The grocery retail industry is growing faster than almost anyone predicted twelve months ago. Online orders are climbing, shopper frequency is up, and digital channels are now the center of grocery strategy, not a side conversation.
But the same data driving that growth also reveals something less comfortable: smaller baskets, thinner per-order economics, and a widening gap between grocers capturing growth profitably and those simply absorbing more volume without more value.
What follows is a data-grounded look at where the grocery retail industry actually stands today.
Where Grocery Retail Industry Growth Is Actually Concentrating
Growth in the grocery retail industry is not spread evenly across channels.
Online orders are outpacing in-store sales. The gap between these two growth rates is now wide enough to change how grocers should think about where to invest their attention and their budget.
This is the core argument against staying in-store first. It is not that physical stores stop mattering. It is that the operating model built around them is no longer paying off at the rate it once did. Grocers who shift real investment toward digital operations are aligning their spending with where the grocery retail industry is actually generating growth.
In-Store Versus Online Growth Rates
The numbers show a clear split. Online spending now makes up a growing share of total grocery revenue, and that share keeps climbing quarter after quarter. In-store sales, by comparison, are barely moving.
Online spending share
Online's share of total grocery spending climbed from less than 15% at the end of the third quarter of 2024 to 19% by the close of 2025, according to Brick Meets Click. That climb has held steady across multiple quarters, not just one strong period.
Online sales drive most growth
FMI and NielsenIQ report that online sales accounted for roughly 72% of total grocery dollar growth in 2025. In-store sales contributed only a small fraction of that growth by comparison.
In-store growth
In-store sales are projected to grow at a compound annual rate of less than 1% through 2028, according to FMI and NielsenIQ. That rate barely covers inflation, let alone real expansion for a grocer relying on foot traffic alone.
These figures point to a simple fact. Almost all new revenue in the grocery retail industry is coming from digital channels, not physical ones. A grocer who treats the website or app as a secondary priority is now working against the direction of the market.
The Shrinking Returns Case Against an In-Store First Model
An in-store first strategy made sense when most grocery revenue came from foot traffic. That is no longer the reality. Every quarter that passes, the return on in-store-focused investment gets smaller while the return on digital investment grows.
Consider what this means in practice. A grocer who puts the bulk of labor, marketing, and merchandising resources into the physical store is chasing a channel that grows well under 1% a year. Meanwhile, the channel producing most of the industry's dollar growth often gets treated as an afterthought.
Why Fulfillment Speed Has Become the Industry's Defining Battleground
Speed has replaced price as the primary way large retailers compete for grocery shoppers.
Amazon and Walmart are pushing delivery windows down to thirty minutes or less, and that shift is forcing every grocer to ask a hard question. Chasing that same speed usually costs more than it earns back, which makes fulfillment the real battleground in the grocery retail industry today.
The Margin Trap Of Chasing Sub-Hour Delivery
Matching Amazon or Walmart on delivery speed sounds like a reasonable response to competitive pressure. In practice, it is a fight most grocers cannot win on cost. The infrastructure needed to deliver in under an hour requires a level of density, staffing, and distribution reach that regional grocers rarely have.
Smarter Fulfillment As The Regional Grocer's Real Lever
Regional grocers need a fulfillment strategy built around where shoppers actually feel friction, not around matching a delivery window they cannot sustain profitably.
Pickup programs
A well-built pickup program gives shoppers a fast, reliable option without the cost structure of ultra-fast delivery. It also gives grocers more control over staffing and timing than delivery ever allows.
Targeted offers
Instead of competing on speed everywhere, grocers can target the exact moments that cause hesitation, such as delivery fees, unclear lead times, or uncertainty at checkout. Solving those specific friction points often does more to protect an order than shaving minutes off a delivery window.
Selective investment
Spending fulfillment budget where it actually changes shopper behavior works better than spreading it thin across every order. This approach keeps cost under control while still addressing the parts of the experience shoppers care about most.
The grocery retail industry is not asking every grocer to become the fastest option on the market. It is asking grocers to be deliberate about where they compete on convenience, so the investment they make actually returns value instead of quietly draining it.
The Economics Behind Today's Grocery Retail Margins
Order volume in the grocery retail industry keeps climbing, but the value inside each order is not climbing with it. This gap between more orders and smaller orders is reshaping the margin math for every grocer. Understanding how these numbers interact matters more now than it did even a year ago.
Small Basket Online Orders Versus Stock-up In-store Trips
Shoppers behave differently depending on the channel they choose. In-store trips still lean toward bigger baskets, while online orders skew smaller and more frequent. That difference changes what each order actually contributes to the bottom line.
