The digital transformation of grocery retail has been nothing short of revolutionary. What began as a rapid, necessity-driven pivot during the pandemic has now become a permanent fixture of the industry. Online grocery sales have surged from a modest 2-3% of total sales to 12-15% in many markets, compressing years of digital adoption into mere months. Yet, as digital channels become a core pillar of grocery, a persistent challenge remains: profitability. The cost structure of online grocery—spanning picking, packing, last-mile delivery, and returns—can quickly erode margins, making sustainable growth elusive for many grocers.
This Profitability Playbook explores the operational and financial levers that leading grocers are using to close the digital profitability gap, illustrated by real-world successes and actionable strategies.
Digital grocery is structurally less profitable than traditional brick-and-mortar operations. The main cost drivers include:
Encouraging customers to use click-and-collect (curbside pickup) over home delivery can significantly reduce last-mile costs. Click-and-collect bridges digital convenience with physical immediacy, offering a win-win: lower operational costs for grocers and flexible fulfillment for customers. Grocers are experimenting with premium delivery slots, loyalty incentives, and exclusive offers to nudge customers toward this more profitable channel. For example, integrating geolocation and ETA tracking into the pickup process can streamline handoffs and enhance the customer experience.
Advanced analytics and machine learning are transforming how grocers manage inventory and forecast demand. AI-powered tools can anticipate spikes in product demand, optimize picking routes, and reduce costly stockouts or overstock situations. Real-time inventory visibility across stores, warehouses, and third-party partners enables dynamic resource allocation and improved order accuracy—critical for both customer satisfaction and cost control. One leading grocer improved its demand forecasting accuracy by 75% using an AI-based system, significantly reducing both waste and lost sales.
Returns and substitutions are a persistent pain point in digital grocery. Smarter returns policies—such as encouraging in-store drop-offs or allowing customers to keep low-value items—can reduce reverse logistics costs. AI-driven analysis of return patterns can inform product assortment and fulfillment strategies, further minimizing unnecessary costs. Enhanced quality assurance processes, including visual checks for perishables, can reduce spoilage and customer refunds, directly impacting profitability.
Micro-fulfillment centers are small, automated facilities located close to customers, enabling faster order processing and delivery, lower last-mile costs, and higher picking accuracy. By integrating MFCs with real-time inventory systems and advanced order management, grocers can fulfill digital orders quickly without disrupting in-store operations. This model supports same-day and next-day delivery, as well as BOPIS and curbside pickup, while maintaining profitability.
Grocers are rethinking fulfillment by partnering with third-party delivery providers to flex capacity during demand surges, investing in dark stores to automate picking and packing, and using virtual hub-and-spoke networks to redistribute inventory and optimize delivery routes. This flexibility enables efficient scaling and responsiveness to shifting consumer preferences without overcommitting capital.
Digital grocery can limit impulse purchases and serendipitous discovery—important revenue drivers in-store. Grocers are leveraging customer data and AI to personalize recommendations, offer targeted samples, and create engaging digital experiences that mimic the best aspects of in-store shopping. Integrated marketing automation and CRM tools help maintain customer engagement and drive repeat purchases, supporting both growth and margin improvement.
Publicis Sapient has partnered with leading grocers worldwide to deliver rapid, scalable digital transformation:
To close the digital profitability gap and build a future-ready grocery business, leaders should:
The future of grocery is defined by agility, innovation, and a relentless focus on the customer. Grocers who sustain their digital momentum, address profitability head-on, and invest in resilient, technology-enabled operations will not only weather future disruptions—they will lead the next era of grocery retail. Publicis Sapient stands ready to help grocers unlock new sources of value, build lasting customer relationships, and achieve sustainable growth in a rapidly evolving landscape.
Ready to shape the future of grocery? Connect with Publicis Sapient to turn insights into action and lead your business into a new era of digital excellence.