration as a percentage of total sales in the last year (2021)?
2 Question: What do you think the maximum e-commerce penetration rate as a percentage of total sales for your organization will be in the next 5 years?
3 Respondents self-identified as from mass markets, specialty, and small-assortment retailers reporting more than 40% e-commerce penetration today are
expected to skew overly bullish given assortment in nongrocery items. These respondents potentially considered both grocery and nongrocery goods in their
forecasts.
4 Question: When do you believe this maximum penetration rate will be achieved in the industry?
Source: Grocery Retail B2B Survey, February 2022, n = 25
20 State of Grocery North AmericaExecutives are even more bullish on
e-commerce’s upside potential, noting About the research
that penetration could nearly triple to as
high as 35 percent (nearly $600 billion To get a better sense of
versus about $150 billion at 11 percent e-commerce trends in North
penetration). Our research suggests American grocery, McKinsey
continued support for e-commerce from conducted research on retailers
consumers, who indicated a positive net and consumers. In January and
intent to buy more groceries online (click February 2022, we surveyed
and collect as well as delivery) in 2022 31 CEOs as well as 25 C-level
(Exhibit 2). executives, directors, and vice
presidents. Our team augmented
The main drivers of e-commerce’s these results with extensive
growth during COVID-19 were safety and insights from surveys conducted
convenience, but our research found in 2021 among consumers in the
consumers also value the channel’s unique United States (4,691 respondents),
features—such as product comparisons, Mexico (1,005), and Canada (967).
assortment, and personalized promotions.
Exhibit 2
Online and
Online anddelivery orders
delivery increased
orders by about
increased 50 percent
by about during the
50 percent COVID-19
during the
outbreak and are expected to rise further in 2022.
COVID-19 outbreak and are expected to rise further in 2022.
Consumer channel change during Net intent,3
COVID-19 outbreak,1 % change Decrease Stay the same Increase % change
Online (click and collect) 10 38 52 +42
Online (scheduled delivery) 13 32 55 +42
Instant delivery 12 35 53 +41
In a physical store or food market 29 56 15 –14
Consumer expectations for
channel change in 2022,2 % change
Online (click and collect) 23 50 27 +4
Online (scheduled delivery) 20 55 25 +5
Instant delivery 25 48 27 +2
In a physical store or food market 13 74 13 0
1 Question: How did your preference to shop across the following channels change during the COVID-19 outbreak?
2 Question: In the next 12 months, do you expect to shop more, less, or the same in the following channels?
3 Net intent is calculated by subtracting the percent of respondents stating decrease from the percent of respondents stating increase.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021, n = 3,007, sampled and weighted to match the US general population 18+ years
State of Grocery North America 21Exhibit 3
Consumers have
Consumers haveshifted from
shifted clickclick
from and collect to home
and collect to delivery.
home delivery.
Consumer preferences for online food shopping,1 % Click and collect Home delivery
Dec 2021 37 63
Dec 2020 52 48
Sept 2020 50 50
Top reasons for preferring home delivery,2 % Sept 2020 Dec 2020 Dec 2021
47
Home delivery is more convenient/
47
I do not need to drive to store
33
Home delivery offers me flexibility/ 16
I don’t need to be physically present for 18
the order to be delivered 19
12
Home delivery is faster to fulfill my order
12
vs click and collect
16
9
Home delivery gives better products,
10
especially for my fresh and frozen foods
11
Home delivery is more reliable for on-time 9
order fulfillment/I have experienced 6
delays in click and collect 12
I have been able to get an appointment 7
for delivery easier/quicker than for 7
click and collect 10
1 Question: Which mode of shopping for food online do you prefer?
2 Question: Rank 1 reason for preference of home delivery.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021, n = 3,007; US Online Grocery Consumer Survey, December 10–December 17,
2021, n = 2,007, September 18–23, 2020, n = 1,014, sampled and weighted to match the US general population 18+ years
In parallel, consumers increasingly prefer We are also seeing consumers
home delivery (a rise from 48 percent in demonstrate different preferences for
December 2020 to 63 percent a year how their digital orders are filled based
later, which translates to an approximately on need and occasion, a shift that reflects
$100 billion market today) and appreciate continued maturity in consumers’ approach
its product and service enhancements, to online grocery (Exhibit 4). Their use
including speed, reliability, assortment of different options based on occasion
breadth, and flexibility (Exhibit 3).
