Grocery delivery interest wanes
Karen Raschke, a retired attorney in New York, started getting her groceries delivered early in the pandemic. Each delivery cost $30 in fees and tips, but it was worth it to avoid the store.
Then earlier this spring, Raschke learned her rent was increasing by $617 per month. Delivery was one of the first things she cut from her budget. Now, the 75-year-old walks four blocks to the grocery several times a week. She only uses delivery on rare occasions, like a recent heat wave.
“To do it every week is not sustainable,” she said.
Raschke isn't alone. U.S. demand for grocery delivery is cooling as prices for food and other necessities rise. Some are shifting to pickup — a less expensive alternative where shoppers pull up curbside or go into the store to collect their already-bagged groceries — while others say they're comfortable doing the shopping themselves.
Grocery delivery saw tremendous growth during the first year of the pandemic. In August 2019, a typical pre-pandemic month, Americans spent $500 million on grocery delivery. By June 2020, it had ballooned to a $3.4 billion business, according to Brick Meets Click, a market research company.
Companies rushed to fill that demand. DoorDash and Uber Eats began offering grocery delivery. Kroger, the nation's largest grocer, opened automated warehouses to fulfill delivery orders. Amazon opened a handful of Amazon Fresh groceries, which provide free delivery to Prime members. Hyperfast grocery delivery companies such as Jokr and Buyk expanded into U.S. cities.
But as the pandemic eased, demand softened. In June, Americans spent $2.5 billion on grocery delivery, down 26% from 2020. For comparison, they spent $3.4 billion on grocery pickup, which saw demand drop 10.5% from its pandemic highs.
That's causing some turmoil in the industry. Buyk filed for bankruptcy in March; Jokr pulled out of the U.S. in June. Instacart, the U.S. market leader in grocery delivery, slashed its own valuation by 40% to $24 billion in March ahead of a potential IPO. Kroger said its digital sales, which include pickup and delivery, dropped 6% in the first quarter of this year.
Some think delivery demand could drop further. Chase Design, a consulting firm, says its surveys show the number of U.S. shoppers who plan to use grocery delivery “all the time” has fallen by half since 2021.
Cost is the biggest reason. Peter Cloutier, the growth and commercial strategy lead at Chase Design, said it's difficult to get groceries 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 store, the order would ring up at $35.12. Target offers curbside pickup for free. Delivery costs $9.99, not including a tip.
DoorDash also offers delivery from Target, but it charges more for each item on its website. The cart rings up at $39.90 from DoorDash, which then adds $12.18 in taxes and delivery fees. If the consumer adds a $10 tip, that totals $62.08.
Both DoorDash and Target offer free delivery through subscriptions, but those come with a monthly or yearly fee.
The premiums are tough to swallow on top of skyrocketing food prices. In June, U.S. grocery food prices were up 12.2% over the last 12 months, the largest increase since April 1979, according to government data.
Cynthia Carrasco White, an attorney for a nonprofit in Los Angeles, got accustomed to grocery delivery during the pandemic. She still prefers it, since her youngest child isn't fully vaccinated and it saves time.
But earlier this summer, as gas prices approached $7 and a box of strawberries neared $9, she got serious about cutting costs.
White now toggles between Instacart, Uber Eats, Walmart and others, using whichever has the best offers and coupons. She will sometimes spend two hours filling a delivery cart and then wait to see if more promotions are posted before she finishes her order. And she has cut back on the amount she tips drivers.
“The economy has definitely taken the wind out of our sails,” she said. “It's just this endless pressure.”
Retailers are responding by varying delivery prices by time of day. On a recent morning, Walmart offered to deliver a $35 order within two hours for $17.95; that dropped to $7.95 if the order could be delivered between 3 p.m. and 4 p.m.