This one-of-a-kind study is based on fundamental economics to understand the challenges facing retailers and restaurants as they respond to consumers’ need for convenience in an increasingly digital economy. We use precise data to inform our market size and growth projections, identify what approaches are most likely to succeed, and understand the strategic drivers of market participants. Studies from other firms focus on a description of WHAT is occurring, and are unable to take a perspective on WHY the industry is evolving.
The study makes clear:
- WHAT is at stake: a maximum convenience value of $100 billion annually in avoided shopping time driven by internet-enabled platforms; of which $20-$30 billion is the “sweet spot” for large grocery chains.
- WHY the operating cost models of large grocery retailers and, for many, their delivery partners such as Instacart and Door Dash, must be lower than $20/hour to be relevant for same day orders.
- HOW large grocery retailers with $150 billion invested in real estate/buildings/warehouses/fixtures will seek to protect and leverage their asset bases (they will not walk away!)
Large grocery retailers are at risk of seeing up to 15% of groceries purchased over the internet by 2025, and they are building next day delivery systems to fulfill orders taken over their own portals.
- AMAZON’S strategy: it collects approximately $12 billion annually in Prime Membership subscription fees annually, and their acquisition of Whole Foods should be looked at primarily through this prism.
Amazon with an estimated 65 million “Amazon Prime” members in the US (and 100 million worldwide) are in the center of the target households with convenience needs, with average family income over $100,000.
- The meal kit industry is not robust, and could well level off at $4 billion to $5 billion annually with a half dozen survivors. And a significant portion of sales realized through grocery chain placements. They do not offer sufficient convenience versus alternatives.
- Fully prepared meals, either hot and ready-to-eat, and sourced from restaurants and in-store delis are on-trend and competitive on price with meal kits.
A nationwide delivery network also facilitated by internet-ordering portals, is being built by firms such as UberEats and GrubHub. It now covers 30% of all restaurants, and coverage is projected to grow to 50% by 2025.
- Frozen meals and entrees are improving and offer the most economical solution for time-pressured households.
Economies of scale and low labor costs per unit are the winning formula