COVID-19 has created industry-wide winners and losers and if there is one sector that has emerged as a winner so far it is E-commerce.
E-commerce penetration in the US from 2009–2019 rose from 5.6% to 16.0% while in just the last 4 months it gained 1100bps and rose from 16.0% to 27.0%. Simply put, the Ecom share gain that took 10 years was achieved in just the last 3 months. (Image:1)
This rapid growth makes us all wonder whether we are looking at a tipping point in the Ecommerce world or is it more of a blip that will settle down as the retail stores re-open. I would argue that we have reached a tipping point in the Ecom and although the Ecom as a % of total retail would come down as the retail reopening picks up, the Ecom acceleration is here to stay. Here are my 3 big predictions for US E-commerce in the post-COVID era.
1. Online grocery would continue to accelerate: Before the coronavirus outbreak started, online grocery sales in the US accounted for a small portion of the overall sector, with 3% of grocery spend happening online and of that around 10% of US consumers using these services frequently.
More Americans than ever before are choosing to shop for groceries from the comfort of their home as the coronavirus pandemic sweeps the US and forces most of the county into lockdown, driving a significant spike in demand for online grocery delivery and pickup services. So much so that the major players in the market, such as Walmart, Amazon, Instacart, and Target, scramble to service their new audiences in the past few months.
For instance, Instacart’s business has risen more than fivefold since last year, as millions of customers have chosen to order groceries for delivery or pickup rather than go to the stores themselves, myself included.
However, one question that remains to be answered is how many of these new customers will become permanent after more businesses reopen and post-COVID.
Some people are going to realize the benefits and time savings of online groceries. I am one of them, I don’t plan to go back to grocery shopping anytime soon and I believe there are hundreds of thousands of people who would have similar thoughts so I expect to see an acceleration in the penetration rate of online groceries in the post-COVID era.
Research by McKinsey & Company predicts that post-pandemic, online grocery sales that have increased to 8% to 10% of all grocery sales, will level off at 5% or 6% but this would still be 100% growth compared to pre-COVID era.
2. Amazon stands to benefit the most from current Ecom acceleration: The pandemic has accelerated the shift to online shopping, and Amazon, which controlled nearly 40 percent of the online retail market in the US already, stands to gain the most.
Yes, the company has struggled with delivery delays for general merchandise, price-gouging on the most in-demand products, and an overwhelmed grocery delivery business that has some customers searching for a delivery slot dozens of times a day and driven some of the web traffic to other platforms. However, Amazon did win some extra points with consumers when it decided to prioritize the sale of consumer staples at the expense of consumer discretionary goods.
No company knows Ecom better than Amazon and despite less than optimal customer experience in the last few months that Amazon is known for due to out of the stock issue, price-gouging and delayed deliveries it continues to enjoy customer loyalty and share of mind.
Even though we have seen Target, Walmart, Wayfair and all most all retailers’ on-line sales surging higher % than Amazon (largely due to smaller base number), Amazon still tends to gain the most in the long run as it remains the platform of choice for customers and being the category leader.
A survey, from RBC Capital Markets, found that Amazon was the most popular online grocery destination for new shoppers over the past month, with 60 percent of respondents saying it was their first choice. Amazon continues to enjoy customer loyalty and share of mind unlike any other that would help him strengthen its position further in the post-COVID world.
3. The supply chain would emerge as a key competitive advantage: The future platform wars will be won or lost by its supply chain robustness. The companies that will get it right would stand to gain the most from Ecom acceleration and companies that are not able to scale and provide a great customer experience would fade away.
Pre-COVID globalized supply chain network has been optimized to identify minimum lead times at the lowest possible price. COVID-19 has exposed the vulnerabilities of complex global supply chains built on lean manufacturing principles.
As companies prepare for the future, expect to see the focus shift to building a smarter, more flexible, more resilient supply chain. We will also see a decentralization of manufacturing capacity, with companies looking to bring production home. This trend will grow with the likes of automation and small batch production to start moving portions of their supply chain back home. Policymakers may be increasingly pressured to consider whether certain products need to be manufactured in the country or abroad.
In conclusion, companies that can embrace the new paradigm, bust through age-old habits, and re-imagine how Ecom needs to be done in the post-COVID era, the future will present new, exciting opportunities. However, success will require speed, scale, fortitude, a culture of rapid change, and a mindset of inspired execution.
These are my top 3 predictions for US E-commerce in Post-COVID Era, what are yours? Please leave a comment.
PS: “Opinions expressed are solely my own and do not express the views or opinions of my employer.”
