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Grocery delivery demand cools as food costs rise

Karen Raschke, a retired attorney from New York, began receiving her purchases 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 that his rent would increase by $617 a month. Delivery was one of the first things he cut from his budget. Now the 75-year-old walks four blocks to the grocery store several times a week. He only uses delivery on rare occasions, like a recent heat wave.

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

Raschke is not alone. US demand for grocery delivery is cooling off as prices for food and other necessities rise. Some are switching to the pick-up option, a less expensive alternative where shoppers stop at the curb or go to the store to pick up their pre-packaged groceries, while others say they feel comfortable doing the shopping themselves.

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

Companies scrambled to meet that demand. DoorDash and Uber Eats started offering grocery delivery. Kroger, the nation’s largest grocery store, has opened automated warehouses to fill delivery orders. Amazon has opened a handful of Amazon Fresh grocery stores, offering free delivery to Prime members. Hyper-fast grocery delivery companies like Jokr and Buyk expanded into US cities.

But as the pandemic calmed down, demand softened. In June 2022, Americans spent $2.5 billion on grocery delivery, down 26% from 2020. For comparison, they spent $3.4 billion on grocery pickup, causing demand to drop 10.5% since the height of the pandemic.

That is causing some turmoil in the industry. Buyk filed for bankruptcy in March; Jokr retired from the US in June. Instacart, the US market leader in grocery delivery, cut its own valuation by 40% to $24 billion in March ahead of a possible initial public offering. Kroger said its digital sales, which include pickup and delivery, fell 6% in the first quarter of this year.

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

Cost is the main reason. Peter Cloutier, growth and business strategy leader at Chase Design, said it’s hard to get a purchase to a customer’s door for less than a $10 premium, which covers labor and transportation. Often that cost is higher.

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

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

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

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

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

But earlier this summer, when gas prices approached $7 and a box of strawberries approached $9, he got serious about cutting costs.

White now cycles between Instacart, Uber Eats, Walmart and others, using whichever has the best deals and coupons. He sometimes spends two hours filling a delivery cart and then waits to see if more promotions are posted before finishing his order. And he has reduced the amount he tips drivers.

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

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

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

“There is a trust gap between what the shopper wants to get and what the retailer delivers,” Cloutier said.

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

But even that may not appeal to some buyers.

Diane Kovacs, a college professor in Brunswick, Ohio, has been using curbside pickup for nearly a decade. She saves her money, she says, because she doesn’t get caught up in impulse buying inside the supermarket.

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

“I think people aren’t using delivery because they want to get out of the house,” he said.

The true demand for grocery delivery is difficult to calculate. Usage can fluctuate wildly when COVID cases spike or businesses 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 issues stick to delivery. People over the age of 60 have generally returned to shopping in person.

Bishop says delivery saw five years of growth in the first three months of the pandemic, and demand is still likely to be high. Over time, he expects delivery sales to settle into more regular growth of around 10% a year. But the surrender won’t go away, he said.

“I don’t see it going back completely to pre-COVID levels. That can has been opened,” she said.

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