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Disruption and uncertainty: The state of grocery retail 2021 North America July 2021
Copyright © 2021 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: © FOTOGRAFIA INC/Getty Images
Contents
4 14
The state of grocery in North America Making online grocery a winning
proposition
24 30
How advanced analytics Automation opportunities in North
can fuel growth American grocery
37 44
Prioritizing flexibility: How grocers The potential for powerhouse private
can get the most out of technology brands: An updated view
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 1
Foreword
COVID-19 hit North America with force in March 2020. As in most other regions of the world, the
pandemic has caused an unprecedented health and economic crisis over the past 15 months.
Seemingly overnight, grocers became crucial businesses and played a vital role in serving local
communities and ensuring an ongoing safe and healthy food supply.
Grocers faced a massive amount of disruption, including unseen demand volatility (for example,
ongoing peaks and surges based on community closures and waves of infection), a rapid
acceleration of online demand, and a change in typical shopping patterns (such as fewer trips and
significantly larger baskets). These patterns resulted from consumers working, eating, and living
largely at home. Grocers also had to implement significant changes to their operations to ensure
safe work environments.
As vaccine distribution hits key milestones and large portions of North American consumers begin
to safely return to their prepandemic habits, we recognize there is significant uncertainty for the
grocery industry. All grocers are grappling with a series of questions: Which consumer behaviors
observed during the pandemic will stick, and what emerging trends will shape the near term? Will
e-commerce continue to grow, and how will grocers improve profitability? How will customers
expect to engage with grocers going forward? How much investment will be made in automation?
How do we harness technology to change our future? Will there be a flight to value, and what can be
done to acknowledge customers’ need for affordability? This report aims to answer those questions.
This report is 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). Our goal is to frame major trends and issues for CEOs seeking to stay ahead of market
shifts. To bring a holistic view of industry dynamics, we complemented our colleagues’ insights and
analyses with surveys and interviews with grocery executives.
We wish to thank FMI for its collaboration in developing these perspectives and supporting the
engagement from leading North American grocery CEOs. We hope this report will offer new insights
that help grocers remain competitive as they navigate the uncertainty ahead.
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 Practice
2 Disruption and Uncertainty – The State of Grocery Retail 2021: North America
Editors Operations lead
Bill Aull Sajal Kohli Eric Marohn
Bill is a partner in Sajal is a senior partner in Eric Marohn is an expert
McKinsey’s Charlotte the Chicago office and leads with McKinsey & Company
office and is a leader McKinsey’s Consumer Practice and has been with the
within the Americas Retail globally. Sajal has counseled company for 21 years.
Practice and Consumer leading global retail and He is based in Chicago,
Practice. He now leads our packaged-goods clients as IL, focusing his practice
North American Grocery they set growth strategies and on the NA grocery
practice and has been with face the challenges of both market. His expertise is in
McKinsey for the past 11 the changing international merchandising, marketing
years. Bill’s client work has landscape and domestic- and sales, formats,
spanned both retail and market shifts because of consumer research, with
CPG sectors with a focus digitization, consolidation, extensive knowledge
on transformation topics— and new entrants. He has across North America. He
commercial strategy, served retail and consumer- focuses on grocery, food,
organization restructuring, goods clients across Asia, and consumer trends;
corporate strategy; and
merchandising (pricing, Canada, Europe, Latin
growth transformation in
promotion, assortment, America, and North America.
international and
vendor negotiations) and He serves retail clients
US-based markets.
operations topics. He has across multiple formats,
worked across numerous including hypermarkets, pure
retail channels/formats and ecommerce players, grocers,
consumer categories. restaurant chains, department
stores, and leading consumer-
goods companies across
food, consumer-electronics,
personal-care, and beauty.
Acknowledgments
Special thanks to Julia Büntig, Becca Coggins, Dymfke Kuijpers, Daniel Laeubli, and Julia Spielvogel. We
would also like to thank the operators from the European report–Christian Gämperli, Claus Gerckens, and
Rebecca Tse–for their work in conducting the consumer survey and laying the foundation for this report.
Thanks to Leff for providing editorial and design services for this report.
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 3
© andresr/Getty Images
The state of grocery
in North America
As the industry looks beyond the pandemic, grocery retailers must determine
which trends will endure. A focus on five areas will separate the winners from
the rest of the pack.
by Bill Aull, Anuja Desikan Perkins, Sajal Kohli, and Eric Marohn
4 Disruption and Uncertainty – The State of Grocery Retail 2021: North America
The COVID-19 pandemic left no industry evolving sector. We have observed several
untouched. Grocers in North America, key themes.
along with those in other regions of the
world, served as essential businesses A five-year acceleration of online
and critical players in ensuring food penetration in a matter of months
supply during a time of great uncertainty. In late 2019, e-commerce penetration
Customer behaviors shifted dramatically in North America hovered around 4
and rapidly during the pandemic, forcing percent of sales—an important channel
grocers to adapt in kind. To prepare for for consumers but still niche with certain
what lies ahead, North American grocers segments (for example, younger, urban
must understand the new industry consumers). By late spring in 2020,
baseline, the nuances of key consumer e-commerce penetration had reached 10
shifts observed over the past year, and the to 15 percent of sales overall, with some
behaviors and preferences that will endure regions (such as high-density urban areas)
once the pandemic abates. Our research topping 20 percent (Exhibit 1).
suggests the next normal will be shaped by
five factors in 2021 and beyond. Adoption accelerated significantly in
demographics not typically considered
The radical shift in grocery- tech-savvy, such as baby boomers, as they
sought fulfillment channels that limited
shopper behavior
health risk.
Grocers gained significant “share of
stomach” during the pandemic as
This shift in behavior toward e-commerce
consumers across North America shifted
appears to be quite sticky. Overall,
to living, working, and learning at home.
shoppers have been pleased with
In an industry that has traditionally seen
experiences provided by grocers for
growth of 1 to 2 percent a year, North
both click-and-collect and delivery.