22 State of Grocery North AmericaExhibit 4
Consumers are
Consumers moving
are movingbeyond convenience
beyond and safety,
convenience the primary
and safety, drivers of
the primary
online shopping during COVID-19.
drivers of online shopping during COVID-19.
Factors driving consumers to online grocery shopping,1 %
It saves me time/effort going into store 29
It is safer than shopping in store during COVID-19 26
I can shop when it is convenient for me (eg, 24/7) 23
I like that I can get products delivered 19
I like the convenience of having products delivered 18
It is easier to compare products 17
I generally prefer to shop online 16
The prices are cheaper 13
It is easier to find the items I need 13
Products are always in stock 13
There are more offers/promotions 12
The range of products is better 12
I find the quality is better than elsewhere 12
I can set up recurring orders/save my favorite items 11
I like being able to read product reviews before I buy 11
There are always new brands/products to try 10
Additional features that make shopping easier 7
Other 3
Change vs
Factors that would make online grocery shopping more attractive to online shoppers,2 % 2020
Lower delivery costs 47 –10
More promotions 42 –6
Lower minimum order values 32 +5
Faster delivery 28 –9
More precise delivery windows 20 +2
Delivery also at off-peak times 15 +3
Possibility to receive grocery delivery
14 +4
without having to be present
1 Question: Why do you shop for groceries online?
2 Question: You will now see some factors that might make buying food online more attractive to you. Please select up to 3 most attractive factors.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021, n = 3,007, January 13–25, 2021, n = 4,691, sampled and weighted to match the
US general population 18+ years
State of Grocery North America 23Exhibit 5
Consumers
Consumers areare starting
starting to demonstrate
to demonstrate different
different behaviors by
behaviors
by occasion and need.
occasion and need.
Consumer monthly grocery spend, 1 % Consumer behavior when making various types of grocery trips,2 %
Stock up Buy the meal for that day Go to store or food market Order instant delivery
Shop for Shop for a specific item Order delivery from Order click and collect
a few items online retailer
80 79 78
71
19
41
16
24
17 17 18
15 15
7 8 8
4 3 3
2
Stock up Shop for a Buy the meal Shop for a
few items for that day specific item
1 Question: What share of your monthly grocery budget is spent on the following types of occasions?
2 Question: What do you typically do when you need to get food on the following occasions? Respondents could select up to two options per occasion.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021, n = 3,007, sampled and weighted to match the US general population 18+
years
(Exhibit 5) compels retailers to offer a full foot stores created a different in-store
portfolio of e-commerce options (such experience than the one offered by the
as same-day delivery, two-hour delivery, traditional neighborhood store. The mass-
instant delivery, and click and collect). As merchant category now accounts for
demand spreads across different trips, the about 26 percent of the market. Similarly,
result is smaller baskets. club retailers encouraged consumers
to buy in bulk, and the rapid growth of
This degree of channel shifting within the discount and value grocery, featuring a
grocery sector has precedents. Over the predominantly private-label offering, defied
past couple of decades, the emergence the conventional wisdom that consumers
and adoption of new offerings and wanted only consumer-packaged-goods
channels have spurred significant changes (CPG) brands. Each of these “new”
in consumer behavior. For example, the rise offerings has been accompanied by
of mass merchants with 150,000-square- changing consumer behavior.
24 State of Grocery North AmericaExhibit 6
Retailers are
Retailers arenot
notprepared
preparedforfor
thethe
shiftshift
to digital, and they
to digital, andare limited
they in their
are limited
ability to attract the talent needed to capture this opportunity.
in their ability to attract the talent needed to capture this opportunity.
Retailer preparedness for the shift to Difficulty to attract talent, %, n = 25
digital, %, n = 25
Do you feel that your organization is prepared for the How difficult will it be for your organization to attract the
transition toward more digital commerce? necessary technical talent to support digital capability-
building in the next 5 years?
0 00
8
16
~2 of 3 28 44 55%+
Believe it will be
Respondents expect difficult or very
to lose some share difficult to attract
in the shift to digital the necessary talent
64
40
Very well prepared Somewhat well prepared Very difficult Not at all difficult
Well prepared Not prepared at all Difficult My organization already has
Somewhat difficult the necessary technical talent
Source: Grocery Retail B2B Survey, February 2022, n = 25
Keeping pace with store remodels, digitalization, and talent
e-commerce growth acquisition.
