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Demand for grocery delivery cools as food costs rise

Karen Raschke, a retired attorney in NY, started getting her groceries delivered early in the pandemic. Each delivery cost $30 in fees and tips, nonetheless it was worthwhile in order to avoid the store.

Then earlier this spring, Raschke learned her rent was increasing by $617 monthly. Delivery was among the first things she cut from her budget. Now, the 75-year-old walks four blocks to the grocery many times weekly. She only uses delivery on rare occasions, such as a recent heat wave.

To accomplish it weekly isn’t sustainable, she said.

Raschke isnt alone. U.S. demand for grocery delivery is cooling as charges for food along with other necessities rise. Some are shifting to pickup a more affordable alternative where shoppers pull up curbside or go in to the store to get their already-bagged groceries while some say theyre comfortable doing the shopping themselves.

Grocery delivery saw tremendous growth through the first year of the pandemic. In August 2019 an average pre-pandemic month Americans spent $500 million on grocery delivery. By June 2020, it had ballooned to a $3.4 billion business, in accordance with Brick Meets Click, market research company.

Companies rushed to fill that demand. DoorDash and Uber Eats began offering grocery delivery. Kroger the nations largest grocer opened automated warehouses to satisfy delivery orders. Amazon opened a small number of Amazon Fresh groceries, which provide free delivery to Prime members. Hyper-fast grocery delivery companies like Jokr and Buyk expanded into U.S. cities.

But because the pandemic eased, 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, which saw demand drop 10.5% from its pandemic highs.

That’s causing some turmoil in the market. Buyk filed for bankruptcy in March; Jokr pulled from the U.S. in June. Instacart the U.S. market leader in grocery delivery slashed its valuation by 40% to $24 billion in March before a potential IPO. Kroger said its digital sales such as pickup and delivery dropped 6% in the initial quarter of the year.

Some think delivery demand could drop further. Chase Design, a consulting firm, says its surveys show the amount of U.S. shoppers who intend to use grocery delivery at all times has fallen by half since 2021.

Cost may be the biggest reason. Peter Cloutier, the growth and commercial strategy lead at Chase Design, said its difficult to obtain groceries to a customers door for under a $10 premium, which covers labor and transportation. Often, that cost is higher.

Look at a basket of eight staples from Target, including a gallon of milk, twelve eggs and a pound of ground beef. Waiting for you, the order would ring up at $35.12. Target offers curbside pickup free of charge. Delivery costs $9.99, excluding a tip.

DoorDash offers delivery from Target, nonetheless it charges more for every item on its website. The cart rings up at $39.90 from DoorDash, which in turn adds $12.18 in taxes and delivery fees. If the buyer adds a $10 tip, that totals $62.08.

Both DoorDash and Target offer free delivery through subscriptions, but those have a monthly or yearly fee.

The premiums are tough to swallow along with skyrocketing food prices. In June, U.S. grocery food prices were up 12.2% during the last 12 months, the biggest increase since April 1979, in accordance with government data.

Cynthia Carrasco White, a lawyer for a nonprofit in LA, got familiar with grocery delivery through the pandemic. She still prefers it, since her youngest child isnt fully vaccinated also it saves time.

But earlier come early july, as gas prices approached $7 and a box of strawberries neared $9, she got seriously interested in cutting costs.

White now toggles between Instacart, Uber Eats, Walmart among others, using whichever gets the best offers and coupons. She’ll sometimes spend two hours filling a delivery cart and wait to see if more promotions are posted before she finishes her order. And she’s scale back on the total amount she tips drivers.

The economy has definitely taken the wind out of our sails, she said. Its just this endless pressure.

Retailers are responding by varying delivery prices by period. On a recently available morning, Walmart wanted to deliver a $35 order within two hours for $17.95; that dropped to $7.95 if the order could possibly be delivered between 3 p.m. and 4 p.m.

But cost isnt the only real reason some individuals are leaving delivery. Cloutier says many customers are cautious with the standard of items selected by workers.

Theres a trust gap between what the shopper really wants to get and what the retailer fulfills, Cloutier said.

Delivery companies want to improve that. Last month, Uber Eats announced upgrades to its online grocery offering, like the ability for consumers to start to see the products as workers scan them.

But even that could not entice some shoppers.

Diane Kovacs, a college lecturer in Brunswick, Ohio, has been using curbside pickup for pretty much ten years. It saves her money, she says, because she doesnt get sucked into impulse buys in the grocery.

She got her groceries delivered briefly through the pandemic and she didnt mind paying $10 or $15 weekly for the service. But she still prefers pickup. She likes driving her dogs to the store and communicating with the employees.

I believe that people aren’t using delivery since they need to get the heck out of our home, she said.

True demand for grocery delivery is tough to calculate. Usage can swing wildly when COVID cases rise or companies make discounts available, said David Bishop, somebody at Brick Meets Click.

But he sees some patterns emerging. Households with small children and folks with mobility issues are keeping delivery. People over 60 have generally gone back again to shopping personally.

Bishop says delivery saw five years of growth in the initial 90 days of the pandemic, and demand is most likely still elevated. Eventually, he expects delivery sales to stay into more regular growth around 10% each year. But delivery wont disappear completely, he said.

I dont view it moving completely back again to pre-COVID levels. That may has been exposed, he said.

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