American grocery grew by approximately
Across categories, consumers indicate
12 percent in 2020, offsetting significant
a continued preference of shopping
reductions in food away from home.1
online, even in traditionally hard-to-crack
categories such as fresh meat and produce
The initial disruption of March and April
(an increase of five percentage points in
2020, marked by initial lockdowns and
net intent versus prepandemic).2 Shoppers
closures of all nonessential businesses,
also indicate that their interactions
saw consumers choosing to visit
and experiences with grocers’ digital
grocers outside their traditional primary
interfaces will meaningfully affect their
destinations. This trend, influenced
primary grocery choices in the future:
primarily by proximity, store cleanliness,
ease of selection and checkout, quick
health, safety, and in-stock products,
access to past orders and reordering, and
was a notable deviation from historical
transparency into in-stock products will be
purchase drivers such as price, service,
the most important factors to consumers.
and in-store experience.
Moving to ‘one-stop’ shopping
As the world began to see the pandemic
For years prior to the pandemic, grocery
as a crisis measured in months, not days,
shoppers had been increasing both their
behavior shifts continued to shape an
1
antar Retail IQ database.
K
2
McKinsey analysis of Brick Meets Click data.
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 5Exhibit 1
Online grocery penetration has risen significantly since the onset of
the pandemic.
Online grocery penetration has risen significantly since the onset of
the pandemic.
Estimated e-commerce penetration in grocery, %
14.5 14.3
13.6
12.7 12.8 12.5
12.3
10.7
8.3
Mar 20 Apr 20 May 20 June 20 Aug 20 Nov 20 Jan 21 Feb 21 Mar 21
Source: McKinsey analysis (with data from Brick Meets Click)
In the initial stages of the
pandemic, grocery shoppers
chose where to shop based on
in-stock products, store hygiene,
and cleanliness procedures.
6 Disruption and Uncertainty – The State of Grocery Retail 2021: North Americanumber of trips per month and the number Accelerating healthy habits
of grocers they visited. That trend reversed Throughout the past year, medical
in 2020, with shoppers indicating their professionals have consistently
overall trip frequency was only half of emphasized the increased risk of severe
prepandemic levels through spring and complications from COVID-19 faced by
summer of 2020. While trips did begin to people with underlying health conditions.
increase in late 2020 and into early 2021, This awareness has, in turn, sharpened the
our analysis found the number of trips focus on wellness that was underway prior
today is only 35 percent of prepandemic to the pandemic, creating shifts in category
levels and unlikely to fully rebound. demand within grocery (Exhibit 3).
As the pandemic continues, shoppers note Furthermore, as consumers look ahead to
that the winners of their primary shopping their food consumption in 2021, they are
trip tend to offer affordable options and leaning toward “better for you” options.
e-commerce capabilities, ensure products According to our survey, the net intent to
are in stock, and offer a robust fresh focus on healthy eating and nutrition is
proposition (Exhibit 2). expected to be up 38 percentage points
Exhibit 2
Store location will remain relevant in 2021.
Store location will remain relevant in 2021.
Top factor that will influence grocery store selection in 2021 vs 2020, %1
Store location (close to home or work) 21
Competitive prices on branded products 18
Robustness of cleanliness or hygiene practices in store 15
Ongoing availability of fresh food 13
Ongoing availability of value products 11
Availability of e-commerce services 9
Ability to do contactless transactions 7
Ongoing availability of packaged or frozen food 5
1
Q: Which of the following factors will be more important to you when deciding where to shop in 2021 as compared to 2020?
Note: Figures may not sum to 100%, because of rounding.
Source: McKinsey & Company State of Grocery Consumer Survey 1/13–1/25, n = 4,691 sampled and weighted to match the US general population 18+ years
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 7Exhibit 3
Demand in certain categories, such as fresh and organic products,
shifted during the pandemic and look set to endure in 2021.
Demand in certain categories, such as fresh and organic products, shifted
during the pandemic and look set to endure in 2021.
Category (Spending preference during or after)
Spending preference in the next 6–12 months vs prior to COVID-19,1 Net intent2
30
Fresh fruits
and vegetables
25
Household
20 care
Healthcare
Personal care Fresh meat
15 Frozen foods
Meat cut in store that Vitamins
is presented behind the Organic products Dairy Baking Snacks
butcher counter Beverages
10 Natural products Packaged
Plant-based food
products Deli meats
5 Grab-and-go
Pet foods Prepackaged, partially cooked fresh meals
fresh meals that require some cooking at home
Food cooked
0 or prepared in Alcoholic beverages
Pet care
the store that I
have to serve
–5 myself
Baby care
Tobacco
–10
–9 –6 –3 0 3 6 9 12 15 18 21 24 27 30
Spend preference during COVID-19 vs prior, Net intent 1 2
1
Q: For items purchased from grocery stores, we want to learn how your spending profile changed during the novel coronavirus outbreak, as compared to before
the novel coronavirus outbreak. Please indicate how you expect your household’s consumption in the following categories to change in the next 6–12 months,
as compared to before the novel coronavirus outbreak.
2
Net intent is calculated by subtracting the percentage of respondents selecting “significantly increase” from the percentage of respondents selecting
“significantly decrease.”
Source: McKinsey & Company COVID-19: US Grocery Consumer Survey 9/14–9/16, n = 2,010
over 2020, with consumers specifically when choosing where to shop, 45 percent
seeking out naturally healthy, high-protein, of consumers indicate they plan to look
low-sugar, and low-calorie foods. for ways to save money, and 32 percent
of consumers will seek a price–quality
Increasing focus on affordability balance in product offerings (Exhibit 4).
