The coronavirus pandemic changed the way a lot of people shop, and that includes the way they purchase groceries. Many people began ordering groceries online for curbside pickup or home delivery when COVID-19 cases began to soar, and now, the convenience factor alone is continuing to drive digital grocery sales.
Not surprisingly, a number of e-grocery startups have emerged since the start of the pandemic whose goal is to largely serve customers in urban markets. These e-grocers are often able to deliver goods in as little as 15 minutes. Their secret? Smaller fulfillment centers in the right places.
It's all about location
Given the general shift to e-commerce over the past 18 months, real estate investors may be well aware that massive warehouses and distribution centers are now extremely high in demand. But grocery startups have a different need.
These companies don't require the expansive fulfillment centers major supermarket chains and delivery services require. Rather, they're more focused on securing smaller fulfillment centers that are located in prime urban locations so they can pump out and deliver orders quickly and efficiently.
These micro fulfillment centers commonly range from 1,500 to 5,000 square feet in space and are designed to service a delivery radius of one to three miles. By forgoing larger spaces, online grocers can target audiences in specific geographic regions and offer faster service than competitors like Amazon and Peapod. They can also keep their rental costs down, especially in markets where square footage tends to come at a premium.
Big opportunities in small spaces
In 2019, around 4.5% of U.S. consumers purchased groceries online, according to JLL. In 2020, that percentage rose to nearly 30%.
About 45% of consumers now order groceries online more so than they did before the pandemic began, reports Acosta. And by the end of 2020, online grocery sales were up 50% on a year-over-year basis.
While it's easy to chalk up this boom in online grocery sales to pandemic-related concerns, the reality is that the shift we've seen in digital orders across all retailers is likely here to stay for the long haul, even once the COVID-19 outbreak subsides. Annual online grocery sales could see $100 billion in growth by 2022 compared to 2018, according to the Food Marketing Institute and Nielsen. And so now's actually a great time to invest not only in larger distribution centers, but also in mini fulfillment centers that specifically serve customers in urban markets.
Will online grocery sales hurt brick and mortar supermarkets?
Here's some even better news for real estate investors. While the explosion of e-grocers could fuel a huge need for smaller storage spaces, it also doesn't seem to be hurting the traditional supermarkets that commonly serve as shopping center anchor tenants. Many retailers have been forced to shutter in the wake of the pandemic, leaving commercial landlords with countless vacancies to fill. But e-grocers are more likely to complement supermarkets than displace or replace them, which means real estate investors can really enjoy the best of both worlds.