Confessions Of Supply Chain Executives | What Has To Be True For E-Groceries To Be Profitable?

The latest Brick Meets Click data shows U.S. e‑grocery penetration climbing to 19%, signaling that online grocery is no longer a pandemic anomaly but a mainstream channel. Yet most American grocers still lose between five and ten dollars on each digital order, a loss that erodes margins and stalls investment. This profitability gap stems from unit‑economics that have not yet scaled, leaving retailers caught in a vicious cycle of loss, limited growth, and continued subsidies. Understanding why the economics are broken is essential for executives who must decide whether to double down on e‑commerce or retreat.

The primary cost drivers identified by Richard McKenzie are picking and packing inefficiencies, high last‑mile expenses, and low basket values. In‑store picking is slow, especially in large U.S. formats, while micro‑fulfillment centers require capital and volume to justify automation. McKenzie suggests a threshold of roughly 500 orders per day for store‑based micro‑fulfillment and 3,000 daily orders for standalone hubs to achieve economies of scale. Aggregating orders across a network improves vehicle load factors, cutting last‑mile costs by up to 40 percent. Simultaneously, expanding the product assortment encourages larger baskets, helping cover fulfillment costs.

These insights matter because consumer expectations, driven by Amazon’s rapid‑delivery model, are now anchored to three‑hour cut‑offs and full‑assortment availability. Grocers that fail to meet speed and range will lose market share as e‑grocery penetration pushes toward 25‑30 percent. Investing in the right fulfillment footprint—whether a single city‑wide hub or a network of store‑based micro‑centers—combined with software that synchronizes picking, packing, and routing, can turn the current loss into a profit center. Executives should benchmark order density, target basket growth, and align logistics partners to achieve load factors above 80 percent, positioning their brands for sustainable e‑grocery profitability.