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The report delves into understanding the influence of the global business environment on the
Online Grocery Industry within the US market, and its future prospects in comparison to related
industries. It also analyzes the industry based on Porter’s Five Forces of Industry Analysis
Framework and gauges the region’s competitive advantage using Porter’s Diamond Theory.
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Table of Contents
Acknowledgements ..................................................................................................................... 3
About the Industry ....................................................................................................................... 4
Industry definition.................................................................................................................. 4
Major players ........................................................................................................................ 4
Main activities ....................................................................................................................... 4
Current Industry Performance ..................................................................................................... 5
Competitive landscape within USA .............................................................................................. 6
Competition within the industry............................................................................................. 6
Bargaining power of buyers .................................................................................................. 6
Threat of substitutes ............................................................................................................. 6
Threat of new entrants .......................................................................................................... 7
Bargaining power of suppliers ............................................................................................... 7
Competitive advantage ............................................................................................................... 9
Understanding the USA Market ................................................................................................. 11
The economy of USA .......................................................................................................... 11
Current socio-economic conditions in USA ........................................................................ 12
Cultural environment ........................................................................................................... 16
Political and legal environment............................................................................................ 17
Conclusion ................................................................................................................................ 18
Appendix .................................................................................................................................. 19
Definitions ................................................................................................................................. 23
References ................................................................................................................................ 24
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Acknowledgements
I would like to take this opportunity to express my heartfelt gratitude towards everyone who
has helped me in the successful completion of this report. First and foremost, I would like to
thank my professors for providing me with the opportunity to explore the global business
environment and, in particular, the US market. This report has been a remarkable learning
experience, and it has helped me gain a deeper understanding of the market through various
sources such as reports, newspaper articles, databases, and other resources.
The journey of writing this report has been an extremely enriching and joyful one. It has allowed
me to stretch beyond what I currently know and has made me curious to explore ideas
holistically. The knowledge of databases such as Marketline, Passport, and IBISWorld has
increased my scope of research resources beyond Google and has helped me delve deeper
into the world of business. Moreover, these resources have taught me how to present reports
in a professional and effective way, making me more confident about my skills in the field.
I would like to extend my sincere gratitude to my tutor, Syed Shah, who pushed me to strive for
excellence and not settle for mediocrity. Without his guidance, support, and encouragement, I
would not have been able to produce such a comprehensive and insightful report. His tutorials
have been instrumental in shaping my understanding of the subject matter and has helped me
improve my research skills.
This experience has been truly eye-opening and has provided me with valuable insights into
the future of my career. I am immensely grateful for this opportunity, and I look forward to
applying the knowledge and skills that I have gained in my future endeavors.
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About the Industry
Industry definition
The term “grocery delivery” refers to the service provided by retailers or third party companies,
where customers can order food and non-food products that people typically buy from a
grocery store but online, through a mobile app or website, and have them delivered to their
preferred location, and at a preferred time if necessary. Companies or brands providing this
service are either based completely online with dark stores and warehouses supporting their
process or have a physical presence and support a hybrid of e-commerce and traditional
shopping.
Major players
Aldi
Amazon
Costco
HelloFresh
Instacart
Kroger
Shipt
Walmart
Main activities
Picking groceries
Delivering groceries
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Current Industry Performance
Figure 1
Current industry statistics of grocery delivery and related industries
Source : IBISWorld, January 2023
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Competitive landscape within USA
The profitability of the Online Grocery Delivery Industry can be gauged using Porter’s Five
Forces Framework.
Competition within the industry
The COVID-19 lockdowns led to a significant surge in demand for online grocery delivery
services, prompting both new and established retailers to compete in this market. Traditional
grocery retailers quickly set up logistics, warehouses, and online sales platforms to make it
easy for customers to buy their daily necessities and have them delivered directly to their
homes.
The online grocery industry is highly competitive due to similar or undifferentiated product
offerings. To be profitable in this industry, it is crucial to take advantage of economies of scale.
Due to narrow profit margins and the dominance of incumbent players, achieving profitability is
challenging (Marketline 2023). Limited product differentiation leads to buyer mobility, which
forces players to maintain attractive pricing strategies, increasing competition and further
reducing the profitability of the industry.
Overall, industry rivalry is assessed as high.
Bargaining power of buyers
Buyers have a high bargaining power in this industry, as they can choose from many players
offering similar service and can easily switch who they buy from. With the recent economic
downturn and reduction in disposable income (discussed at length further in this report),
consumers are likely to become more price-conscious and willing to switch to competitors or
substitutes offering better value, discounts, or coupons. This leads to the industry having lower
profitability due to their reduced power to raise prices.
Overall, bargaining power of buyers is assessed as high.
