5 ways coronavirus has disrupted grocery shopping and food delivery

May 18, 2020 9:20 AM

The coronavirus pandemic has had an immediate impact on a wide swath of consumer spending habits and payment choices — some of which may remain in place for some time after the crisis subsides — as certain categories such as travel have fallen to the wayside and others such as grocery stores have risen as more consumers eat meals at home.

Other coronavirus-fueled fears are weighing heavily on the grocery shopping and restaurant take-out experience, to address fears about contracting coronavirus by touching payment terminals or handling of physical cash.

Finally, as consumers shop in the few categories that continue to remain open during lockdowns or are beginning phased re-openings, banks and card issuers are adjusting to the “new normal” where what was once “everyday” spend on gas and groceries, which have razor thin interchange levels, have now become the “majority” spend.

Shifts in consumer payment choices generally occur gradually, as evidenced by the decades-long decline in paper checks and slow adoption of mobile wallets. However, dramatic shifts can and do occur, often in response to external shocks and financial incentives.

According to a Bankrate.com May 2020 survey, there is a major shift toward credit card usage and a move away from cash and debit cards at grocery stores. In December 2019, before the coronavirus crisis, the Bankrate survey found that 27% of grocery store payments were made with a credit card, 50% with a debit card and about 22% using cash. In April, credit cards accounted for almost half (46%) of grocery store payments while debit cards fell to 39%. Cash usage for grocery store payments fell in April by one-third, to 15%.

One factor playing into the shift has been card issuers providing short-term bonuses for grocery store purchases on their travel credit cards to maintain spend levels as consumers travel less. Chase is currently running a promotion through June 30 to give its travel cardholders.

“On the issuer end, there are some that are revising their portfolios to help cardholders earn more on grocery purchases instead of travel, given that travel has dried up and they need to change their value propositions to stay relevant,” said Nathan Grant, senior credit industry analyst at Credit Card Insider.com.

While DoorDash has held a lead in the overall $27 billion food delivery business for the last year, its dominant market share position has rapidly accelerated in the last few months since the coronavirus crisis has taken hold of the American economy, forcing many consumers to shelter and eat at home. For those who can’t or don’t want to cook their own meals, the food delivery companies such as Postmates, Uber Eats, DoorDash and others have represented a lifeline.

Edison Trends, which conducts periodic market share surveys on the food delivery business, has reported DoorDash holding roughly a 33% to 35% share between May 2019 and January 2020 after the top three players were in a virtual tie in January 2019. The most recent Edison Trends market share report reveals that DoorDash has catapulted its share position to almost half of the market, at 47%.

Uber Eats has fallen to a 26% share in April, down from about 29% in January, while Grubhub gained a percentage point to reach 23%, from roughly 22% in January. The biggest losers overall in food delivery have been the smaller players such as Postmates and other local or regional players. The top three competitors held a 96% market share in April, up from 85% in January.

The overall competitiveness in the food delivery business is what led Square to sell its Caviar business last August to DoorDash for $410 million.

Additional consolidation may be in the works for the industry, as a recent Bloomberg story reported that Uber has made a takeover offer for Grubhub.

“Right now consumers are leaning more on their credit cards to help them through the lean times, especially if they’ve recently lost a job. It allows them to make purchases for food and other essentials until things get better,” said Grant.

The coronavirus pandemic has had many life altering effects on consumers, albeit many are temporary, but one of the most pressing changes has been a need to conserve money and build a cash reserve in case of a job loss. The Department of Labor recently announced that 2.98 million Americans had filed for unemployment for the week of May 9, bringing the total jobless claims since the national emergency was declared March 13 to over 36 million.

The fear of job loss, as well as the convenience of ordering through a mobile app using a payment card, has in part fueled the shift in how consumers opt to pay for restaurant takeout orders. The ability to use online order platforms such as ChowNow allows a consumer to complete the payment process, including tip, before visiting the restaurant, thereby removing an important contact point.

According to a Bankrate.com May 2020 survey on consumer purchases of restaurant takeout orders, almost half (49%) of purchases in April were made using a credit card, up from 30% in January. Meanwhile both debit cards and cash usage have fallen during the same time. In the four-month period, cash usage has fallen by over half — going from 28% in December to just 13% in April. Debit card usage has dropped by about one-third, going from 42% in January to 28% in April.

As consumers have begun to order more food deliveries from DoorDash and Uber Eats, there is a growing sympathy for those who bring food to the hungry masses. Based on data from the Bankrate.com May 2020 survey, 27% of consumers who had food from a restaurant delivered agreed with the statement: “I feel bad delivery workers are risking their health for me.” Almost one-third (32%) of consumers who had groceries delivered to their doors agreed with that statement.

The net result is that 70% of consumers who had food delivered to their doors stated that they were now tipping more, while 24% stated that they were tipping the same amount as before, according to the Bankrate.com May 2020 survey. Interestingly, 7% stated that they were tipping less on food deliveries.

One issue is the fees that the delivery services charge. Unfortunately, the drivers are not necessarily the ones that benefit from the high fees charged to consumers and restaurants. In April DoorDash, Uber Eats, Grubhub and Postmates were sued for allegedly exploiting their dominance in restaurant meal deliveries to impose fees that consumers ultimately bear through higher menu prices. Essentially, the proposed class action alleges that the delivery companies are imposing fees between 10% to 40% of the total meal cost.

Cities such as New York City, Washington, D.C. and Seattle have responded by limiting the fees delivery companies can impose on restaurants and customers.

As many consumers continue to shelter in place, even as some cities and states start to re-open, most food is still being consumed in houses, condos and apartments across the country. While there was an immediate rush to grocery stores that emptied shelves and caused rationing of food items, the potential for a let up on demand has not happened.

According to sales data reported by the business intelligence firm Womply, the year-over-year increase in daily grocery store sales has stayed in the 30% to 50% higher range for the last two months, after the initial surge which saw a 96% increase.

Unfortunately, restaurants continue to suffer even though many have pressed their marketing efforts to accelerate takeout and delivery sales. Based on data from Womply, restaurant sales continue to show a daily year-over-year sales decrease of 40% to 55%. So despite best efforts, it’s clear that restaurants need dine-in consumers to survive, let alone thrive. A continuation of takeout and delivery-only sales could potentially lead to a number of restaurants failing during the coronavirus crisis.