In the initial stages of the pandemic, The emphasis on affordability will also
grocery shoppers chose where to shop likely serve as an accelerant for private
based on in-stock products, store hygiene, label. The past year saw remarkable
and cleanliness procedures. As 2020 growth for leading private-label offerings
progressed, however, affordability began in grocery. In 2020, for example, private-
to climb the ranks in importance, and 2021 label sales rose by more than 13 percent
is poised to see consumers demonstrate at Albertsons and Kroger. This trajectory
even more bargain-hunting behavior:
8 Disruption and Uncertainty – The State of Grocery Retail 2021: North AmericaExhibit 4
Consumers will increasingly look for ways to save money and focus
on healthywill
Consumers eating and nutrition
increasingly look for in 2021,
ways while
to save stillinfavoring
money stores
2021 while
focusing on healthy eating and
that balance price and quality.nutrition.
Consumers plan to continue purchasing private labels, mainly because they offer equal quality for
less money.
Grocery shopping attitudes in 2021 vs 2020, %1 Net intent,2
%
Increase Stay the same Decrease
Look for ways to save
45 53 +42
money when shopping
2
Switch to less expensive
products to save money 29 63 8 +21
Actively research for
best promotions 30 63 7 +23
Buy private-label products
20 71 9 +11
instead of known brands
Buy imported 8 62 30 –22
products
Buy food from fresh bars 18 64 18 0
and deli counters in stores
Focus on healthy 42 55 +38
eating and nutrition
3
Interact with store employees at 15 64 21 –6
check-out vs. self checkout
Buy groceries in large stores,
27 67 6 +21
where I can buy everything
in one place
Buy groceries 20 54 26 –7
online
Top reason for buying more private-label products, %3
The private-label product has equal
35
quality for less money
The private-label product is cheaper 25
The private-label product is good
enough for everyday use 11
The private-label product is often
on promotion or special deals 8
The private-label brand has products
7
more suitable for my needs
My friends recommend
the private-label product 5
The private-label brand has
5
the newest or latest products
My usual brand was not available 3
1
Question: Which of the following statements best describes your attitudes toward grocery shopping in 2021 as compared to 2020? You indicated that you plan
to purchase more private-label products (eg, store brand products) in 2021 relative to 2020. Which of the following reasons best describes why?
2
Net intent is calculated by subtracting the percent of respondents stating decrease from the percent of respondents stating increase.
3
Figures may not sum to 100%, because of rounding.
Source: McKinsey & Company State of Grocery Consumer Survey 1/13-1/25 n = 4,691 sampled and weighted to match the US general population 18+ years
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 9could continue as consumers see better retain market share, personalization and
value in private-label products. its delivery will likely continue to rise in
importance.
Growing expectation of personalization
as the norm How the pandemic reset
Personalization in retail has gained
the playing field for winners
massive traction over the past five
years, evolving from a predominantly
and the rest of the pack
From 2010 to 2020, North American
mass promotion–based approach to
grocers followed a path similar to that of
segmented, customized, and real-time
their counterparts in other geographies.
dynamic offers. Although the definition of
Deep discounters had entered the market
personalization can be broad, consumers
and were gaining share aggressively over
tend to reward retailers that combine
mass players, supermarkets, and even club
great timing, relevant offers, and attractive
players. From 2015 to 2019, discounters
pricing. This trend toward personalization
grew at an impressive 6.2 percent, far
is evident in the investments retailers are
outpacing the growth of other grocery
making. Indeed, 60 percent of leading
formats, and further national expansion
grocery retailers indicated they had
plans are imminent (Exhibit 5). To defend
made investments in 2020 to enhance
against this threat, mass players and large
capabilities to better personalize
national supermarkets responded with
promotions and pricing. In the battle to
Exhibit 5
Supermarkets and supercenters are losing share in grocery retailing
Supermarkets
to and
discounters, supercentersstores,
convenience are losing
andshare in grocery retailing to
e-commerce.
discounters, convenience stores, and e-commerce.
Breakdown of US grocery market by CAGR
channel in 2019, $ billions 2015–2019, %
Online 54 37.5
Convenience stores 70
Clubs 82 3.7
Discounters 114 6.2
4.1
Mass merchants 256
or supercenters
1.3
1.6
Supermarkets 416
Source: Kantar Retail IQ
10 Disruption and Uncertainty – The State of Grocery Retail 2021: North Americastrategies ranging from significant national Considerations for the next
price drops to store remodels and supply- normal
chain investments. All of these moves As North American consumers begin to
came at the expense of smaller, more adjust to the next normal, we anticipate
regional chains. Furthermore, nearly 2,300 that the landscape of winners and losers
grocery retailers closed from 2012 to 2019. in grocery will cease to be determined by
The outlook for subscale supermarkets format. Instead, leaders will be defined
without a differentiated value proposition by their differentiation, innovation, and
versus larger mass players or national defensibility across five main areas. (For
supermarkets was bleak: in the absence the CEO perspective, see sidebar, “The
of a defendable value proposition, they view from the C-suite.”)
were left to compete on price, racing to the
bottom with discounters without seeing 1. Winning higher share of stomach.
returns in traffic. Before the pandemic, consumers
typically split their share of stomach
In a reversal from prepandemic trends, across more than three grocers. Most
supermarkets and mass players benefited consumers had their go-to stores
from the trends of the past year. Their for fresh, center-store, and stock-
seemingly endless aisles with a large SKU up products and were willing to add
assortment provided consumers with the additional weekly or biweekly
options when items were out of stock. Their trip to fulfill each need. In light of
investments in fresh foods were a welcome the pandemic, we have observed an
tailwind as consumers increasingly sought undeniable consolidation of trips, and
to eat healthier foods. Furthermore, consumer sentiment shows no signs
their local store density and historical of changing: 88 percent of consumers
community roots provided consumers visited three or fewer stores per
with a sense of trust and confidence week in 2020, and 86 percent of
in shopping. And several supermarket consumers plan to continue this trend
chains rose to the e-commerce challenge in 2021. Forty percent of consumers
by quickly bolting on click-and-collect indicate that they would prefer to
or delivery services through third-party frequent stores that sell more than
providers. Without having to compete just groceries. And the undeniable
primarily on price, the core proposition of success of mass players in 2020
supermarkets was once again attractive. further points to improved consumer
Prominent supermarkets reported sales sentiment around trip consolidation.
growth of anywhere from 12 to 16 percent This will likely place some pressure
in 2020, beating out several club and on grocers with specialty and niche
discount players alike. With consumers value propositions—the bar to
indicating that selected pandemic-induced deliver exceptional products, value,
behaviors will remain sticky, the landscape experience, and service will be higher
might continue to evolve. to justify an additional trip. Clarity
in what these grocers stand for and
flawless execution will be key to
retaining share of stomach.
