Future Cities

Food & Beverage Tomorrow: Online grocery order fulfillment goes local

Grocers are moving e-commerce fulfillment from warehouses to stores as home delivery and BOPIS demand rises

November 6, 2023 3 Minute Read


Grocers are evolving their stores into omnichannel micro fulfillment centers that function both as regular stores and distribution hubs that can more quickly fulfill online orders. While most groceries are still sold in stores, just 6.6% of food and drink sales occur online, according to Forrester, and online sales are forecast to grow 12.9% annually through 2028. This may lead to changes in how the grocery industry approaches its retail and industrial real estate strategy.

Evolving shopping trends

Online grocery orders are typically fulfilled either by being shipped from a warehouse—the main option for e-commerce-only players—or delivered or picked up from a grocery store. Grocers have a considerable last-mile advantage, however, as most U.S. consumers live within driving distance of a grocery store.

Buy online, pick up in-store (BOPIS) is currently the most popular e-commerce fulfillment method, accounting for half of U.S. online grocery sales. Consumer preference for BOPIS is turning out to be an unplanned benefit for both grocers and shoppers. For grocers, it solves or lessens the cost and logistics involved with last-mile delivery. Meanwhile, shoppers can pick up their orders, especially perishable goods, on their own timetable, which avoids delivery fees and tips and helps protect their privacy.

Figure 1: In-Store Fulfillment Share of Total U.S. Online Grocery Sales


Source: Bricks Meets Click/Mercatus Online Shopping Survey, August 2023.

Home delivery remains a key market segment, with orders transported from fulfillment centers and local stores. The delivery is handled either by in-house resources or third parties, like Instacart, which face headwinds as consumers and grocers seek ways to economize amid uncertain economic conditions.

Grocers are investing in technology to better facilitate online grocery shopping and retain customers. Some have developed apps that provide shoppers with a seamless experience in-store and online. These apps provide grocers with more robust data on shoppers, enabling them to fine-tune offerings and build long-term direct relationships with consumers.

Shifting fulfillment from warehouses to stores

Until recently, grocers primarily used warehouses to fulfill online orders, investing heavily in well-located modern warehouses to serve as regional micro fulfillment centers. In H1 2023, the grocery sector accounted for 9.9% of U.S. industrial leases of at least 100,000 sq. ft., up from 7.6% in H1 2022.

Figure 2: 100,000-sq.-ft.-plus U.S. industrial new lease and renewal transactions, H1 2023


Source: CBRE Research, September 2023.

However, the industry-wide competition for same-day delivery and strong BOPIS demand are prompting grocers to shift distribution from warehouses to stores, enabling order delivery within hours. For some grocers, the sudden strategic change to in-store fulfillment could create balance sheet challenges as recent investments with high internal book values will need to be carried. This change might not materially affect industrial market fundamentals given the strong demand for these assets from other users. The shift to micro fulfillment is also less likely to affect the need for regional distribution hubs used to keep grocery stores stocked.

To process orders, grocers are devoting more store space to fulfillment. Inside, whole sections—as much as 20,000 to 30,000 sq. ft. in larger stores—are being used for online order fulfillment, enabling employees to quickly pick and pack orders. This also reduces congestion in grocery aisles. Moreover, retailers are trialing automated solutions within stores to process orders even quicker. Outside, more parking spaces—and, in some cases, drive-thru lanes—are being dedicated for shoppers to pick up BOPIS orders.

For the already-hot grocery-anchored retail center segment, the shift to local fulfillment is yet another tailwind. Grocers’ space needs are likely to change, as they seek options with enough storage to accommodate both their retail and micro fulfillment requirements. However, landlords and retailers in some markets are contending with zoning regulations that are vague or do not permit non-retail uses.

It should be noted that not all grocers are bringing e-commerce fulfillment into the store at this stage. Some are continuing to open e-commerce fulfillment sites. Both the in-store and fulfillment-center approaches should be monitored for their effects on industrial and retail real estate demand.

Outlook and impact

The shift from warehouses to stores for online order fulfillment is likely to endure as more consumers shop online for groceries, especially if this continues to grow at a double-digit pace. Offering consumers both online and in-store options will help grocers compete with e-commerce-only players and enable customers to shop as they desire.

However, grocery still remains the retail segment with the lowest e-commerce penetration. In-person shopping will remain dominant at grocery stores for the foreseeable future. But e-commerce will continue growing, leading to varied fulfillment options and increasing facility size.

Local fulfillment will also impact the surrounding community. Grocers will need to ramp up local hiring—both full- and part-time workers—to pick and deliver orders. Environmentally, local fulfillment shortens home delivery timelines, reducing emissions from vehicles.

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