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Grocery delivery demand cools as food costs rise

Karen Raschke, a retired attorney in New York, began getting her groceries delivered early in the pandemic. Each delivery cost $30 in fees and tips, but it was worth avoiding the store.

Then, earlier this spring, Raschke learned her rent was increasing by $617 a month. Delivery was one of the first things she cut from her budget. Now the 75-year-old walks four blocks to the grocery store several times a week. She only uses the delivery on rare occasions, like during a recent heat wave.

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

Raschke is not alone. US demand for food supplies cools as prices of groceries and other necessities rise. Some are switching to pickup – a cheaper alternative where shoppers pull up curbside or go into the store to pick up their already packaged groceries – while others say it’s convenient to shop for themselves.

door dash bike.
Delivery services have seen a massive surge in requests during the pandemic.
AP

Food delivery saw tremendous growth in the first year of the pandemic. In August 2019 – a typical month before the pandemic – Americans spent $500 million on food deliveries. By June 2020, it had grown to a $3.4 billion business, according to Brick Meets Click, a market research firm.

Businesses rushed to meet this demand. DoorDash and Uber Eats started offering grocery delivery. Kroger — the country’s largest grocer — opened automated warehouses to fill delivery orders. Amazon has opened a handful of Amazon Fresh groceries that offer free delivery to Prime members. Hyper-fast grocery delivery companies like Jokr and Buyk expanded into US cities.

But as the pandemic subsided, demand eased. In June 2022, Americans spent $2.5 billion on grocery delivery — 26% down from 2020. For comparison, they spent $3.4 billion on grocery pickup, increasing demand by 10 .5% from their pandemic highs.

This is causing some turbulence in the industry. Buyk filed for bankruptcy in March; Jokr retired from the US in June. Instacart — the US leader in grocery delivery — slashed its own valuation by 40% to $24 billion in March ahead of a possible IPO. Kroger said its digital sales — including pickup and delivery — were down 6% in the first quarter of this year.

Some believe supply demand could fall further. Chase Design, a consulting firm, says its surveys show the number of U.S. shoppers planning to use grocery delivery “constantly” has fallen by half since 2021.

Walmart
Consumers use the delivery service with the best deals and coupons.
AP

The cost is the biggest reason. Peter Cloutier, head of growth and commercial strategy at Chase Design, said it’s difficult getting groceries to a customer’s door for less than a $10 premium that covers labor and transportation. These costs are often higher.

Imagine a basket containing eight Target staples, including a gallon of milk, a dozen eggs, and a pound of ground beef. In store, the order would ring at $35.12. Target offers free curbside pickup. Delivery is $9.99, excluding tip.

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

Both DoorDash and Target offer free delivery via subscriptions, but they come with a monthly or yearly fee.

The bonuses are hard to swallow, on top of skyrocketing food prices. In June, US food prices rose 12.2% in the trailing 12 months, the biggest rise since April 1979, according to government data.

Cynthia Carrasco White, an attorney for a Los Angeles nonprofit, has adjusted to delivering groceries during the pandemic. She still prefers it as her youngest child is not fully vaccinated and it saves time.

But earlier this summer, with gas prices approaching $7 and a case of strawberries approaching $9, she got serious about cutting costs.

White now switches between Instacart, Uber Eats, Walmart, and others, using the best deals and coupons. She sometimes spends two hours filling up a delivery truck, then waits to see if more promotions are released before completing her order. And she reduced the tip for drivers.

“The economy has definitely taken the wind out of our sails,” she said. “It’s just this endless pressure.”

Retailers are reacting to this with different delivery prices depending on the time of day. On a recent morning, Walmart offered to ship a $35 order in two hours for $17.95; that dropped to $7.95 if the order could be delivered between 3pm and 4pm

man shopping.
When Covid was on the rise, sales from these delivery services skyrocketed.
AP

But cost isn’t the only reason some consumers are skipping delivery. According to Cloutier, many customers are suspicious of the quality of the items chosen by the workers.

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

Delivery companies are trying to improve that. Last month, Uber Eats announced upgrades to its online grocery offering, including the ability for consumers to see the products as staff scan them.

But even that may not tempt some buyers.

Diane Kovacs, a college instructor in Brunswick, Ohio, has been using curbside pickup for nearly a decade. It saves her money, she says, because she’s not tempted to make impulse purchases at the grocery store.

She got her 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 into the store and chatting with the staff.

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

Actual food delivery demand is difficult to calculate. Usage can fluctuate wildly as COVID cases rise or companies offer discounts, said David Bishop, a partner at Brick Meets Click.

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

Bishop says supply has grown for five years in the first three months of the pandemic and demand is likely still high. Ultimately, he expects delivery sales to settle into more steady growth of about 10% per year. But the delivery won’t go away, he said.

“I don’t see it moving back to pre-COVID levels. That can was opened,” he said.

https://nypost.com/2022/08/08/demand-for-grocery-delivery-cools-as-food-costs-rise/ Grocery delivery demand cools as food costs rise

JACLYN DIAZ

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