The Impact of COVID-19 on Consumer Behavior, E-Commerce Fulfillment and Cold Storage Warehouses

COVID-19 Accelerates Need for Grocery E-Commerce Fulfillment

With the advent of the COVID-19 outbreak, the world has had to re-engineer daily life, developing new processes for meeting everyday needs, working from home environments and outlasting a virus that continues to befuddle researchers, scientists and medical professionals.  It has been somewhat of a long, hard, slow slog. 

This seems reminiscent of the scene in Apollo 13 in which the astronauts are struggling to gain control of the spacecraft, remarking that it is like “trying to fly with a dead elephant on my back”.   The simple act of obtaining necessary household essentials, groceries and other supplies and desired purchases has become cumbersome and tiring for many consumers.  Even with the push towards e-commerce these past few years, many retailers, supermarkets, grocery stores and other purveyors of food products and other goods simply did not transition to the point where online shopping, purchases and shipping could become reality.  It has been problematic for many to handle the issue of home delivery as well as D2C e-commerce.

When the final annals of this year are written, it very well may be that the retailers that survived, even thrived were the ones most capable of handling online shopping, ordering and home delivery more accurately and with the least amount of added cost, including shipping and curbside pickup.  Having to make that adjustment in days or weeks has been problematic.  Moving forward, will more consumers use online grocery shopping and home delivery?

What Consumer Behavior During the COVID-19 Pandemic Reveals

In studying consumer purchasing powers in other countries that are ahead of the United States in terms of the COVID-19 contagion curve, shopping habits indicate that consumers are waiting to feel confident that they have past the peak of contagion before venturing out and re-engaging with the world in a significant manner.  Currently, in person grocery shopping is still predominant, however.  Before the coronavirus pandemic, only 3-4% of grocery spending occurred online.  Bain & Company reports that online grocery spending has now increased to 10-15%, a significant surge over a short period of time.

Online Grocery Shopping and Home Delivery

According to a survey conducted by Bankrate.com between April 29th and May 1st, 72% of the consumers surveyed indicated that they are still shopping in person at grocery stores rather than relying on delivery services or ordering meals for home delivery.  This may be due to problems with delivery services. The study also revealed that 83% of those who had groceries delivered to their homes experienced delivery issues.  The issues included:

  • 54% – Out of stock items                         
  • 34% – Inability to schedule delivery                         
  • 23% – High service fees                        
  • 21% – Delivery late arrival 
  • 17% – Food lacked quality or freshness 
  • 16% – Delivery was canceled or never arrived 

Interestingly enough, even when consumers had a less than positive experience, 62% of those who ordered food delivery reported tipping more than usual.

The increased use of online grocery purchases is notable.  A rise in all age groups, many consumers who had never tried to purchase groceries online before the pandemic tried it for the first time in March and were likely to continue online grocery shopping.  It is still too soon to tell if consumers will fall in love with the convenience of online grocery shopping or return to the brick and mortar store.  The impact of social isolation may have an impact on these decisions.  If consumer satisfaction wanes, this highly competitive market could see a slowdown. 

Stockpiling Food and Household Essentials

Prior to the major U.S. outbreak of coronavirus, many American households did not purchase food and household items in adequate amounts necessary to meet the needs of even short-term supply shortages.  Accustomed to seeing a plentiful supply of goods with multiple brands and options from which to select, the concept of supply shortages seemed inconceivable to most American consumers, even with a potential disaster looming.  Now that consumers have experienced shortages of necessary goods, it may be likely that many purchase a safety stock of goods to keep on hand in the future.

Rise in Shelf Stable and Frozen Food Products

With the advisory to shelter in place, Americans have patronized restaurants less and chowed down on snack foods more.  The increase in snacking, up 3.8% in April, may be due to feelings of social isolation and the need to spend more time at home.  For some consumers, increased snacking may be the result of dealing with stress, the unrelenting pressure of being cooped up in a house with children requiring supervision and schooling, pets craving more attention, spouses and of course, work.

Cereal, long known to be a comfort food is the new darling of consumers.  Easy to store for long periods of time, cereal can be eaten with or without milk and comes in a nearly endless number of varieties from high fiber, nutritious to decadent, sugar-laden crunchy delights adored by children and adults alike.

Food prices have increased, including that of pasta and rice, up 2.5% in April and hamburger and cookies up 4.8% and 5.1% respectively. Instead of spending half their food budgets on meals eaten away from home, now families were compelled to eat at home. 