Threat of substitutes
With the world returning to normalcy from the pandemic lockdown, visits to the local grocery
stores have increased. According to a report on Consumer Lifestyles globally, consumers with
less time in hand choose meal kit delivery or food delivery. Compared to the 50% Indian
respondents and 52% Chinese respondents, only 32% of Americans order food for home
delivery.
While there are alternate options, the convenience of shopping for groceries online takes
precedence in consumer choices.
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Overall, the threat of substitutes is assessed as moderate.
Threat of new entrants
From the cost split up of the Supermarket & Grocery Retail industry in the US which is Wages
(9.8%), Purchases (67.9%), and Rent & Utilities (1.7%) (IBISWorld), we can infer similar insights
for the Online Grocery Industry. The industry requires high capital investment to be able to
match the economies of scale of incumbent players in their overall purchases to be able to
gain a larger profit margin.
While creation and adoption of online platforms can be relatively easy, gaining sustained
profitability can be a challenge for new entrants. But leading players, who can provide delivery
services alongside their physical stores, can offer competitive prices due to their high sales
volumes and economies of scale. As a result, the firms are able to undercut smaller online and
offline retailers (Marketline 2023).
Overall, the threat of new entrants is moderate.
Bargaining power of suppliers
Due to the homogeneity of offerings within the industry, the products tend to be commoditized.
This reduces the power of suppliers of those products as they can be easily replaced by
switching suppliers.
Overall, the bargaining power of suppliers is low.
Figure 2
Porter’s Five Forces Framework for Online Grocery Delivery industry
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Mergers and acquisitions, in the future, can help players within the industry to expand their
reach, enable them to take advantage of economies of scale and by reducing the number of
competitors can gain more power over pricing. Online Grocery Delivery services can acquire
smaller offline or online businesses to expand their network. Traditional grocery retailers can
partner with third-party services to cater to their customers' needs.
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Competitive advantage
The competitive advantages in the online grocery industry that the US has compared to other
regions can be based on Porter’s Competitive Advantage Diamond Model.
Factors of Production
Advance infrastructure : The US has well-developed infrastructure essential for the timely
delivery of online grocery orders. It ranks second after Singapore in infrastructure, with China
ranked at 28, behind Malaysia (Schwab 2019).
Related and Supporting Industries
Innovation and technology: US is an innovation powerhouse, ranking 2nd compared to China
at 24 (Schwab 2019). Studies show that Silicon Valley fosters startups with high innovation
standards and an approach to developing new ideas to gain competitive advantage (Thapa
2022).
Demand Conditions
High technology adoption : The population of the US are early adopters and highly tech-savvy,
which makes it easier for online grocery delivery companies to reach new customers.
Figure 3
Share of population using Internet
Source : Ourworldindata.org
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Large Market : US has the largest market with a growing consumer base increasingly
interested in online shopping, with over half the population buying on digital grocery platforms
in 2021 (Marketline 2021, Yuen 2023).
High Consumer Spending : The US population's high disposable income makes them more
likely to spend on online grocery delivery compared to countries like Australia or China with
relatively smaller disposable incomes (Appendix).
Overall, these factors give the USA a strong competitive advantage in the online grocery
delivery industry, which is expected to continue to grow in the coming years. But, it also faces
stiff competition from incumbents who play on the advantage of economies of scale to provide
consumers their services at a reasonable rate.
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Understanding the USA Market
The economy of USA
GDP • GDP per capita • GINI Coefficient • % Wealth Share
Figure 4
GDP per capita (2021 est.) for different countries
Source : World Bank 2021
As of 2021, the size of the United States economy was around $23.32 trillion, which makes it
the largest economy in the world, followed by China at $17.73 trillion (World Bank). The United
States also has one of the highest per capita GDP figures, with $70,248, followed by Australia
at $60,443 and Canada at $51,987 (World Bank 2021).
From Figure 5 we can infer that, while Australia and the US have similar GDP per capita, the
US has a greater GINI Coefficient (41.4) indicating it has a wide gap between the richest and
the poorest people in the country. With more than 96% of the wealth share concentrated within
the top 50th percentile of wealth groups in the country (Appendix), this works in favor of the
Grocery Delivery industry which provides its services to enhance customer convenience and
depends on customers willing to pay an extra fee for the luxury of home delivery.
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Figure 5
GDP per capita (2021 est.) for different countries
Source : (https://worldpopulationreview.com/country-rankings/gdp-per-capita-by-country). In public
domain.
Current socio-economic conditions in USA
Inflation • Interest rates • Consumer confidence • Real disposable income • Consumer
spending
The United States is currently experiencing high levels of inflation and rising interest rates due
to a variety of factors, including supply chain disruptions, pandemic-related costs,
demographic challenges, and impacts from the Russia-Ukraine conflict. This has caused the
rate of inflation in the United States to reach the highest it has been in 40 years.
