May 3, 2007
Consumers Going Online for Groceries
Consumers are going online more often to buy all sorts of products and services and grocery is no exception. While still a small percentage of overall sales, home delivery and/or pickup services are growing in popularity.
According to a report by The Providence Journal, Peapod has seen its sales rise by 20 percent in the past year. A company spokesperson, Peg Merzbacher, told the paper that the company is currently serving roughly 270,000 customers and the number continues going up.
Munroe Dairy in East Providence, Rhode Island, while much smaller than Peapod, is also seeing its home delivery sales trending upward. According to The Providence Journal, the company has seen the number of accounts it delivers dairy products to increase by 1,000 in the past year. That number is fairly impressive when considering Munroe Dairy’s current customer account total is 12,000.
Discussion
Questions: Is online grocery shopping with either home delivery or store pickup
getting close to some sort of tipping point where many more consumers will
begin to use such services? Have grocers learned how to make money offering
online shopping programs?
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This to me is very similar to the articles I have been reading for 25 years about how soccer is just about to “break through” and become a major sport in the U.S. (professionally, TV, $, etc.). Most of us realized about 12.5 years ago it just is not going to happen.
Online food purchase and delivery has its fans and groups such as seniors and the infirm that will respond – and this business has some moderate growth potential. But for numerous reasons – that primarily reduce to simply most of us wanting to pick out our own bananas and tomatoes – this also is not going to happen, at least in an important “big time” sense. Another drawback is that, though marketed as convenient and perceived as convenient, when all the logistical and home security issues are factored in, the perception is not reality.
Is online grocery shopping with either home delivery or store pickup getting close to some sort of tipping point where many more consumers will begin to use such services? No question about it. This will be one of the fastest growing channels of convenience for the new generation of busy consumers spending so much time at work. Online grocery shopping will not replace in-store shopping on a large scale but it will grow some three to four times its current rate over the next ten years. Will online grocery shopping be profitable for retailers? Yes, if retailers train consumers to understand that the convenience is the trade off for deep discounts that are offered only to in-store shoppers. However, every delivery should include flyers that advertise in-store promotions.
There was never any question that customers want online grocery shopping. The obstacle has always been the negative profit margin. If Munroe Dairy’s home deliveries are profitable, they’re a very rare exception. Dairy delivery in NYC died long before the internet, when the local dairies were busted for price fixing. Without price fixing, home delivery dairies couldn’t make any money. Supermarkets sometimes say they’re “customer driven” but if they’re not “profit driven” they’re dead.
I still pine weekly for the return of Webvan here in Atlanta. It was cruel and unusual to grow to love it only to have it taken away! We actually looked forward to their visits, as they always snuck in a little “thank you treat” for using them and rarely disappointed us with marginal produce or service. It was wonderful.
Yes, past history has been challenging for these services. With the slim margins, operational costs and complexities and spotty consumer interest, most dabblers pulled out on us. However, times are a changing! We as consumers continue to grow more reliant on technologies and services that make our crazy lives a smidgen easier. Watching what’s happening with the expectations of web-to-store pick-up and “raise the bar” services, it may indeed be time for round 2. Having argued with my husband this morning over who has time to go to the grocery store today, I hope it’s sooner than later!
Based on my experience in the Dallas-Ft. Worth area, I do not think we have reached a tipping point here. There is not much consumer awareness about buying groceries online. I have hardly seen any advertising or promotion in my area about such service. Also, I do not think grocers have figured out how to make money in this area.
In next few years though, this will change. As many baby boomers who retire and reach their mid 60s and early 70s, buying groceries online will become routine.
Grocers still have some time to figure out how to offer such service that is consumer friendly and how to make it a profit center. But if they do not prepare, then only those who have done their home work will prevail.
Everything I read about online grocery shopping always quotes large percentage increases in growth but the real dollars are rarely mentioned. That’s because the dollars are still insignificant. What we do know is that this is a growing trend. At what point will it become profitable? Well, I don’t have a clue. So far there are just too many reasons not to shop online. Whether it’s saving money shopping at Wal-Mart or enjoying the experience at Whole Foods or Wegmans. One of the biggest reasons for not shopping online is the many consumers simply do not live within the delivery areas. When the time comes that shopping online is more feasible, then we will see a change. It just seems so much easier going to the supermarket rather than being scrunched over the laptop trying to work through a complicated slow web site.
Online grocery sales will soar in coming years–especially for center store items. Webvan met its demise because of business model problems, not because of lack of consumer demand.