As consumers have shifted toward
e-commerce, two-thirds of retailers To enhance their capabilities in the
don’t feel well prepared to meet the dual short term, grocers have responded by
challenges of delivering on growth while implementing three specific strategies.
achieving profitability. Our research
revealed that retailers feel some First, some grocers are building
trepidation. Two-thirds of respondents partnerships with technology companies.
expect to lose some share in the shift To expand fulfillment capabilities, grocers
to digital, and more than half believe it such as Ahold Delhaize, Wakefern, and
will be difficult to attract the necessary H-E-B have partnered with microfulfillment
talent to support digital growth (Exhibit 6). center (MFC) technology players like
Meanwhile, grocers are considering how Dematic, Takeoff Technologies, and
to allocate capital across multiple parallel Swisslog. Google and Microsoft are
efforts, including supply chain resilience, also working with grocers to introduce
State of Grocery North America 25artificial intelligence in replenishment the store will continue to be significant,
and commerce (for example, to enable with grocers investing in digitalization
consumers to build grocery lists while to improve the in-store experience for
shopping online). consumers—for example, through self-
checkout and grab and go.
Second, grocers continue to rely on third
parties to manage costs and expand their How grocers can win in
e-commerce offerings. Instacart became e-commerce—delivering on
a leader through its early market entry,
both growth and profitability
but it has been joined by players such as
To excel in the next horizon of e-commerce,
Shipt and DoorDash. The latter handles
grocers need to develop an integrated
fulfillment for Albertsons, alongside
value proposition that meets consumer
Instacart and Uber. Grocers are also using
needs while protecting their own
partnerships to provide new and innovative
profitability.
value propositions to customers. In Europe,
for example, Morrisons has partnered with
Our research found consumers are looking
Deliveroo to make deliveries in as little as
to save money, be healthier, build on
ten minutes.
their (rediscovered) joy of cooking, and
find the best promotions more easily. For
Last, the shift to e-commerce is also
each of these needs, an evolved digital
challenging how retailers think about
presence (both app- and web-based) can
capabilities across the e-commerce value
help grocers highlight their assortment,
chain, from in-store digitalization and
personalize their promotions, and
pricing and promotion to trade spending
engage consumers in a more meaningful
and media and advertising. The role of
To draw more consumers to
e-commerce, retailers must
offer lower costs, reduce
minimum order requirements,
protect quality and freshness,
and enhance the breadth
and discoverability of their
assortments.
26 State of Grocery North Americamanner—something that a purely To deliver on the dual objective of growth
brick-and-mortar offering cannot do. and profitability, grocers need to take a
Organizations, especially retailers that range of simultaneous actions:
have underinvested in the past, are
planning to make aggressive investments Engage customers meaningfully in
in their digital capabilities to support their omnichannel journeys and invest
these tasks. in user experience
Omnichannel has become table stakes.
However, simply redefining the value After spending the past few years building
proposition will not be enough. To draw this core offering, grocers are now
more consumers to e-commerce, retailers focusing on retention efforts by forging
must offer lower costs, reduce minimum personal relationships with customers to
order requirements, protect quality and increase basket size through upselling
freshness, and enhance the breadth and increased frequency of trips, both
and discoverability of their assortments
(Exhibit 7).
Exhibit 7
Cost, quality,
Cost, quality,and
andmerchandising
merchandisingauthority are the
authority keys
are thetokeys
increasing
to increasing
grocery e-commerce.
grocery e-commerce.
Quality and freshness of food remain obstacles for consumers in online grocery shopping.
