Did the pandemic permanently change the way we shop?
For the most part, it seems not. Groceries are an exception.
The Covid-19 pandemic - with the social distancing and lockdowns it brought on - saw Brits shop online like never before. At the peak of our internet shopping frenzy, in January 2021, almost two fifths of retail sales (37.8%) in the UK were online, almost double what it was in January 2020 (20.2%).
Internet Retail Sales as a percentage of total sales
Source: ONS
And there were signs that this change in shopping patterns would stick. As I wrote in 2020, survey data suggested a quarter of consumers would permanently change their shopping patterns in favour of online retail, even once the pandemic ends.
But has this actually played out? I would argue less than you might think, and indeed less than I thought a couple of years ago.
The latest ONS data show that internet retail sales currently account for 26% of all sales - well down on the pandemic peak but still notably higher than just before the pandemic.
But we cannot conclude from this that Covid permanently shifted shopping patterns. Critically, had the pandemic not occurred, it is extremely unlikely that internet retail sales would have stayed where they were in early 2020. After all, online retail sales have been continuously trending up for years as we collectively embraced the convenience of internet shopping and delivery to the doorstep.
The more appropriate comparison is therefore with the continuation of the pre-pandemic trend: where would internet retail sales be today if that trend had just marched on with no social distancing in sight?
Here’s what our number-crunching shows: across all retail sales, a continuation of the pre-pandemic trend would have seen internet retail account for 23.5% of all sales by October 2022, the time period of the latest ONS data. This is not very dissimilar to where we have actually ended up.
The pandemic, then, seems to have had a remarkably modest impact on the way we shop - we’re broadly where we would have expected to be anyway, given the continuous shift to shopping online. This is in contrast to remote and hybrid working models, where the pandemic appears to have had a much more persistent impact on many of our lives; in November 2022, 45% of ICT firms and three in ten (30%) of professional services firms said that they intended to use increased homeworking as a permanent business model going forward. Office space remains under-utilised compared with pre-pandemic norms as a result.
Having said that, there are some more significant pandemic impacts on retail when we start to dig into the details, in particular when we home in on groceries - the store category which has seen the greatest departure from pre-pandemic trends.
Prior the pandemic, online food sales were struggling to gain traction and stagnating as a share of the market, as shown in the graph below. Yet the latest data show that close to one in ten (9%) food store sales in the UK are now made online. A continuation of the pre-pandemic trend would have seen this standing at just 5.5%.
These look like small numbers, but this means online grocery store sales are 60% higher than we would expect have expected them to be if the pre-Covid trend persisted - about £1.5 billion per year in cash terms.
Internet Retail Sales by store type
Source: Public First analysis of ONS data
I suspect the failure of internet food shopping to take off before 2020 reflected a great deal of skepticism towards the idea of buying groceries online - some of which was removed as people took to it during the pandemic and saw the benefits of not having to go to the supermarket. Lockdown grocery shopping provided proof of concept to hundreds of thousands of households that would never have thought of getting their weekly shop delivered to the house.
The challenge for the supermarkets is to turn this larger segment of online grocery shoppers into commercial success. To date, it has been fiendishly difficult to make a profit from online grocery sales, given delivery costs and the need for staff to pick and pack a wide range of grocery items.
But this challenge is likely to drive innovation and an exciting time for the groceries sector: expect more investment in robotics by the supermarkets to streamline picking and packaging. New and improved click & collect services may provide a good (and easier to turn a profit on) halfway house between traditional grocery sales and delivered-to-the-door retail, as could partnerships between the grocery sector and gig economy delivery services. Conceivably, supermarkets might start to offer subscriptions to regular meal “kits”, fruit boxes and veg boxes - mirroring companies like HelloFresh - in order to standardise online sales and generate packing efficiencies. Watch this space.