As conurbation grows, along with population density, home delivery of goods will become more and more economically feasible for people in all income strata. Why? Delivering to 100 people in an apartment building or gated community is more cost effective than delivering to 100 people spread out all over the place.
Further, the penetration of cellphones and internet access, provides the remaining infrastructure to transform shopping forever.
It will take creativity to make the online grocery experience continue to grow profitability. A retailer will need the ability to sell high ring/high profit items to increase the total spend. Maybe a virtual store. The online retailer will also need to get a high percentage of sales from a specific geography so delivery costs stay down. Maybe a neighborhood club or some type of network.
Two more thoughts regarding behavioral changes are the love Americans have with the shopping experience and the dark side of pandemics, terrorism, and food safety. Making money on fear is not new but I don’t believe it will be sustainable. The online grocery shopper has been born but has yet to be harvested.
All the elements are there for a tipping point but one: fulfillment. Most of the grocers I’ve talked to are still trying to figure out the most cost efficient delivery model. Regional dedicated distribution center? Straight off the shelf at the store? Somewhere in between (“warerooms” seems to be catching on as a term: dedicated square feet in the store to online order fulfillment)?
Consumer interest and online maturity may be at a tipping point today, but grocers are still in experimentation mode, with no defined or institutionalized process for executing.
I think forecasts tend to be inflated when it comes to grocery retail trend prediction.
Forecasts for online grocery sales in 2001 were as high as $26 Billion, the actual number was more like a sixth of that. In 2005, forecasts for 2008 for this segment ranged from $15 to $20 Billion, but I don’t think that is going to happen either.
It is obvious that this is a growing segment, and the growth may not always be at an even rate. Convenience as a driver of online traffic carries different weight in different geographies and for different demographics, and as time and travel costs start becoming a bigger factor in the decision making process, more and more people will make the transition to online grocery purchases, but probably not at the rate that seems to be constantly floated around. Retailers use these inflated numbers while developing pricing strategies and it is a small wonder that they fall short of the volume necessary to meet their profit goals.
The demand for non-store purchasing of groceries has actually been strong for quite some time. The only thing that has held back progress here is the cost of convenience associated with fulfillment and delivery.
We’re undoubtedly getting closer to the tipping point because:
>Technology is continually improving, i.e., getting cheaper and more effective.
>Retailers are more serious about building this capability into their business models.
>Additionally, consumers are putting greater value on the personalization that is provided by this service.
The growth of online grocery shopping will continue to increase as long as consumer expectations can be met. The only reason it has not reached a tipping point already is consumers have a certain set of expectations from online shopping that the grocery channel has not been able to meet yet. The tipping point will be when the consumer can receive online an experience better than what they currently receive by going to a grocery store. In my view the three key factors in descending order are: 1. Convenience; 2. Quality/Confidence; 3. Price.
Online grocery shopping is growing much more slowly that the general online category. Why? Because grocery shoppers like to pick out their own fresh products and shop for impulse buys. Until Peapod can match those experiences, it’s just not going anywhere.
A better strategy for online grocery is to market online shopping services to limited mobility consumer categories such as and seniors, shut-ins, people rehabbing from injuries, and extended stay motels. Peapod should try to secure 30 or 40% share of these segments before taking on the general public. Because the customer will tend to be concentrated, there will be economies of sale on the delivery side.
Online grocery shopping is an increasingly desirable choice for more consumers who have the option in their locale. It is popular with busy moms, those with long commutes who don’t want to make another stop, and those consumers who just don’t enjoy shopping in today’s supermarket.
It seems to me there are lots of opportunities here to make this option even more convenient to consumers.
The “magic” button has always been “will I, the consumer, receive the quality produce and meats that I would select, if shopping in the supermarket?”
Two issues: some markets have exceptional produce and meat stores that surpass local supermarkets, chains or independents. The shopper(s) is willing to spend time purchasing at these privately owned outlets.
So for home delivery of groceries to surpass its current level of interest, the supermarkets must further improve these two categories, and make believers out of the reluctant shopper.
The other key issues for produce and meat categories concern the availability of these perishables as they are requested; i.e., out of stocks, or if the shopper says “sirloin steak,” but doesn’t say Angus, Choice or select. Then what?
A viable alternative for consumers who want groceries! But, groceries make less G.P.M. without the perimeter categories being included. So, then, where is the cost value, and G.P.M. to the supermarket (not the service charge alone)?
And, the all important consumer/shopper…where is the benefit of just ordering and receiving groceries?