Raising interest rates early in 2022 to curb the effects of inflation is gradually paying off. While
inflation has decreased significantly in recent months, further reductions may be necessary to
prevent a recession.
Consumers are facing financial strain due to prices rising faster than wages, leading to a
decrease in their purchasing power. Despite observing strong wage growth, recorded at 5.1%
in November 2022, it still lags behind inflation at 7.1% in November 2022 (U.S. Bureau of
Labour Statistics). As a result, consumers experience a decrease in their real disposable
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income, thereby reducing their purchasing power. The current inflation rate as of February
2023 is 6.0%.
Figure 6
U.S. Consumer Price Index; 1980-2022
Source : Bloomberg, Note : Consumer Price Index is a widely used measure of inflation
Figure 7
Relationship between US Inflation Rate and US Consumer Sentiment
Source : Tradingeconomics.com
In the last year, individuals across lower income brackets have seen faster wage growth, which
is different from what is happening in other countries such as the UK where those in higher
income groups have experienced higher wage growth compared to lower income groups (Egan
et al 2023). This, combined with low consumer confidence, lower than at any point during the
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pandemic and Global Financial Crisis (Fig 7), may result in reduced consumption by the
wealthiest groups due to the decrease in their real wages.
Figure 8
Wage growth and the gap to inflation
Source : Teneo, US Economic Outlook, 03/2023
Although food and groceries are necessary items, consumers are likely to opt for cheaper
alternatives to manage expenses within a squeezed budget. Major discount retailers have
reported higher earnings than anticipated as consumers try to save money. For example,
Walmart reported a growth of 8.2% in the third quarter of 2022 (Egan et al 2023).
However, the US population has a high level of disposable income (Appendix), which means
that they are more likely to spend money on convenience services such as online grocery
delivery compared to Australia or China that have 25% and 85% relatively smaller disposable
incomes.
Within such economic conditions, online grocery delivery can thrive through competitive
pricing strategies due to economies of scale compared to discount retail stores and positioning
value of time, ease and convenience above the offerings of traditional stores. Although
convenience remains a key driver in digital grocery adoption, prolonged inflation and reduced
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consumer confidence may cause consumers to be less inclined to pay for the digital grocery
services.
An aging population and a trend towards delaying marriage will increase the number of singleperson households growing by 8.0% and making up 29.0% of all households by 2040
(Euromonitor). This positively increases the prospective households and consumers for the
grocery delivery industry to cater to.
Figure 9
Inflation rates of US in the past 12 months
Source : US Bureau of Labor Statistics
Figure 10
Comparing US and UK inflation rates
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Source : Tradingeconomics.com
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Recently, the economic performance of the US has improved due to several factors, including
its prompt response to inflation before other major economies. In contrast, the UK's reliance on
energy from Russia has resulted in a further downward revision of the 2023 outlook for real
GDP due to the ongoing conflict (Egan et al 2023).
This gradual revival of the economy will expand the real disposable income of consumers over
the course of the next two years and the grocery delivery industry can see the bargain of
convenience taking the lead in comparison to consumers choosing to save a few bucks.
Cultural environment
Hofstede’s Cultural Dimensions • Time • Healthy eating • Sustainable sourcing
Figure 11
Comparing Hoftede’s Cultural Dimensions in China, India and US
Source : Hoftede-insights.com
Hofstede's cultural dimension of individualism vs. collectivism refers to the degree to which
people in a society prioritize individual goals over the society. In the US, individualism is highly
valued, where personal needs are prioritized over collective needs. Online grocery delivery
services cater to this individualistic mindset by enabling people to shop for groceries at their
convenience, without having to interact with others in a shared shopping environment.
The United States also scores relatively higher in Indulgence which captures the degree to
which societies have strict norms that control and suppress the instant gratification of human
needs. Indulgent societies emphasize leisure time. Online grocery delivery services cater to
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these indulgent perspectives by allowing people more time to spend in their personal or
recreational activities by saving their routine time spent in-store buying standard weekly or
monthly household items, which creates a competitive advantage for players in the US.
The rise in online grocery shopping can also be linked to busy schedules and increase in single
person households (Euromonitor), who are always looking for ways to save time from doing
routine activities.
Since the past decade, healthy eating and sustainable sourcing has become increasingly
important in American culture (Turner 2010) and grocery delivery services have adapted to this
demand by providing a wide range of fresh, locally sourced and organic produce by partnering
with local farmers.
According to a Consumer Lifestyles in the US report released in August 2022, 68% of the
respondents use technology to improve their day to day life, compared to 85% in India and
72% in China. Similarly, 42% in the US are willing to spend money to save time, compared to
59% in India and 54% in China. But these factors can be associated with the high standard of
living in the US where convenience is the norm.
According to that same report, 77% of respondents in the US cook or bake every week
compared to 68% in India and 62% in China creating a comparatively larger market
opportunity for online grocery delivery industries in the US to cater to.