COVID-19 Has Unleashed the Great American Consumer Online Grocery Shopping Experiment

FYI, online grocery sales spiked 110% in daily sales between March and April 2020.  From household essentials such as toilet paper, hand sanitizer and disposable gloves to groceries, consumers are embracing new ways to bring goods from the outside world into their homes safely.  According to a study conducted by Gordon Hasket Research at the beginning of the onset of the pandemic, a third of the consumers surveyed purchased food products online during the week ending March 13th.  Within this group, 41% reported that it was their first time buying food online.  Over half of the first-time orders were attributed to Walmart.  Although online grocery shopping and meal kit purchases have increased during the pandemic, it is still too early to determine if this will likely be a permanent or short-term increase in behavior.

Many consumers have indicated a preference for making fewer visits to brick and mortar stores in order to minimize potential contact with those contagious with COVID-19 and prefer a convenient, touchless/contactless way of ordering and retrieving orders.  This has led to a surge in BOPIS (buy online pick up in store) and BOSS (buy online ship to store).  Adobe Analytics data indicated that BOPIS orders, including curbside pick up options have increased 87% year over year from late February to March 29th.  This includes retailers other than grocery and supermarkets.

Amazon continues to gain market share in fresh food and packaged goods, notably in markets where the primary grocers do not have well-established e-commerce options.  In the one-month period ending March 14th, Amazon U.S. experienced a 23% increase in grocery sales.  Consumer behavior has also been influenced by the reduction in food service operators, causing a 10-20% increase in grocery sales growth in Western markets

Consumer buying patterns in March and April revealed an adjustment period as shoppers struggled to adapt to the “new normal”.  Pantry loading, stockpiling household essential goods and increased consumption accounted for a ramp up in spending on CPG goods in March, according to Nielsen.

According to the Toluna and Harris Interacive COVID-19 Barometer, 70% of Americans still shop in brick and mortar grocery stores rather than online.  According to the Brick Meets Click/ShopperKit Online Grocery  Shopping Survey, in March, monthly users of online grocery delivery or pickup services more than doubled since August 2019.  This research indicated that 31% of American households used e-commerce to buy groceries online within the past month.  39% of those surveyed that reported using online grocery delivery or pick up for the first time were over 60 years of age.

Industry experts anticipate that the adoption rate of online grocery shopping is unlikely to drop dramatically as 30% of those surveyed who ordered online for the first time indicated that they were either extremely likely or very likely to order groceries online again within the next three months if the pandemic continues.  Survey respondents were also asked if they thought that they would be likely to continue using a specific online grocery service after the COVID-19 outbreak.  43% of the respondents replied that they were either extremely or very likely to do so.

How the Shift in Increased Online Grocery Shopping Impacts the Food Supply Chain

Third party distribution centers are critical to the food supply chain as 95% of the food produced in or imported to the United States goes through these facilities before reaching consumers.  The surge in demand for e-commerce grocery has escalated the short-term requirements for freezer and cooler space in cold storage warehouses for up to one year.  It is anticipated that e-commerce grocery will become adopted on a widespread basis in the U.S.  This will necessitate a shift in the need for cold storage warehouse space capacity, such as for the frozen storage of proteins.

Anecdotally, public refrigerated warehouses are reporting a surge of inquiries from small to medium food companies that need warehouse space and help from 3PLs in selling their food products online to consumers.  This has pushed cold storage warehouse operators to upgrade their warehouse management systems to ensure that they have the technology to facilitate D2C e-commerce fulfillment.  Many cold storage warehouse operators are still using legacy warehouse management software with capabilities limited to pallet in/pallet out operations.

E-commerce orders are not typically fulfilled by local grocery stores.  With an increase in online grocery shopping, retailers will need more storage and fulfillment space.  With the anticipated increase in online grocery orders, it is likely that the configuration of retail and industrial space will change.  More infill temperature-controlled refrigerated warehouse facilities will be needed in closer proximity to urban areas where deliveries can be made faster and more efficiently to consumer homes.

Another transition is likely to involve that of restaurants.  It is likely that restaurants will experience a shift in dining formats, necessitating less space for dine-in options and more for preparation of delivery and take out options.  This will also change their need for cold storage capacity.

Meal kits and food subscription boxes are steadily popular with consumers and require technology for ecommerce solutions.  New to the industry is a critical change at the manufacturer level.  Manufacturers of household essentials as well as some food products have started to sell direct to consumer, eliminating the need for distributors.  Companies like Kind Bars are now provide an e commerce fulfillment option to sell direct to consumers. Kind Bars,  offers subscription boxes that can be personalized by taste.   Clif Bar & Company, Simple Mills and Quest Nutrition, for example also sell direct-to-consumer.