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 11The view from the C-suite
In partnership with FMI, McKinsey surveyed North American grocery CEOs to gather
insights on their learnings from the past year and their perceptions of the key focus areas
for the industry (and their company) through 2022. Reflecting on 2020, CEOs noted four
major themes that shaped the year: safety and regulations, supply chain, e-commerce,
and organizational decision making.
After proving their resilience during the pandemic, grocery leaders are now focusing
their attention on the next normal. CEOs recognize that some of the shifts during the
pandemic will endure through 2021 and 2022. Our survey analysis highlighted three key
trends that leaders consistently highlight as most likely to shape the years ahead: the
rapid acceleration of digital, shifting consumer preferences, and a greater emphasis on
affordability.
More insights from North American grocery CEOs are featured in the upcoming State of
Grocery Retail North America report.
2. Credibly competing in the that the channel increases margins,
omnichannel battleground. Before particularly when it is on pace to
the pandemic, select retailers whose account for upward of 20 percent of
brick-and-mortar stores provided the overall business.
a competitive advantage through
differentiated in-store experiences, 3. Elevating pricing and value. While
services, locations, and formats, store cleanliness practices and
among other attributes, considered product availability dictated where
an omnichannel presence a “nice to consumers chose to shop in 2020,
have” feature. Now, to compete in convenience and value will carry the
today’s environment, in which recent day in 2021. An estimated 32 percent
McKinsey research finds 52 percent of of consumers indicated that a healthy
households shop for groceries online price–quality equation will dictate
across a spectrum of occasions (top- where they choose to shop in 2021,
up, fill-in, full shop), an omnichannel and 45 percent of consumers will look
presence is an imperative. Grocers for ways to save money. The increased
will need to dissect their internal momentum in private label further
e-commerce operations or third-party supports consumers’ renewed focus
models to meet growing consumer on value. Grocers will need to carefully
expectations for experience (such consider how to invest in pricing and
as site usability, transparency into promotions—2020 saw a reduced
in-stock products, and better-picked period of promotional activity owing to
fresh produce), all while ensuring the surge in grocery demand, but we
12 Disruption and Uncertainty – The State of Grocery Retail 2021: North Americaanticipate a return to more strategic for simplicity, a sense that the offers
pricing and promotional activity in and messages are tailored to them,
2021. continued innovation in offers,
responsiveness to consumer behavior
4. Renewing the focus on fresh, new, versus a preset calendar, and seamless
and innovative. During 2020, a sense integration of a retailer’s different
of nostalgia made consumers turn programs. Consumers want to feel
to products from their childhood, recognized as individuals by grocers,
particularly in the center of the store, which will have to engage beyond
and we observed a reduction in the relying on mass promotional activity as
typical innovation-charged new- the answer to share retention. To meet
product releases. However, as fatigue these expectations, grocers will need
sets in around cooking at home, we to rally their organizations around a
expect consumers to demand more strategy and vision for personalization;
innovation across fresh, ready-to-eat, clearly define an operating model
and frozen products. In our sample, 39 between merchandising, pricing,
percent of consumers want grocers to and loyalty teams; and invest in
introduce them to innovative products the technology to support the
and experiences, 41 percent want personalization vision.
to eat better, and 42 percent plan to
continue to cook meals from scratch
at home in 2021. These preferences
all point to the need for grocers to The past year presented one of the most
have a strong fresh program and an challenging for society at large and
assortment across departments that produced what will likely be enduring
delivers on both better-for-you and consumer behaviors in grocery. The
new and exciting consumer needs. grocery sector demonstrated an incredible
amount of resiliency in 2020 and is
5. Accelerating personalization. While poised to continue to serve the most
affordability perception continues urgent consumer needs, albeit against a
to be a primary driver of store drastically different set of imperatives from
selection, personalization is growing two years ago.
in importance. Consumers are looking
Bill Aull is a partner in McKinsey’s Charlotte office; Anuja Desikan Perkins is a partner in the Denver
office; and Sajal Kohli is a senior partner in the Chicago office, where Eric Marohn is a consultant.
The authors wish to thank Vishwa Chandra, Karina Huerta, and Varun Mathur for their contributions to
this article.
Copyright © 2021 McKinsey & Company. All rights reserved.
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 13© Fiordaliso/Getty Images
Making online grocery
a winning proposition
The global pandemic brought online platforms to center stage for grocers.
