Online grocery has now become consistently profitable for the UK’s largest supermarkets for the first time in almost 20 years.
According to new research from Atrato Capital, the recent pandemic-driven rise in online grocery order volumes has allowed the country’s biggest grocers to turn a profit for the first time.
Until now the costs collected for online grocery delivery seldom covered the actual cost of picking, packing and delivering goods.
However, according to Atrato Capital’s principal Steve Windsor, online delivery is now almost as profitable as shopping in store.
“Before the pandemic there was not enough market share for there to be enough drop-offs on each delivery run,” he said.
“A lot of the costs of delivery are relatively fixed, so most of the time home delivery was at best breaking even.
“You’re getting four drops per hour instead of two, and supermarkets have taken lots of promotions off websites and set realistic delivery charges. A delivery that used to cost the supermarket £10 now costs it £6 and that is what the customer pays.”
Other factors including picking efficiency and the increase of click and collect services, which now account for a quarter of all online grocery orders, have also had a dramatic impact on profitability.
Retailers have also turned to third party delivery firms like Deliveroo and Uber Eats to quickly expand their delivery capabilities throughout the pandemic.