As consolidation continues in the cold storage warehouse industry with more individual warehouses being acquired by major PRW enterprise operators, an increase in specialized development in urban areas is foreseeable.  This would aid the public refrigerated warehouse enterprises in creating partnerships with industrial space developers so that strategically located networks could be positioned, aligning with population clusters.

Case Study:  Kroger Adapts Its Business Model to E-Commerce Fulfillment

In 2018, grocery retailer Kroger launched its new direct-to-consumer (D2C) ecommerce platform known as Kroger Ship to enable its customers to shop whenever and however they want.  Kroger Ship is another way that the company defines and enhances the customer experience, providing added convenience and new shopping options. 

Rather than outsource fulfillment, Kroger embraced the challenge.  Developed to offer groceries at the competitive ecommerce prices that their customer expects, Kroger Ship provides fast, free doorstep delivery using a package carrier on orders exceeding $35.  For orders under $35, there is an affordable shipping fee of $4.99 per order.

Kroger developed an extensive logistics and e commerce fulfillment solutions infrastructure to support Kroger Ship.  In addition, the company invested in a data analytics company, 84.51º to provide vital insight for operations, improving communications that personalize the customer experience. 84.51º leverages data to enable an enhanced understanding of customer behaviors and the reasons behind them.

Ocado, the automated grocery fulfillment company known for its logistics and technology expertise, partnered with Kroger on a plan to build 20 robotic warehouses across the United States over the next three years.  The initial locations of the first three sites-Florida, the Mid-Atlantic and Monroe in Ohio.  Leveraging the strengths of both companies, the plan is to drive innovation.  Effective in driving down ecommerce fulfillment costs, Ocado provides technology for some of Kroger’s ecommerce fulfillment centers and includes automation technology such as robotic packing as well as truck route planning.

Why Using an Advanced Cold Storage WMS is Essential to E-Commerce Fulfillment

  • Provides the flexibility needed to handle omnichannel e-commerce type processes for both retail store fulfillment and e-commerce fulfillment
  • Provides visibility, enabling real time accessibility to accurate, timely data including inventory management, stock levels, orders, shipments and more
  • Connects the store level inventory, retailer, delivery service provider and other supply chain partners with real time accurate information
  • Facilitates speedy, accurate handling of a huge influx of online grocery orders
  • Streamlines operations to keep costs down
  • Helps to ensure the quality and safety of food products
    • Expiration date tracking
  • Facilitates regulatory compliance
  • Enables comprehensive track and trace, especially critical for food product recalls
  • Enables effective inventory management and inventory control
    • FIFO, FEFO and other allocation strategies
  • Automatically handles sophisticated, dynamic and complex processes
  • Facilitates product substitution
  • Enables inventory consolidation
  • Facilitates cost saving efforts including crossdocking/flow through distribution
  • Is integration friendly, enabling ready connection with a wide variety of systems and technology solutions including material handling solutions, automation, shipping carriers, shopping carts and marketplaces

Conclusion

All around the world from Hong Kong to New York City, the online grocery business grows, often challenged by an inability to have access to real time grocery store inventory and the struggle to maintain multiple pickup, delivery and shipping options.  The online business world still seems to be ruled by Amazon Prime and variations of Amazon Fulfillment, Whole Foods, Amazon Fresh and other options.

Today, e commerce fulfillment solutions are actively being sought by grocery and supermarket retailers.  Dealing with what each customer expects is a heavy burden.  While the advent of COVID-19 may not have caused a permanent shift toward online shopping for groceries, it certainly accelerated the trend.  The question is, will it continue?

Customer satisfaction is a critical issue.  Can shopping for groceries in online stores provide the convenience to ensure customer satisfaction, or will home delivery challenges, shipping costs and out-of-stock items mar the experience?

Having a warehouse management system that can handle the rigorous needs of ecommerce fulfillment and temperature-controlled warehousing is essential to having real time visibility into inventory levels of fulfillment centers, grocery stores and other warehousing and fulfillment options.  Today’s advanced WMS technology can help optimize inventory storage and shipping processes, reduce fulfillment costs, seamlessly connect shopping carts, home delivery service providers and much more.

Manufacturers are now selling and conducting ecommerce business direct to consumer.  With a myriad of new complexities including ground shipping, 2day shipping, returns processing, packing and shipping, custom packaging, the need to shop for shipping rates, top ecommerce fulfillment software and other technologies are needed.

What Makes Datex Different?

1. Revolutionary low code/no code flexible workflow-driven warehouse management software ​

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