Factors preventing consumers from buying Change vs
groceries online more frequently1, % 2020, %
I prefer personal contact
31 –15
in stores
The delivery charges are
25 –14
too expensive for me
Quality and freshness of
21 –3
fresh foods not sufficient
The products are too
17 –1
expensive for me
My desired products are
16 +1
not available
The minimum order values
14 –6
are too high for me
Difficult to find products
13 0
I am looking for
The selection is not
10 –1
large enough
The possible delivery times
10 –4
are unsuitable for me
Too often I receive products that have
not been ordered or that are damaged, 10 –1
or there are products missing on delivery
1 Question: What prevents you from buying groceries online more frequently? Indicate all applicable reasons.
Source: State of Grocery Consumer Survey, November 19–December 7, 2021, n = 3,007, January 13–25, 2021, n = 4,691, sampled and weighted to match the
US general population 18+ years
State of Grocery North America 27online and in store. Grocers are also with technology companies to improve
experimenting with new ways to engage the user experience. For example,
shoppers in omnichannel. For example, Albertsons and Google have partnered
mobile scan–based product information to create in-store shoppable maps with
and scan-and-go commerce are changing dynamic hyperlocal features, AI-powered
the way shoppers interact with grocers conversational commerce, and predictive
in-store and on apps. Establishing and grocery-list building.
maintaining a social connection with
consumers and reaching out daily will At the same time, retailers must enhance
be important for grocers hoping to move the in-store experience through continued
from share of stomach to share of mind. A investments in store technology. Solutions
social-first, video-rich capability will also be include self-checkout, digital shelf tags,
a must-have. E-grocer Weee, for example, and payments innovation to improve
which specializes in products for Asian personalization and efficiency.
and Hispanic shoppers, uses gamified,
video-rich social media offerings to nurture All of these offerings will have the dual
a highly engaged customer base. objective of enabling growth while
increasing profitability. However, focused
The convergence of value propositions investments will be needed to build both
across the industry is raising the bar the talent bench and the core technology
on user experience in e-commerce. infrastructure. Successful grocers will
Consumers increasingly value the ability seek to attract the right talent to their
to find products quickly and build their organizations and address the legacy
baskets while shopping online. Grocers are technology debt from the past couple
responding by investing in e-commerce of decades.
capabilities and forming partnerships
Successful grocers will seek to
attract the right talent to their
organizations and address the
legacy technology debt from
the past couple of decades.
28 State of Grocery North AmericaBuild a distinct—but connected— recognize this challenge. Retailers and
capability in e-commerce category CPG companies have deep and complex
management ways of optimizing trade promotions
Because e-commerce is set to account and advertising in the brick-and-mortar
for a significant share of overall business, channel. There are dozens of mechanisms
retailers are starting to be more deliberate through which CPGs and retailers invest
about standing up channel-specific in advertising and trade, and ROI is often
management capabilities and getting hard to track and measure. Both retailers
sharper on assortment choices (breadth and CPGs will need to lean on digital
and depth, online versus offline), pricing, capabilities to optimize their investments
and online-only promotions, among other for greater impact on revenue
factors. Grocers need to make investments and profitability.
in data, analytics, and IT infrastructure to
get a deeper understanding of their online Develop a portfolio of fulfillment
business performance—for example, options that are aligned to individual
the effectiveness of online promotions markets’ needs
and digital shopping trends by consumer As demand for online grocery continues
segment. They must also dedicate to scale, grocers are going to have to
resources to building their organizational revisit how and where they fulfill orders.
muscle through efforts such as upskilling The network of the future for grocers will
merchants. These capabilities should be encompass a mix of automated MFCs,
integrated into a broader omnichannel manual dark stores, and store fulfillment.
category management strategy, which Matching the right fulfillment option to
can provide a holistic and thoughtful each specific location based on a market’s
merchandising experience anchored in a demand profile and service promise will
single view of the customer. be critical.
As consumers continue the shift toward Retailers are conducting pilots with
buying through mobile apps, grocers automated MFCs and manual dark stores.
are starting to use the full suite of Many grocers are now locating MFCs
e-merchandising levers—such as product close to their customers to improve
placement, product recommendations, speed at a lower cost. Both aggregate
personalized promotions, and digital demand and consistency of demand are
media—to monetize their digital assets with key factors in ensuring ROI. Grocers are
consumer goods companies. The launch of also implementing centralized fulfillment
retail media networks (such as Instacart’s centers to handle larger order volumes
new Carrot Ads platform) allows retailers and support next-day delivery in highly
to capture a greater share of marketing concentrated geographies.
spending from brands beyond what they
have traditionally captured. This source will In parallel, grocers are experimenting
be a key driver of profitability for grocers in with new last-mile models (for example,
the coming years. autonomous vehicles with precise
delivery slots) and tech-enabled logistics
Making this shift will not be easy, and optimization to lower costs while
our survey indicates that retailers maintaining service levels.
State of Grocery North America 29You can also read