Retailers should consider five trends and take five steps to ensure this shift is
sustainable and profitable.
by Bill Aull, Steven Begley, Vishwa Chandra, and Varun Mathur
14 Disruption and Uncertainty – The State of Grocery Retail 2021: North AmericaPrior to the COVID-19 pandemic, the five years. The e-grocery penetration in US grocery sector was lagging other the US market is projected to get to 14 to retail sectors in e-commerce adoption. 18 percent, or more, in the next three to Customer reservations about buying five years. Here’s what we see as the new fresh food online, along with high bellwethers for the next few years. e-commerce fees and nonintuitive website designs, stunted adoption. The Five consumer trends shaping grocery sector’s penetration was 3 to grocery e-commerce 4 percent and significantly trailed sectors Consumer preferences have changed such as beauty, apparel, and electronics, across the board—from how and what all of which had penetration rates of 10 to consumers buy to their expectations for 20 percent or more. customer experience and pricing. But the pandemic changed that 1. Increased online shopping is here trajectory. During the peak of the to stay. Despite recent increases in pandemic, grocers watched 20 to brick-and-mortar traffic as consumers 30 percent of their business shift to start reverting to their shopping norms, online, driven by a sudden surge in nearly 50 percent of consumers demand for contactless shopping. By we surveyed indicated that they the end of 2020, online penetration in buy groceries online at least once a grocery had settled at 9 to 12 percent—a week, representing a “next normal” threefold increase from prepandemic (Exhibit 1). Most consumers are using levels and in line with mature markets e-commerce as a way to stock up such as France and the United Kingdom. or top off their weekly and monthly This disruptive shift happened at grocery needs, in addition to visiting breakneck speed; in a matter of months, a physical store. More than half of the grocery e-commerce landscape in these consumers spend more than North America accelerated by three to $100 per online-grocery transaction. Consumer preferences have changed across the board—from how and what consumers buy to their expectations for customer experience and pricing. Disruption and Uncertainty – The State of Grocery Retail 2021: North America 15
Exhibit 1
Consumers are using e-commerce for stock-ups, top-offs, and
Consumers
primary g are using
rocery e-commerce for stock-ups, top-offs, and primary
purchases.
grocery purchases.
Main occasion for ordering groceries online,1 % Frequency of online grocery purchases,2 %
I mainly buy groceries online More than once
when I need to stock up on 21 21
every week
grocery supplies
I buy majority of my groceries by
visiting the physical store, and use Once every week 28
e-commerce mainly to top off my 21
weekly or monthly grocery needs
Once every
I use e-commerce as a primary 25
2 weeks
way to fulfill all my weekly 18
grocery needs
Once every
month 17
I buy groceries online only when
I am time constrained and need
15
my groceries fast
Less than once
every month 13
I buy groceries online to fulfill
my daily meal needs (eg, pre- 14
pared meals for dinner or lunch)
I buy groceries online when I am
hosting for an event or occasion
(eg, Thanksgiving dinner, 7
birthday party)
I use e-commerce when I
want to discover and learn 5
about new products
1
Q: What occasions do you use for ordering groceries using online interface (website or app)? Please rank top 3 occasions.
2
Q: How frequently do you purchase groceries online (website or app)?
Source: McKinsey & Company COVID-19: US Online Grocery Consumer Survey 12/10-12/17 N=2,007
2. Fresh and frozen categories have preferences are showing stickiness
gained the most traction in online beyond 2020 because of the
demand. All grocery categories convenience associated with buying
experienced a significant increase in online. This trend is similar to what
e-commerce adoption over the past we’re seeing in other parts of the world;
12 months, with shelf-stable categories in China, for instance, 55 percent of
such as household care, snacks, consumers said their preference is to
personal care, and packaged foods continue buying more groceries online
leading the basket mix in e-commerce. after the pandemic.
But categories that traditionally had
lower representation online, including 3. E-commerce modality is shifting. The
dairy, produce, fresh meat, and frozen US online grocery market is evolving to
food, also saw a significant increase a mix of instant, or same-day, delivery
in consumer willingness to buy and click and collect. This composition
online (Exhibit 2). What’s more, these is significantly different from those of
16 Disruption and Uncertainty – The State of Grocery Retail 2021: North AmericaExhibit 2
Consumers prefer using e-commerce for every grocery category
overall,
Consumers butprefer
theirusing
preference for e-commerce
e-commerce hascategory
for every grocery decreased for but
overall, most
their preference for e-commerce has decreased
categories since the height of the pandemic. for most categories since the
height of the pandemic.
Consumers’ intent to use e-commerce by category in the next 6 months,1 %
Increase Stay the same Decrease
Change vs Sept Change vs before Change vs during
survey COVID-19 COVID-19
Household care 83 0 +10 –2
Snacks 82 0 +10 0
Personal care 82 –2 +9 –1
Packaged food 81 –1 +7 +1
Beverages 79 –1 +8 +1
Healthcare 75 –2 +10 +2
Frozen foods 74 –2 +10 +2
Dairy 72 –4 +10 +1
Fresh fruits and 72 –3 +5 +5
vegetables
Fresh meats 67 +1 +13 –2
Natural products 65 +1 +11 –4
Deli meats 65 +1 +11 +1
Pet care 60 +2 +10 –5
Organic products 59 +3 +9 –5
Plant-based proteins 53 –1 +12 –1
Food prepared 53 +2 +11 –3
in store
Alcoholic beverages 51 –2 +11 –4
Baby care 40 0 12 –3
1
Q: Please select your preference to use e-commerce to purchase the following categories BEFORE/DURING the coronavirus outbreak and in the next
6 months.
Source: McKinsey & Company COVID-19: US Online Grocery Consumer Survey 12/10–12/17, n = 2,007; 9/18–9/23, n = 1,014
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 17In the United States, grocery-
delivery services providing
contactless shopping experiences
accelerated a market shift toward
same-day delivery.
more mature international markets; and collect experiencing the highest
historically, France has been primarily increase in consumer intent to use
a click-and-collect market (90 percent these services, both in 2020 and
of total grocery e-commerce), while beyond (Exhibit 3). Lower service fees,
the UK market has been mainly next- greater availability of time slots, and
day delivery (80 percent of total the convenience of picking up while
grocery e-commerce). In the United on the road are key factors driving the
States, grocery-delivery services increased adoption of click and collect.
providing contactless shopping Grocers are also shaping this trend by
experiences accelerated a market shift investing in infrastructure to quickly
toward same-day delivery, allowing build click-and-collect capabilities
more grocers to partner with third- across their network so that they can
party providers such as Instacart to offer a stronger customer experience.