Stock-up trips
In 2025, 39% of trips to physical stores were stock-up shops with 12 or more grocery items, according to FMI and NielsenIQ data. Online trips rarely reach that same scale.
Online orders
Only 16% of online trips cleared that 12-item threshold in 2025. Inflation and general economic uncertainty appear to be pushing more shoppers toward smaller, more frequent online orders instead of larger ones.
The channel gap
A small basket order costs nearly as much to pick, pack, and deliver as a larger one, yet it generates far less revenue per trip. That imbalance is becoming a defining feature of online grocery rather than a temporary pattern.
How Average Order Value, Purchase Frequency, and Gross Margin Interact As Order Volume Grows
These three numbers do not move independently. A change in one almost always affects the other two, and grocers who only track one of them are missing the full picture of what rising order volume actually does to profitability.
Average order value
When average order value drops, there is less revenue available to cover the fixed costs tied to picking and delivering that order. A grocer can still grow total revenue in this scenario, but each order contributes less toward covering overhead.
Purchase frequency
More frequent orders bring in more total revenue even when each basket is small. Past a certain volume, though, the labor and fulfillment capacity needed to support that frequency starts eating into the savings that frequency was supposed to create.
Gross margin
When average order value falls, and fulfillment costs rise at the same time, gross margin is what takes the hit. This is why order growth alone is not proof of a healthy business. Growth has to be measured against what it costs to serve it.
Why Growth Getting Wider Strains Labor and Fulfillment Infrastructure
Online grocery growth so far has come mostly from more households ordering more often, not from existing shoppers spending more per trip. That pattern, described as growth widening before it deepens, creates real operational strain.
More orders require more labor
Each additional order needs picking, staging, and often delivery coordination, regardless of how small the basket is. Labor costs scale with order count, not with order value, which puts pressure on margin as volume rises.
Fulfillment infrastructure
Picking and staging systems built for a certain order volume start to strain once that volume grows past what they were designed to handle. Grocers who do not plan for this strain often see service quality slip exactly when order counts are climbing.
Steady growth in order count, without growth in basket size, means the cost side of the equation grows faster than the revenue side. This is the core tension behind today's grocery retail margins, and it will not resolve on its own as volume keeps rising.
Turning Grocery Data Into Growth
Growth in the grocery retail industry is real, but it rewards grocers who can see and respond to shifts in shopper behavior as they happen, not weeks later in a report.
XPro includes an embedded customer data platform that tracks behavior across every channel and fulfillment method, turning raw order activity into a single, unified view of each shopper.
That data only creates value when it drives action, which is why DXPro connects customer data directly to engagement and commerce inside one platform.
When a shopper's order frequency drops, when a basket shifts smaller, or when checkout friction threatens a sale, DXPro allows a grocer to respond immediately with a targeted offer, a win-back incentive, or a retention nudge timed to the moment it can actually change the outcome. Each interaction feeds new information back into the system, so the next response is sharper than the last.
The grocers who treat online grocery as the business, not just another channel, are the ones best positioned for what comes next in the grocery retail industry.
If you want to see how DXPro can help your team turn customer data into stronger engagement and steadier margins, talk to our team today.
Frequently Asked Questions
What is the grocery retail industry?
The grocery retail industry covers businesses that sell food and household staples directly to consumers through physical stores, online platforms, or both. It includes traditional supermarkets, regional grocers, mass retailers like Walmart, and pure online sellers, all competing for the same shopper spending across in-store and digital channels.
How big is the grocery retail industry?
Online grocery sales alone are projected to reach $452 billion by 2028, according to FMI and NielsenIQ, and online channels already account for roughly 72% of total grocery dollar growth in 2025. Combined with in-store sales, the full grocery retail industry represents one of the largest consumer spending categories in the country.
What are the biggest challenges facing grocery retailers today?
Grocery retailers are facing shrinking per-order value as online baskets get smaller, rising fulfillment costs as order volume climbs, and intense delivery speed competition from Amazon and Walmart. Together, these pressures make it harder to grow revenue without also growing costs at a similar pace.
What are the current trends in grocery retail?
Online grocery growth has consistently outpaced in-store sales, with monthly year-over-year gains regularly exceeding 20% in late 2025, while in-store sales grow at less than 1% annually, according to FMI and NielsenIQ. Alongside this shift, shoppers are placing more frequent, smaller online orders, and grocers are increasingly focused on customer retention over new customer acquisition to protect margin.
How is AI changing the grocery industry?
AI is helping grocers turn customer data into real-time engagement, allowing platforms to detect when a shopper's order frequency drops or their basket composition changes and respond with a targeted offer before that customer drifts away. This shift moves grocers from reacting to lost sales after the fact to preventing them through timely, data-driven engagement.
