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At Cutting Horse, we spend our days dissecting the P&Ls of food and beverage businesses in the $1M to $20M revenue range. We look for the outliers, the brands breaking out of the noise. Across categories spanning frozen, spices, condiments, oils, and center-store staples, one existential question keeps surfacing.
Where does discovery happen now?
For the high-value early adopters, the cohorts that drive momentum, word of mouth, and eventual acquisition multiples, the answer is increasingly binary.
It is not the aisle.
Today’s primary household shopper has effectively outsourced the trip to a workflow. Whether via pickup or delivery, the sensory experience of walking the store has been replaced by the efficiency of the interface. What once rewarded browsing now rewards speed, defaults, and habit. This is not merely a change in logistics. It is a change in brand physics.
We believe the industry is currently passing through a structural tipping point. Below is the data-backed thesis on why the physical shelf is becoming a lagging indicator of brand health, and how the Davids of tomorrow are using this shift to outmaneuver the Goliaths.
Charts are illustrative and not to scale, intended to communicate directional trends and structural dynamics, not precise forecasts
Chart 1: The Divergence Is Now Structural
The Thesis: Online grocery has graduated from a niche channel to one of the industry’s primary growth engines. We are no longer looking at a linear trend. We are looking at a structural reallocation of demand.
The Data: According to Brick Meets Click, the online share of total US grocery spending reached 19.0% in December 2025, expanding 430 basis points year over year.
To put that 19% in perspective.
The Tipping Point: Historical diffusion curves suggest that once a technology crosses roughly 20% penetration, it leaves the early adopter phase and enters a period of accelerated adoption.
The 2036 Projection: We are underwriting a future where 40% to 50% of premium grocery volume could move through digital interfaces by 2036. Not overnight, but structurally.
The Growth Gap: While Circana reports that total in-store unit volume remains flat to slightly down, digital grocery continues to compound and capture a growing share of category growth.
For a premium brand, ignoring this channel is no longer a missed opportunity. It is equivalent to ignoring one of the only meaningful sources of growth in the grocery industry, one we believe is entering an exponential expansion phase.
Charts are illustrative and not to scale, intended to communicate directional trends and structural dynamics, not precise forecasts
Chart 2: The Whale Shopper Has Left the Building
The Thesis: A common miscalculation is assuming that online grocery adoption is uniform across all shoppers. It is not. Online grocery users are heavily overweighted toward premium shoppers. The shift is being pulled forward by the highest Customer Lifetime Value cohorts, not the average household.
The Data: We are seeing a clear bifurcation in shopper behavior. Brick Meets Click and Numerator attribute the recent expansion in online grocery share disproportionately to:
Large metro markets, where density makes delivery economics viable
Families aged 30 to 44, the peak spend bracket
High-income households earning over $100K, with the highest willingness to pay for premium attributes
This matters because premium brands do not win by capturing the median shopper. They win by capturing the marginal shopper, the power user, the trend setter. If the $100K household is discovering brands on an iPhone rather than a gondola endcap, a meaningful portion of traditional in store trade spend is targeting the wrong customer.
Charts are illustrative and not to scale, intended to communicate directional trends and structural dynamics, not precise forecasts
Chart 3: The Profit Paradox and the Rise of Paid Discovery
The Thesis: Retailers themselves are accelerating this shift for a simple reason. Picking groceries is structurally unprofitable. Selling ads is not.
The Data:
The Economics: Fulfilling an online grocery order can cost a retailer roughly $10 to $15, often erasing the two to four percent net margin on the food itself.
The Solution: Retail Media Networks. Public disclosures and industry estimates suggest that digital advertising margins for platforms like Walmart Connect and Kroger Precision Marketing can exceed 70% to 80%.
Retailers must monetize the search bar to subsidize fulfillment. This transforms the digital shelf into a pay-to-play arena. Unlike physical slotting fees, digital spend is measurable. Instacart data indicates that ad campaigns generate more than 15 percent incremental sales lift, creating a flywheel where paid velocity improves organic ranking and long-term visibility.
Charts are illustrative and not to scale, intended to communicate directional trends and structural dynamics, not precise forecasts
Chart 4: The Moat of Laziness and Share of History
The Thesis: The most powerful force in grocery is not taste. It is inertia. Physical stores encourage browsing. Digital stores encourage re-ordering.
The Data: Brick Meets Click highlights a shift from convenience to preference, driven by record-high user frequency, with a growing share of online shoppers placing three or more orders per month.
The Default Effect: Industry benchmarks suggest that a majority of an established online basket, often 70% to 80%, consists of repeat items drawn from past purchases.
The Lock In: Once a brand enters a consumer’s digital purchase history, the Customer Acquisition Cost for a competitor to displace it rises sharply.
We are moving from share of shelf to share of history. The brand that wins the trial in 2026 is increasingly positioned to own the recurring revenue stream of 2036.
The Cutting Horse Playbook: The Trojan Horse Strategy
This data does not mean brands should abandon physical retail. It means they must increasingly use digital dominance to earn and defend physical distribution.
For the emerging brands we back, this is one of the best moments in history to be a David. The combination of AI-driven supported R&D, SG&A, customer service, flexible co-manufacturing, and precise digital targeting allows nimble brands to move faster than incumbents.
Our advice to founders is to deploy the Trojan Horse strategy.
Win the Window First: Prioritize the digital shelf to build data-backed velocity and capture high LTV share of history. You need to be on the “previously purchased” list.
Bring the Receipts: When pitching physical retailers like Whole Foods or Target, do not bring projections. Bring heatmaps. Show that you are already shipping units to households in their zip codes.
Force the Distribution: Use digital velocity to de-risk the physical launch.
The question is no longer just can you win the shelf.
The question is, can you win the algorithm?
Because that is increasingly where the shelf is decided.
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