quickly build their e-commerce value This shift will be very meaningful for
proposition. Moreover, food-delivery grocers because click and collect
platforms such as DoorDash and Uber offers significantly better economics
Eats have entered grocery delivery, compared with delivery services.
and Amazon continues to drive
momentum with Amazon Fresh. 4. ‘Clunky and scrappy’ user experience
is not an option. Consumers have more
In addition to its impact on delivery, the choices than ever before in where to
pandemic also accelerated consumer shop online. While brand strength and
adoption of buying online and picking quality continue to be important, the
up curbside or in-store, with click user experience in the e-commerce
18 Disruption and Uncertainty – The State of Grocery Retail 2021: North AmericaExhibit 3
Since the onset of the COVID-19 pandemic, consumers have shifted
spending toward
Since the onset buying
of the online
COVID-19 and picking
pandemic, up curbside
consumers or in-store.
have shifted
spending toward buying online and picking up curbside or in-store.
Top factors for preferring click and collect or home delivery, %
Sept 18–23, 2020 Dec 12–17, 2020
Click and collect 1
Home delivery2
Less expensive service fees 25 More convenient 47
22 47
Faster access to groceries 17 Flexibility, no need to be 18
present
17 16
More convenient 15 Faster order fulfillment 12
15 12
Spending preferences per category,3 %
Increase Stay the same Decrease
During COVID-19 situation vs before4
Click and collect Home delivery
Curbside pickup 59 32 9 Next day or later 45 46 10
Pick up in store 44 44 12 Same day 37 52 11
Pick up in locker 26 59 15 In 2 hours or less 31 57 12
Expectation for next 6 months vs past 6 months5
Click and collect Home delivery
Curbside pickup 37 51 12 Next day or later 29 58 13
Pick up in store 35 53 13 Same day 33 54 13
Pick up in locker 25 60 15 In 2 hours or less 28 58 14
1
Q: Why do you prefer using click and collect instead of delivery service?
2
Q: Why do you prefer using home delivery instead of click and collect?
3
Figures may not sum to 100%, because of rounding.
4
Q: How has your spend on grocery e-commerce changed DURING the coronavirus outbreak (last 6 months) vs before the outbreak?
5
Q: How do you expect your spend on grocery e-commerce to change in the next 6 months vs the last 6 months?
Source: : McKinsey & Company COVID-19: US Online Grocery Consumer Survey 12/10-12/17, n = 2,007; 9/18–9/23, n = 1,014
journey is becoming increasingly for reordering) and self-serve access
relevant for consumers in deciding to information (such as stockouts,
where to shop—a crucial point for progress updates, and changes to
traditional grocers to consider as they orders) are the most important drivers
enhance their online offerings. Ease of consumers’ online journeys
of use (for example, product selection, (Exhibit 4).
saved preferences, and order history
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 19Exhibit 4
Quick selection and checkout as well as easy access and reordering of
past
Quickpurchases arecheckout
selection and the mostas important
well as easy features inreordering
access and online interfaces.
of past
purchases are the most important features in online interfaces.
Importance of online interface features,1 %
Least important feature Most important feature
Quick selection and checkout (with few clicks) 7 15
Easy access and reordering of past purchases 8 15
Accurate information on out-of-stock items 7 14
Ability to track progress of my order 7 13
Ability to make changes before/during picking 7 11
Ability to create customized lists and preferences 9 8
Display of promotions to help guide product selection 10 8
Useful product recommendations based on past purchases
and items in current order 12 5
Chat feature with order picker 16 5
Other household members have ability to access and 17 4
edit orders
Note: Figures may not sum to 100%, because of rounding.
1
Q: Which features of the online interface (website or app) are most important to you?
Source: McKinsey & Company COVID-19: US Online Grocery Consumer Survey 12/10–12/17, n = 2,007
Exhibit 5
Only about 36 percent of consumers are likely to pay a price
Only about when
premium 36 percent of consumers
shopping online,are
andlikely to pay a price
two-thirds premium
of this groupwhen
would
shopping online, and two-thirds of this group would only pay a premium of less
only
than 5pay a premium of less than 5 percent.
percent.
Likeliness to pay a pricing premium on products Willingness to pay price premium on groceries
when shopping online,1 % of respondents bought online vs prices in store,2
% of respondents
Prices higher than 10% 10
Very likely 16
7% to 9.99% higher prices 8
Somewhat
likely 20 ~36% 5% to 6.99% higher prices 18
~64%
of consumers of consumers
are likely to pay are willing to
a pricing pay a price
Neutral 25
premium on premium of up
3% to 4.99% higher prices 32
products when to 4.99%
shopping online
Somewhat
18
unlikely
1% to 2.99% higher prices 20
Very unlikely 21
Less than 1% higher prices 12
1
Q: How likely are you to pay a premium price on products (vs prices in store) when buying groceries online?
2
Q: What will be your willingness to pay price premium on groceries bought online vs prices in store (excl delivery fee, personal shopper fee for curbside, tips, etc)?