Political and legal environment
The US ranks highly in the Regulatory Quality index (Appendix) indicating the ability of the
government to formulate and implement sound policies and regulations that permit and
promote private sector development (Week 5). It also scores highly in the Rule of Law
(Appendix) indicating the high extent to which agents have confidence in and abide by the
rules of society.
Both these factors promote business activities in the country along with ensuring fair
compensation rates by law for its residents. But, given the federal nature of the government, it
is essential for industries to abide by rules and regulations of individual states they expand
into.
Currently, due to the US government’s stance on the Russia-Ukraine war, there has been a
steep rise in energy and commodity prices, leading to high inflation, low consumer confidence
and consumer spending. Which can slow the growth of the Online Grocery Delivery Industry.
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Conclusion
The online grocery industry in the US has experienced significant growth during the pandemic.
While the industry faces significant competition and challenges, the high level of consumer
demand provides opportunities for growth and innovation. The US holds a competitive edge in
this industry due to its well-established e-commerce infrastructure, innovation centric
approach and strong demand for convenience among consumers. However, to remain
competitive, players must continuously innovate and improve their offerings.
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Appendix
Figure 12
GDP per capita (2021 est.) for different countries
Source : World Bank 2021
Figure 13
US Share of wealth held by wealth groups
Source : (https://ycharts.com/indicators/categories/consumer_and_household_statistics). In the public
domain.
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Figure 14
GINI Coefficient across countries
Source : (https://worldpopulationreview.com/country-rankings/gini-coefficient-by-country). In the public
domain.
Figure 15
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Frequency consumers cut back on grocery shopping because of higher prices U.S. 2022
Source : Statista
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Figure 16
Regulatory Quality Index of Governance
Source : Week 5 course material
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Figure 17
Rule of Law of Governance
Source : Week 5 course material
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Definitions
Grocery : The term "grocery" refers to the types of products typically available in a traditional
grocery store/ supermarket, encompassing both fresh and packaged goods.
Departments
Examples
Bakery
Bread, Muffins
Dairy
Milk, Yogurt
Deli
Service deli meats & cheeses, Prepared Meals
Floral
Fresh Cut
Frozen Foods
Ice Cream, Pizza, Vegetables
Meat & Seafood
Service Counter & Packaged
Produce
Fruits & Vegetables
General Merchandise
Batteries, Office Supplies
Grocery - Food
Cereals, Snacks, Biscuits, Chocolates
Grocery - Non Food
Pet Food, Detergents
Health & Beauty Care
Oral Hygiene, Skin Care, Personal Care, Hair Care
Source : Brickmeetsclick.com
Grocery delivery : The term “grocery delivery” refers to the service provided by retailers or third
party companies, where customers can order groceries online, through a mobile app or
website, and have them delivered to their preferred location, and at a preferred time if
necessary.
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References
Egan, J, Hobbs, A & Lefevre, G, 8 March 2023, U.S. Economic Outlook 2023: A ‘Soft Landing’
or ‘Deep Recession’, Teneo Insights, <https://www.teneo.com/us-economic-outlook-2023-asoft-landing-or-deep-recession/>
Yuen, M, 18 January 2023, Digital grocery will be a $243 billion market in the US by 2025,
Teneo Insights, <https://www.insiderintelligence.com/insights/digital-grocery-industry/>
Schwab, K, 2019, The Global Competitiveness Report 2019, World Economic Forum,
<https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf>
Thapa, S, 2010, How the Silicon Valley IT cluster contribute to the competitiveness of Apple,
<https://www.theseus.fi/bitstream/handle/10024/753884/Thapa_Sophiya.pdf?sequence=2&isA
llowed=y>
Marketline. (2021, October). Online retail in the United States. Retrieved from Marketline
Advantage Database. <https://advantage-marketlinecom.wwwproxy1.library.unsw.edu.au/Analysis/ViewasPDF/united-states-online-retail-142936>
Marketline. (2023, January). Global Food & Grocery Retail. Retrieved from Marketline
Advantage Database. <https://advantage-marketlinecom.wwwproxy1.library.unsw.edu.au/Analysis/ViewasPDF/global-food-grocery-retail-171197>
Turner, Rita. 2010. "Discourses of Consumption in US-American Culture" Sustainability 2, no.
7: 2279-2301. <https://doi.org/10.3390/su2072279>
IBIS World. (2023, January). Online Grocery Sales in the US. Retrieved from IBISWorld
Databse. <https://www.ibisworld.com/industry-statistics/market-size/online-grocery-salesunited-states/>
Euromonitor (2022, August). Consumer Lifestyles in the US. Retrieved from Passport GMID
(Global market information database.
Euromonitor (2022, August). Megatrends in the US. Retrieved from Passport GMID (Global
market information database.
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