Somewhere inside every grocery chain's pricing meeting, the same uncomfortable calculus resurfaces: extract an incremental dollar from each online order through a delivery markup, or surrender that dollar in the hope of owning a larger slice of what a household spends on food over the course of a year. In an increasingly volatile economic climate, a growing number of grocers appear to be concluding that the second path — the patient one — is the more commercially rational choice, and that conclusion carries implications that extend well beyond the produce aisle.
The markup model made sense when online grocery delivery was a novelty. Early adopters were, by definition, less price-sensitive — they valued convenience above almost everything else and were willing to absorb a premium on each item to avoid a trip to the store. Retailers, facing genuinely high fulfilment costs and uncertain demand volumes, had reasonable justification for passing those costs on through elevated shelf prices online versus in-store. The markup covered operational complexity while the channel was still being proven. That era now appears to be drawing to a close.
The strategic logic of abandoning online markups rests on a straightforward but easily underestimated insight: delivery, once it becomes a habit, is extraordinarily sticky. A customer who orders groceries online three times in a single month is not merely generating three transactions — they are potentially redirecting the majority of their household's entire food spend toward a single retailer. The economics of that loyalty, compounded over months and years, dwarf the cumulative value of markup premiums collected order by order. Grocers who have run the numbers are beginning to arrive at the same conclusion: price parity between online and in-store channels is not a concession, it is a customer acquisition investment with a calculable return.
The volatile economic backdrop makes this pivot simultaneously more urgent and more difficult. Consumers facing cost-of-living pressures are acutely sensitive to any sign that they are being charged differently for the same product depending on the channel through which they purchase it. Discovery of online markups — and price-comparison tools have made such discovery trivially easy — now carries a reputational cost that extends beyond a single abandoned basket. It can trigger a wholesale reassessment of a retailer's value proposition at precisely the moment when household grocery decisions are being made with unusual deliberateness. Removing markups, in this environment, is as much a defensive manoeuvre as it is a growth strategy.
For the payments and fintech ecosystem that has grown up around grocery commerce, this structural shift carries its own set of consequences. PYMNTS has tracked the evolving mechanics of how grocers monetise digital channels, and the move away from item-level markups does not mean the end of online revenue optimisation — it means that optimisation migrates upstream and downstream from the transaction itself. Subscription delivery models, retail media networks, private-label penetration, and data-driven personalisation all become more important as the per-item markup ceases to function as a reliable revenue line. The question for grocers is whether their digital infrastructure is sophisticated enough to capture value through these alternative channels at a pace that offsets the margin they are deliberately leaving on the table at checkout.
That infrastructure question is where the financial services and embedded-finance dimension becomes relevant. Grocers with mature loyalty programmes can integrate financial products — from co-branded credit instruments to buy-now-pay-later instalment options on larger basket sizes — into the delivery experience in ways that generate revenue without touching item pricing. Retailers that have invested in closed-loop payment ecosystems can capture interchange economics that partially compensate for foregone markup income. The grocers best positioned to execute the zero-markup strategy are, not coincidentally, those that have already built or acquired the digital payment capabilities to monetise the customer relationship through means other than the price line on a receipt.
There is also a measurement question that this transition forces into the open. If per-order margin is no longer the primary success metric for online grocery, then what replaces it? Customer lifetime value, share of household grocery wallet, and delivery frequency are the natural candidates — but these are metrics that require longer time horizons and more sophisticated analytics than a straightforward weekly gross margin report. The shift toward zero-markup delivery is therefore also a shift in how grocery leadership teams are asked to think about and account for the performance of their digital channels. That is a cultural and organisational change at least as significant as the pricing one.
What This Means for the Sector
The grocery industry's willingness to trade per-transaction margin for long-run wallet share signals a maturation of digital commerce thinking that has already played out in other retail verticals. Fashion, electronics, and home goods retailers went through analogous pricing normalisation cycles as their online channels scaled. Grocery is arriving at that inflection point later, partly because of the genuine complexity of perishable fulfilment and partly because of the fragmented, regional nature of the sector. The grocers that move earliest and most decisively to eliminate online markups — and that simultaneously build the loyalty, payments, and data infrastructure to capture value through alternative means — are likely to establish durable competitive advantages over those that cling to the markup model as a short-term margin defence. In a category where household habit formation is the ultimate prize, the willingness to absorb a short-term dollar of cost in exchange for a long-term dollar of loyalty may prove to be the most consequential strategic bet of the decade in consumer retail finance.
Written by the editorial team — independent journalism powered by Codego Press.