Source: McKinsey & Company COVID-19: US Online Grocery Consumer Survey 12/10–12/17, n = 2,007
20 Disruption and Uncertainty – The State of Grocery Retail 2021: North America5. Customers are willing to pay for puzzle, both in the United States
convenience—to an extent. During and globally:
the COVID-19 pandemic, many
grocers have responded to the crisis 1. Aggressively capture online
by promising lower service fees share through a distinctive value
and “same as in-store pricing” for proposition and user experience.
e-commerce. However, because With the ecosystem of brick-and-
of picking and delivery operations, mortar grocers at different levels of
grocers face a significantly higher e-commerce maturity—and with pure
cost to serve for e-commerce than players such as Amazon and third-
for brick-and-mortar operations. party providers like Instacart playing
As we shift toward the next normal, in the space as well—offline share is
e-commerce service fees and pricing not an indicator of “fair share” of the
could push upward. However, only online market. Outside the United
36 percent of consumers indicated States, retailers such as Tesco in the
a willingness to pay a price premium United Kingdom have been able to gain
when buying groceries online, and a higher share of online market versus
two-thirds would pay a premium only their brick-and-mortar share because
if it were less than 5 percent (Exhibit of a compelling value proposition,
5). This sentiment limits the ability of powered by timely investments in
grocers to pass higher e-commerce technology and operations. Grocers
operational costs on to customers that create a distinctive value
through pricing. Grocers will need to proposition balancing total cost to
find ways to make the value proposition customer (including premium pricing,
profitable through other levers, such as delivery and service fees, and tips)
increased basket size and operational with relevant product assortment and
efficiencies. an intuitive user experience are better
positioned to increase online traffic
Five ways to and build bigger baskets. The value
proposition needs to be clearly defined
tackle profitability
across modalities (instant, same day,
These macroshifts fundamentally
next day, click and collect) and in the
changed the way consumers think about
context of the macroshift toward
purchasing groceries, forcing grocers
instant and same-day e-commerce.
to quickly scale their e-commerce
offerings. Now, grocers are pivoting to
making e-commerce both sustainable 2. Focus on the omnichannel value
and profitable. As e-commerce becomes of customers. The economics of
a more significant portion of grocers’ e-commerce will continue to be
ongoing business, grocers must scale challenging compared with that of
e-commerce in a way that drives total brick-and-mortar stores. However,
shareholder value. Different players are grocers that can build loyalty,
pursuing different strategies to achieve personalize offers, and create
both growth and higher profitability—or incentives for customers to visit
at least profit parity. At the same time, brick-and-mortar stores while also
several common themes emerge in the increasing their frequency and basket
way grocers are solving the profitability size of online purchases stand to gain
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 21a significant advantage. Grocers are leading ecosystems such as Amazon
also starting to test in-store programs and Instacart to create an online
and promotions to bring consumers route to market or provide a specific
into their online ecosystem. Even proposition. These partnerships bring
though e-commerce presents a risk of scale, infrastructure, and capabilities
cannibalization to brick-and-mortar that grocers would otherwise need
business, winning grocers have been years to build. However, many grocers
able to increase their total share of are rethinking partnership structures
wallet with existing customers by 20 to get closer to the customer and
to 30 percent through an omnichannel capture operational efficiencies.
strategy. Strategies include renegotiating terms
with third-party providers to increase
3. Monetize digital assets. As they access to customer data and exploring
have done for in-store assets via “white-label” platforms. Innovation
endcaps, off-shelf placements, and in these partnership models will be
more, grocers are looking to monetize critical to strike the right balance
their digital assets by exploring new between serving the current needs of
avenues to partner with consumer- customers and future-proofing longer-
packaged-goods (CPG) companies. term growth and economics.
At the same time, CPG companies are
looking to invest disproportionately in 5. Innovate in fulfillment operations.
digital (about 1 to 5 percent of sales) Grocers need to optimize the mix of
to fuel growth. This dynamic creates third-party and in-house fulfillment
an opportunity for grocers to unlock capabilities to create the right
new sources of revenue from CPG infrastructure to deliver on the
companies that want to secure digital customer promise while being cost
space for promotions, preferential effective and agile. For in-house
product placement on UX design, and fulfillment operations, the right
media placement, as well as to explore technology will be vital to support
data-sharing endeavors. future growth. For example, many
grocers are moving toward micro-
4. Reimagine e-commerce ecosystems fulfillment centers to add e-commerce
and partnerships. Several incumbents pick capacity in their existing spaces
have chosen partnerships with without creating large, automated
Many grocers are rethinking
partnership structures to get
closer to the customer and
capture operational efficiencies.
22 Disruption and Uncertainty – The State of Grocery Retail 2021: North Americawarehouses that are capital intensive. and diligence to scale profitably. Grocers
Similarly, for delivery operations, are bolstering their e-commerce-
grocers are increasingly testing gig focused category teams and reviewing
platforms and outsourced-driver stand-alone e-commerce financials to
models to cater to instant and same- sharpen their focus on this business
day e-commerce demand. segment. The right operating model
will balance decision rights between
e-commerce and merchandising teams
and implement analytics and capabilities
To win online, grocers need to rethink to enable acceleration in e-commerce.
their e-commerce operating models. E-commerce in grocery is at an exciting
Unlike before the pandemic, when horizon in North America; now is the
e-commerce accounted for 3 to time to accelerate growth while gearing
4 percent of total sales, e-commerce now the e-commerce value proposition and
requires renewed organizational focus infrastructure for future profitability.
Bill Aull is a partner in McKinsey’s Charlotte office; Steven Begley is a partner in the New Jersey
office; Vishwa Chandra is a partner in the San Francisco office; and Varun Mathur is an associate
partner in the Dallas office.
Copyright © 2021 McKinsey & Company. All rights reserved.