One can’t live on tuna, the Blue Box, etc. alone! Hmmmmmmmmmmmmm
I experimented with an internet grocer several years ago. The quality of the delivered food was exceptional. The fruit and vegetables were flawless – they were pulled from boxes before the grocer put them on the retail sales floor. Cold items were delivered in insulated totes.
However, this internet grocer would often run out of items that were crucial to preparing a meal. I canceled the service after I once again found myself in a grocery store purchasing the missing item – that time, the pasta for my spaghetti dinner which had been declared “out of stock”.
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This to me is very similar to the articles I have been reading for 25 years about how soccer is just about to “break through” and become a major sport in the U.S. (professionally, TV, $, etc.). Most of us realized about 12.5 years ago it just is not going to happen.
Online food purchase and delivery has its fans and groups such as seniors and the infirm that will respond – and this business has some moderate growth potential. But for numerous reasons – that primarily reduce to simply most of us wanting to pick out our own bananas and tomatoes – this also is not going to happen, at least in an important “big time” sense. Another drawback is that, though marketed as convenient and perceived as convenient, when all the logistical and home security issues are factored in, the perception is not reality.
Is online grocery shopping with either home delivery or store pickup getting close to some sort of tipping point where many more consumers will begin to use such services? No question about it. This will be one of the fastest growing channels of convenience for the new generation of busy consumers spending so much time at work. Online grocery shopping will not replace in-store shopping on a large scale but it will grow some three to four times its current rate over the next ten years. Will online grocery shopping be profitable for retailers? Yes, if retailers train consumers to understand that the convenience is the trade off for deep discounts that are offered only to in-store shoppers. However, every delivery should include flyers that advertise in-store promotions.
There was never any question that customers want online grocery shopping. The obstacle has always been the negative profit margin. If Munroe Dairy’s home deliveries are profitable, they’re a very rare exception. Dairy delivery in NYC died long before the internet, when the local dairies were busted for price fixing. Without price fixing, home delivery dairies couldn’t make any money. Supermarkets sometimes say they’re “customer driven” but if they’re not “profit driven” they’re dead.
I still pine weekly for the return of Webvan here in Atlanta. It was cruel and unusual to grow to love it only to have it taken away! We actually looked forward to their visits, as they always snuck in a little “thank you treat” for using them and rarely disappointed us with marginal produce or service. It was wonderful.
Yes, past history has been challenging for these services. With the slim margins, operational costs and complexities and spotty consumer interest, most dabblers pulled out on us. However, times are a changing! We as consumers continue to grow more reliant on technologies and services that make our crazy lives a smidgen easier. Watching what’s happening with the expectations of web-to-store pick-up and “raise the bar” services, it may indeed be time for round 2. Having argued with my husband this morning over who has time to go to the grocery store today, I hope it’s sooner than later!
Based on my experience in the Dallas-Ft. Worth area, I do not think we have reached a tipping point here. There is not much consumer awareness about buying groceries online. I have hardly seen any advertising or promotion in my area about such service. Also, I do not think grocers have figured out how to make money in this area.
In next few years though, this will change. As many baby boomers who retire and reach their mid 60s and early 70s, buying groceries online will become routine.
Grocers still have some time to figure out how to offer such service that is consumer friendly and how to make it a profit center. But if they do not prepare, then only those who have done their home work will prevail.
Everything I read about online grocery shopping always quotes large percentage increases in growth but the real dollars are rarely mentioned. That’s because the dollars are still insignificant. What we do know is that this is a growing trend. At what point will it become profitable? Well, I don’t have a clue. So far there are just too many reasons not to shop online. Whether it’s saving money shopping at Wal-Mart or enjoying the experience at Whole Foods or Wegmans. One of the biggest reasons for not shopping online is the many consumers simply do not live within the delivery areas. When the time comes that shopping online is more feasible, then we will see a change. It just seems so much easier going to the supermarket rather than being scrunched over the laptop trying to work through a complicated slow web site.
Online grocery sales will soar in coming years–especially for center store items. Webvan met its demise because of business model problems, not because of lack of consumer demand.
As conurbation grows, along with population density, home delivery of goods will become more and more economically feasible for people in all income strata. Why? Delivering to 100 people in an apartment building or gated community is more cost effective than delivering to 100 people spread out all over the place.
Further, the penetration of cellphones and internet access, provides the remaining infrastructure to transform shopping forever.
It will take creativity to make the online grocery experience continue to grow profitability. A retailer will need the ability to sell high ring/high profit items to increase the total spend. Maybe a virtual store. The online retailer will also need to get a high percentage of sales from a specific geography so delivery costs stay down. Maybe a neighborhood club or some type of network.
