How COVID-19 is changing the grocery business

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For those who thought shopping for groceries online seemed novel a few months ago, it’s now firmly on their radars. 

Empty grocery shelves, both physical and digital, have become a symbol of how COVID-19 has had far-reaching impacts on communities and supply chains around the globe. Goods that once seemed abundant — toilet paper, cleaning supplies, water, milk, meat — quickly became difficult to find.

In the hunt for these essentials while adhering to stay-at-home directives, people have turned to online shopping, accelerating the adoption rate of grocery delivery services. The household penetration rate of grocery delivery and “click-and-collect” pickup services in the U.S. rose to 31% from March 23 to March 25, compared to 13% just six months earlier, according to Brick Meets Click.

There have also been plenty of new adopters. More than 40% of Americans who ordered grocery delivery the week ending March 13 tried it for the first time.

“Grocery delivery will be the biggest long-term beneficiary as it was expected to grow before COVID-19, but this is accelerating the rate of change and the adoption curve is happening faster than it ever could have organically,” says James Cook, Americas Director of Research, Retail, JLL. “But the pandemic has also underscored the need for physical grocery stores. We expect long-lasting conversions to grocery delivery but not full conversions. People will order online and use click-and-collect and visit physical stores, just like they are doing now.”

The rise in delivery adoption does not mean that in-store shopping has fallen. Actually, it’s the opposite, with a spike in demand for groceries in-store, partially due to limited availability online. Certain items available to order in early April now note that they won’t ship until late-May. Others aren’t available to order at all.

The unavailability of grocery delivery windows, the “out of stock” memos on major e-commerce platforms, and even the cancellation of certain online orders where supply was miscalculated, were something rarely experienced before this crisis, says Peter Kroner, JLL’s Manager, Investor Research, Industrial. It’s driven people out to stores in droves. This has grocers and e-commerce companies racing to adapt and keep people safe.

“Physical retail and the supply chain that powers it are acting as extremely important stabilizing forces in society right now,” Kroner says. “When the digital and physical shelves are restocked with staple items, most notably in this environment, toilet paper, it will signal a return to normalcy: a psychological calmer.”

Grocers adapt

As consumers continue to stock up on essentials — as well as hoard and panic-buy — grocers, delivery services, and e-commerce companies are adapting at a rapid pace to meet consumer demand and deal with the unchartered territory of how to keep employees and shoppers safe from the virus while doing so.

The demand across channels has led to a surge in hiring. Three major companies in the grocery delivery space alone recently announced plans to hire 550,000 positions.

“March 2020 was a record month for UK grocers, during which 88% of British households went to grocery stores to shop and the limited online channels were literally suffocated by demand for delivery slots,” says Tim Vallance, JLL’s Head of Investor Services and Retail Chairman, EMEA. “This lead the UK’s largest grocer, Tesco, to employ 7,500 extra stock pickers and van drivers to increase online deliveries to its customers by 120,000 a week.”

Stores are also making physical changes to their layouts to accommodate social distancing. Some have set up one-way traffic systems, with “clearly marked out 6-foot areas that keep individual shoppers distanced both inside and outside the store,” Vallance says. They’ve also added cart and basket cleaning stations, and acrylic screens, made of Plexiglas or Perspex, to protect cashiers.

These sneeze guards, which were most often used primarily around food delivery areas, are now in high demand in supermarkets.

“We have seen more than 60% of our retail and financial institution clients across the U.S. ask about the installation of sneeze guards and social distancing markers within queuing systems as a result of COVID-19,” says Todd Burns, JLL’s President of Project and Development Services. “These systems are generally very inexpensive to install ranging from a couple hundred dollars to a thousand dollars depending upon the installation location and system being used.”

Many stores are only allowing in a certain number of customers at a time. Target and Costco are among those limiting the numbers based on what is deemed appropriate for social distancing and monitoring the often-long queue that forms outside the store while customers wait.

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Another way grocers are helping: preventing customers from having to enter the store in the first place. More grocers are allowing customers to buy online and pick up in store (BOPIS) with curbside pickup and even drive-through options, says Emily Albright Miller, Vice President, Strategy, Big Red Rooster, a JLL company. BOPIS orders in the U.S. surged by 62% between February 24 and March 21, compared to the same period a year earlier, according to the Adobe Digital Economy Index.

“We’re really seeing the adaptability of the entire supply chain throughout this,” Miller says. “Grocers have shown their flexibility and we expect a lot of these changes, like the accelerated adoption curve of click-and-collect, to continue in the long term.”

To try to prevent hoarding, grocers including Costco, Target, Vons and Trader Joe’s — as well as many e-commerce platforms — are limiting the number of certain items one can purchase, following the lead of stores in Asian countries that instituted limits earlier on. In February, for example, Singapore's largest supermarket chain FairPrice imposed purchase limits that prevented individual shoppers from buying more than four packs of paper products such as toilet paper and facial tissues, two bags of rice and four packets of instant noodles.

Many stores have set aside special shopping hours for at-risk shoppers like the immunocompromised and the elderly. This includes major retailers like Target, as well as national grocery store chains like Albertsons and ALDI. It also includes local and regional chains like Lassen’s in Southern California, which opens an hour early for sensitive populations, after the store has gone through a sanitization effort, only allowing in a few people at a time for maximum social distancing.

Publix rolled out contactless payment systems during the pandemic, encouraging customers to use methods like Apple Pay and Android Pay on their personal devices to avoid contact with cashiers and credit card machines.

While shelves are not fully stocked in all areas globally, the strength of the supply chain is beginning to show, offering hope.

“Despite the continuing epidemic in the U.K., grocers are already reporting some normalcy returning to buying patterns, following the initial period of panic-buying,” Vallance says. “Anecdotally, sales in April are dropping significantly as the U.K. adapts to lockdown and a realization that the grocery supply chain is working fairly efficiently.

The need for warehouse space and creativity

The rise of e-commerce and increased expectations of fast delivery were already influencing developers to build more — but often smaller, or even vertical — warehouses in cities, closer to customers, in conjunction with the traditional hub-and-spoke model of the past, Kroner says.  The coronavirus will accelerate this trend.

Domenico Marino, part of JLL’s Logistics & Industrial Agency in Milan, has seen an increase in demand for warehouse space in cities within Italy, one of the hardest-hit countries battling COVID-19, as people increasingly rely on online shopping.

“Logistics providers and grocery chains are searching for space, but there’s a complete lockdown on site visits,” says Marino. “Turning to a range of existing tech tools and footage from drones and videographers, we’ve been able to give virtual tours.”

What’s important to remember, Kroner says, is that the supply chain itself is being issued “the most extreme stress-test since World War II.” However, it is expected to remain resilient.

“The more customers can avoid hoarding, and trust that while demand is high, goods are getting to the physical and digital shelves quickly and efficiently, the sooner we will get to the beau ideal of a grocery experience in today’s times: shelves stocked with toilet paper as high as the eye can see.”