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 23© David Malan/Getty Images
How advanced analytics
can fuel growth
Organizational maturity will be a critical element for grocery retailers seeking to
unlock the full potential of analytics.
by Andreas Ess, Holger Hürtgen, Jonatan Janmark, Gereon Sommer, and Björn Timelin
24 Disruption and Uncertainty – The State of Grocery Retail 2021: North AmericaAdvanced analytics, including artificial earnings before interest and taxes (EBIT)
intelligence, offers a big opportunity of up to two percentage points if all use
for the retail industry. McKinsey cases are implemented and the value
Global Institute estimated in a study is fully captured. Most of this value is
the potential annual value of artificial driven by commercial use cases around
intelligence for the retail industry at assortment, pricing, promotions, and
$400 billion to $800 billion globally. personalization (Exhibit 1). These are also
some of the most mature use cases for
For grocery retail specifically, we see the which analytical approaches have begun
potential for an incremental increase in to converge across the industry and
Exhibit 1
Most valueisisdriven
Most value driven by commercial
by commercial use that
use cases cases that support
support actual actual
bbusiness
usinessdecisions
decisions
Shopping behavior since COVID-19 has started,¹ % of respondents in North America
Typical impact (contains overlaps)¹
Percentage points of EBIT: 0.5
Existing pilots and tests In use in a few companies Becomes standard
Enabler use case–no decision
Classic use cases Innovative use cases
Domain (selection) (selection)
Category Macro space allocation Pricing (KVI identification, NLP on customer reviews
management Macro space order price recommendation) to support for (de)listing
Online or dynamic pricing decisions
SKU listing or delisting
Markdown optimization Automated product
Assortment localization comparison (NLP)
Store clustering Promo (historic
effectiveness, forecast, Automated product tagging
Planogram (position, optimization) (NLP, computer vision)
facings)
Marketing Personalized promotions Marketing mix Facial recognition for
E-commerce personalized optimization (MROI) personalization
content² E-commerce improved
Forecasting product search²
(category, market) Customer journey
analytics
Purchasing Vendor negotiation Indirect optimization
support (AI-based spend cube)
Supply Store labor scheduling Warehouse labor NLP for customer service
chain and Store network (expansion, scheduling Seamless checkout
operations pruning, performance) Warehouse “digital twin” (eg, Amazon Go)
Energy optimization Logistics network Inventory and shelf
in store optimization monitoring
Order forecast and Route optimization, In-store tracking
optimization (including including CO₂ simulation End-to-end product
shrink or out-of-shelf) tracking
Others People analytics Credit scoring Sentiment analysis for
(eg, support) (eg, hiring, chum) Fraud detection customer service
Data ecosystems Back-office process
Retail media automation
Report optimization Automated budgeting
Analytics self-serve
¹Impact partially overlapping—up to 2 percentage points in total realistic.
²On e-commerce revenues.
Source: McKinsey Analytics
Disruption and Uncertainty – The State of Grocery Retail 2021: North America 25standard analytics solutions are available To determine what distinguishes
on the market. analytics leaders from the pack, we
analyzed grocery retailers along two
During the past five years, grocery dimensions: analytical and organizational
retailers have moved beyond maturity (Exhibit 2).
experimenting with advanced analytics
and started to adopt these use cases in We found that capturing the value of
a systematic way. The majority of North advanced analytics depends even more
American grocery retailers are now on a retailer’s organizational maturity
embracing advanced analytics and are than its analytical maturity. In fact,
investing in capturing its value. retailers can achieve results only if
organizational maturity is in place—which
While we observe these investments, we is still the exception in the industry rather
so far do not see that the potential value than the rule.
is captured in the profit and loss (P&L).
Exhibit 2
Most consumers expect to shop online more in 2021 than they did
Most companies can ramp up their analytics capacity, but many struggle
in 2020.
to produce analytics.
Analytical maturity Organizational maturity (breadth of use)
Status of the majority
of North American grocers
Leading:
Data-driven decision making
embedded in business processes
2025
2020
Advanced:
Standard business intelligence
Analytics-led
disconnected from decision
support system
Basic: Business-led
2015
Excel culture, reporting only
Lab Pilot and Enterprise-wide
proof of value adoption
Analytics-led Business-led
• Build a small team of data scientists • Roll out analyatics products across the business
• Assign a strong sponsor • Create new processes based on insights
• Identify and leverage quick wins to prove potential • Embed organizational change
• Systematize learning from data • Strong representation at board level
(eg, through a chief analytics officer)
Source: McKinsey Analytics
26 Disruption and Uncertainty – The State of Grocery Retail 2021: North AmericaMany grocers have made great progress Our analysis of winners—both digital
on analytical maturity. Leaders in natives and traditional grocers—
analytics have tackled the majority of highlighted five strategies that have
fundamental use cases, such as pricing, helped them excel, particularly in
mass promotion, and assortment organizational maturity.
optimization. Now, they have increasingly
turned their focus to pursuing new 1. Focus on strategic use cases
use cases along the value chain and instead of on data.
improving the existing use cases—for Value is driven by business decisions
example, using more granular, real-time based on insights provided by data (see
data. These efforts are often driven by sidebar, “An analytics use case, defined”);
a strong analytics unit, but adoption of vast quantities of data do not generate
these use cases in the business varies. any value by themselves. Transparency
The best analytics solution does not on the value of a use case, and a clear
help if it is not used and understood by road map for how and when to realize it,
the respective decision makers (such as is therefore key.
category managers).
Grocers should create a prioritized portfolio
Organizational maturity in many cases of use cases derived from strategic
is the main barrier to going beyond priorities with clear business objectives,
partial adoption and realizing analytics’ and reallocate resources to those with
full potential. Organizational maturity the highest risk–reward potential. They
encompasses both processes to should also group the defined use cases
technically embed and continually into larger units or domains (such as
improve use cases, as well as constant store operations or merchandising). This
change management with the users accelerates the change in a given business
of the analytical insights—fostering domain, because almost all of their
understanding of analytics, ensuring decisions become more data-driven and,
it is embedded in daily processes, and ideally, interconnected.
measuring against new key performance
indicators (KPIs).
2. Create agile,
interdisciplinary
product teams.
An analytics use case, defined One of the most crucial factors in
extracting value from analytics insights
An analytics use case describes an is the translation process between
application of analytics and data to business and technology. Many business
achieve an improvement of business teams don’t fully understand how
performance and decisions. It defines the technology and data science teams can
scope of change, a set of objectives with support them, and vice versa. As a result,
businesses don’t ask the right questions,
key performance indicators (KPIs), users
while technology and data science teams
affected, and data and analytics methods
try to answer questions that do not exist.
to be used.
This part of the analytics value chain
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