Two more thoughts regarding behavioral changes are the love Americans have with the shopping experience and the dark side of pandemics, terrorism, and food safety. Making money on fear is not new but I don’t believe it will be sustainable. The online grocery shopper has been born but has yet to be harvested.
All the elements are there for a tipping point but one: fulfillment. Most of the grocers I’ve talked to are still trying to figure out the most cost efficient delivery model. Regional dedicated distribution center? Straight off the shelf at the store? Somewhere in between (“warerooms” seems to be catching on as a term: dedicated square feet in the store to online order fulfillment)?
Consumer interest and online maturity may be at a tipping point today, but grocers are still in experimentation mode, with no defined or institutionalized process for executing.
I think forecasts tend to be inflated when it comes to grocery retail trend prediction.
Forecasts for online grocery sales in 2001 were as high as $26 Billion, the actual number was more like a sixth of that. In 2005, forecasts for 2008 for this segment ranged from $15 to $20 Billion, but I don’t think that is going to happen either.
It is obvious that this is a growing segment, and the growth may not always be at an even rate. Convenience as a driver of online traffic carries different weight in different geographies and for different demographics, and as time and travel costs start becoming a bigger factor in the decision making process, more and more people will make the transition to online grocery purchases, but probably not at the rate that seems to be constantly floated around. Retailers use these inflated numbers while developing pricing strategies and it is a small wonder that they fall short of the volume necessary to meet their profit goals.
The demand for non-store purchasing of groceries has actually been strong for quite some time. The only thing that has held back progress here is the cost of convenience associated with fulfillment and delivery.
We’re undoubtedly getting closer to the tipping point because:
>Technology is continually improving, i.e., getting cheaper and more effective.
>Retailers are more serious about building this capability into their business models.
>Additionally, consumers are putting greater value on the personalization that is provided by this service.
The growth of online grocery shopping will continue to increase as long as consumer expectations can be met. The only reason it has not reached a tipping point already is consumers have a certain set of expectations from online shopping that the grocery channel has not been able to meet yet. The tipping point will be when the consumer can receive online an experience better than what they currently receive by going to a grocery store. In my view the three key factors in descending order are: 1. Convenience; 2. Quality/Confidence; 3. Price.
Online grocery shopping is growing much more slowly that the general online category. Why? Because grocery shoppers like to pick out their own fresh products and shop for impulse buys. Until Peapod can match those experiences, it’s just not going anywhere.
A better strategy for online grocery is to market online shopping services to limited mobility consumer categories such as and seniors, shut-ins, people rehabbing from injuries, and extended stay motels. Peapod should try to secure 30 or 40% share of these segments before taking on the general public. Because the customer will tend to be concentrated, there will be economies of sale on the delivery side.
Online grocery shopping is an increasingly desirable choice for more consumers who have the option in their locale. It is popular with busy moms, those with long commutes who don’t want to make another stop, and those consumers who just don’t enjoy shopping in today’s supermarket.
It seems to me there are lots of opportunities here to make this option even more convenient to consumers.
The “magic” button has always been “will I, the consumer, receive the quality produce and meats that I would select, if shopping in the supermarket?”
Two issues: some markets have exceptional produce and meat stores that surpass local supermarkets, chains or independents. The shopper(s) is willing to spend time purchasing at these privately owned outlets.
So for home delivery of groceries to surpass its current level of interest, the supermarkets must further improve these two categories, and make believers out of the reluctant shopper.
The other key issues for produce and meat categories concern the availability of these perishables as they are requested; i.e., out of stocks, or if the shopper says “sirloin steak,” but doesn’t say Angus, Choice or select. Then what?
A viable alternative for consumers who want groceries! But, groceries make less G.P.M. without the perimeter categories being included. So, then, where is the cost value, and G.P.M. to the supermarket (not the service charge alone)?
And, the all important consumer/shopper…where is the benefit of just ordering and receiving groceries?
One can’t live on tuna, the Blue Box, etc. alone! Hmmmmmmmmmmmmm
I experimented with an internet grocer several years ago. The quality of the delivered food was exceptional. The fruit and vegetables were flawless – they were pulled from boxes before the grocer put them on the retail sales floor. Cold items were delivered in insulated totes.
However, this internet grocer would often run out of items that were crucial to preparing a meal. I canceled the service after I once again found myself in a grocery store purchasing the missing item – that time, the pasta for my spaghetti dinner which had been declared “out of stock”.