Our Brick Meets Click insights show that online shopping accounts for 5% of the total U.S. grocery spending. The online share of wallet is increasing – and this is important because those dollars represent growth in a very competitive time.

Now more than ever, it’s vital for companies to understand the core elements that drive their online performance since these sales impact more than just the digital store. Pricing is one of those core elements. To explore this topic, we examined eight retailers that offer full-assortment online grocery service in the Los Angeles market to analyze the prices of 34 commonly purchased products.

Editor’s note: We also shared some retailer-specific insights via a recent Progressive Grocer article, which you can click through to via the link end of this post.

Gaining Perspective

The first thing you’ll likely notice in the chart below is that Aldi is the online price leader. In fact, based on this analysis, Aldi’s basket is priced 4.5% lower than even Walmart. This isn’t surprising, unless you didn’t realize Aldi has an online grocery service. (Aldi is piloting the online service in L.A., Atlanta, and Dallas.) Winner or not, the fact that Aldi is even evaluating an online service says a lot.

Does Aldi’s entry suggest that lower-income or extreme-value shoppers are shifting dollars online?

A common belief is that online shopping skews toward either upper-income households or less price-sensitive shoppers. This may not be as true today when it comes to groceries, given that other value retailers – like Smart & Final and Dollar General – also have online services.

What does it mean for conventional grocers if online grocery shopping is attracting a broader shopper base, especially the extreme-value shopper?

Using the three conventional grocers in the L.A. market – Stater Bros., Ralphs, and Vons – as a proxy, it likely means continued market share erosion and margin compression. It’s hard to escape this conclusion when the analysis shows these grocers have sizable price gaps that are 22%, 36%, and 84% higher, respectively, than Aldi.

How does Aldi’s online service impact conventional grocers’ business, even though they already have more stores in close proximity?

It’s easier for shoppers to compare prices online than it is to compare prices using printed circulars. It’s even quicker when competitors use the same online platform, the way Aldi and the three conventional grocers do in the L.A. market.

Second, the online price gaps are greater because many of the conventional grocers’ in-store price deals are not available online. For instance, at one banner a pack of bacon was on deal in the store for $4.99 when purchased with the shopper card; the same SKU online cost $5.79.

Does this mean that shoppers won’t pay more online than in the store for the same products?

Short answer is “no;” however, don’t try to validate that by asking the shopper as actions speak louder than words. Consumers shop online for a variety of reasons. At supermarkets, shoppers choose online mainly to save the time and trouble of shopping the physical store. That’s worth something, especially related to routine and stock-up trips, and shoppers are willing to pay a premium for a more acceptable alternative.

How much more are shoppers willing to pay online?

That’s the $64K question, and it’s also where brands and retailers need to leverage more meaningful sales and shopper insights.

To get to the answer, we need to address questions like how program thresholds are designed, where service fees are factored in, when pricing online should match the physical store, and how fulfillment options help counter-balance pricing considerations.

How does this affect the threat posed by Amazon?

For both AmazonFresh and Whole Foods, this suggests that more work is required with pricing and assortment if they want to grow. Many of the current changes at Whole Foods create risks for a premium brand that is attempting to move down-market. At AmazonFresh, some of the low-hanging fruit relates to simply making more 365 value brand items available, but that will not be enough. Amazon will continue being mainly a “basket bandit” that steals smaller orders from others unless they change.

Looking ahead

Product assortment is the next core element of the online grocery offer that we’ll explore. Look for it in a future post.

In the meantime, click here to learn more about our grocery insights platform (Grocery IP), or if you’d like to learn more about this analysis, reach out via this Contact Us form.

To view the top-line insights featured in the Progressive Grocer article, click here .

Here's a more in-depth look at the findings of the market basket analysis.