A Peek at a Post-Pandemic Future
Two Recent Reports Shed Light on How the Future Will Be Shaped By Coronavirus
Daily routines have been upended by the coronavirus pandemic. Demand for online shopping has boomed and industries have been forced to adapt quickly. Two recent reports from consulting firm, Bain & Company, and real estate services company, JLL (JLL), are shedding light on just how much consumer habits have changed since the pandemic set in—and how these changes have impacted grocery stores and the real estate industry.
Industry leaders are weighing these reports as they chart a course for their businesses. Especially if more shutdowns occur, companies will need to use what they learned during the first wave of COVID-19 to stay profitable. Even if the pandemic subsides, it is likely that ecommerce will continue to grow, and companies will need to adapt in order to keep up.
Grocery Stores Will Need to Adapt
According to Bain’s research, online grocery shopping accounted for about 3% to 4% of grocery spending in the US before the pandemic. At the height of shutdowns in the country, that number was up to between 10% and 15%. For some large chains, ecommerce numbers skyrocketed. Walmart (WMT) saw a 74% increase in ecommerce during the first quarter, which was largely driven by groceries. Kroger (KR), the largest supermarket chain in the country, reported a 92% jump in online sales during the same period.
While these numbers might seem like good news for the grocery industry, research shows that making a profit via online sales is extremely difficult, and most grocers are actually losing money on ecommerce operations at the moment. Profit margins for groceries on in-store purchases are already low—between 2% and 4%. On average, that sinks to -5% when customers shop online and pick up their orders at stores, and drops to -15% when groceries are delivered to customers’ homes.
However, analysts say that this problem is not permanent, and by making changes to their business models, grocers should be able to turn a profit with online sales eventually. Grocery companies may move toward more automation and may convert unprofitable store locations into warehouses. Companies can also find innovative new revenue sources, like selling ads on their apps and websites, and selling data about people’s online shopping habits.
Demand for Warehouse Space Shows No Sign of Slowing Down
As demand for online shopping goes up, so does demand for warehouse space. While many sectors of the real estate industry, like office buildings, multi-family homes, and hotels, have suffered during the pandemic, the market for warehouses is booming. A recent report from JLL predicts that by 2025, the US will need an additional 1 billion square feet of warehouse space.
Prologis (PLD), a real estate company which is Amazon’s (AMZ) biggest landlord, estimates that companies need 1.2 million square feet of distribution space per $1 billion in online sales. For context, analysts predict that by the end of 2020, ecommerce will account for 14.5% of total retail sales in the US—equal to $709.78 billion. In four years, that number is expected to reach 18.1% and surpass $1 trillion.
To keep up with demand for warehouses, some landlords may convert retail space, like malls, into delivery hubs. Companies are already making this shift internally. Sam’s Club has converted some former stores into ecommerce fulfillment centers.
Though industries are facing unprecedented uncertainty at the moment, most analysts agree that ecommerce is here to stay, and companies will need to find creative ways to meet consumers’ needs.
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