June 7, 2013
Will Fear of Amazon Cause Many Others to Pursue Online Grocery?
It is one of those clear childhood memories — asking my mother for permission to do something of which she disapproved and being asked, "If everyone jumped off a bridge, would you jump too?"
Engaging in me-too behavior is often unwise in personal life. It certainly is also true of professional ventures and, yet, mimicry is often the name of the game in retailing. All of this brings us to the question of whether other retailers will start testing online grocery sales now that AmazonFresh appears to be expanding beyond Seattle to Los Angeles and then San Francisco.
The nation’s largest grocer, Walmart, doesn’t appear ready to take the leap, even though it has had some success in England with Asda and in Mexico with Superama. The chain has also tested a home delivery service in the San Francisco Bay area.
"We are not making any announcements about other markets for grocery delivery in the U.S. right now," Neil Ashe, the president and chief executive officer of Walmart Global eCommerce, told Reuters.
The nation’s second largest grocer, Costco, is also unlikely to pursue home deliveries. Company CEO Craig Jelinek told Bloomberg Businessweek that Costco had studied online grocery services, but hadn’t figured out how it could be done profitably.
While Amazon has not reported on the profitability of its venture in Seattle, Richard George, professor of food marketing, Haub School of Business at St. Joseph’s, wrote in a RetailWire discussion earlier this week that the company had captured a five percent share of market and is making money.
One company already in home delivery of groceries, FreshDirect, should be an acquisition target for Amazon, according to Larry Dignan, editor in chief at ZDNet.
"The acquisition would be akin to Amazon’s purchase of Zappos. Amazon would get distribution, brainpower and leave the brand largely alone," wrote Mr. Dignan.
- Wal-Mart has no U.S. grocery delivery expansion plans for now – Reuters
- Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World – Bloomberg Businessweek
- Amazon’s best grocery expansion move: Buy FreshDirect – ZDNet
- If Amazon’s online grocery service lands here, supermarkets may revive home delivery – Tampa Bay Times
- Will L.A. Love AmazonFresh? – RetailWire
BrainTrust
Recent Discussions
Discussion Questions
Will the expansion of AmazonFresh lead other food retailers to expand current online grocery programs or to launch new ones? What food merchants do you think are best positioned to pursue online grocery with home delivery or store pickup?
Poll
It seems to me that everyone’s been dabbling in it for quite some time. But I think a lot of grocers have not pushed ahead in eCommerce grocery because of the spectacular failure of WebVan and its ilk during the internet bubble. That scared them all off, and they’ve been dragging their feet ever since. The thing is, yes, the WebVan model didn’t work—building new, massive distribution centers to try to serve large tracts of geography. With big traffic problems and logistics issues that rapidly made home delivery out of those big, central DCs wildly unprofitable, why would you want to try to replicate that?
If I were a chain-based grocer, I would be trying to figure out the Carrefour/Auchan drive model (the Tesco dark store model). The answer isn’t going to be distribution on the scale that Amazon is used to. It’s going to be found in the stores that already exist in all these neighborhoods already—in a buy online, pick-up in store model that encourages more frequent visits, that becomes as convenient to the shopper (or more so) than just waiting two days for it show up from Amazon Prime.
The future of distribution isn’t going to be about scale—what Amazon and Walmart (and, frankly, a lot of eCommerce pureplays) are good at. It’s going to be in the customization/personalization of orders and the last mile of getting it into consumers’ hands. Store-based retailers are much better positioned to deliver on this kind of capability—if they have the courage to go after it. And that’s definitely not “me too.”
Smart grocers will monitor AmazonFresh’s progress by staying in touch with consumers within their trading area. Most grocery chains are deeply stored within their chosen markets, with locations within 3-4 miles of their primary shoppers’ homes.
The online food offering is an added service, not a completely disruptive service compared to book stores, where Amazon’s origins are.
No need to jump on this bandwagon prematurely. Grocers will do well to run to their other strengths first and foremost—convenient location, quality merchandise, solid pricing, broad selection, service, reward points, etc.
A way to compete is to look at how Amazon does business. Sure they are HUGE, but they also partner up with good companies to help facilitate their success, so this would be the model I would choose. Doing delivery of groceries is bound to fail internally, due to huge capital investment in vehicles, manpower, and regulations with insurance carriers.
There are some great start-up companies that can handle this for the supermarkets for a flat fee, and take the stress out of having to start this alone. C-storerunner.com is one of them, and is in Southern California already doing business, and other delivery options are providing this service as well in other cities.
So before you jump in, if it were me, check out the options that exist, that have the delivery system already set up for the stores to use for their online customer deliveries. Big cities will all have to play this game soon, as Amazon will focus on densely populated areas, so start partnering up now, and work out the bugs, before Amazon steamrolls into town to take your business away. Best of luck to all.
If food retailers expect to engage in omni-channel distribution, the question should be not will they launch bona fide online operations, but when. In my opinion, food retailers with an omni-channel presence will present a challenge to those like Amazon, offering single channel access to food shopping. So much so that I expect Amazon to consider bricks and mortar outlets along the lines of the Apple Store.
Consumers are seeking experienced focused shopping environments, not simply product focused. The type of experience I envision is a food retail environment with its current perimeter expanded and romanticized, similar to the European street markets with stalls/displays of delicious fresh fruits and vegetables; along with gourmet cheeses, artisan breads, fresh flowers, as well as today’s lunch or tonight’s dinner. This multi-sensory experience would be balanced by drive up locations in which pre-ordered online purchases would be loaded into the vehicle.
Does this not represent a more enjoyable shopping experience than the present options? This is something that the “pure play” online retailers would have difficulty duplicating.
Remember the late 1990s when many companies with deep, deep pockets jumped into online grocery businesses? Hundreds of millions of dollars were spent. And where did Webvan and the like wind up? In what TechCrunch calls “The Dead Pool.”
Online grocery is not for the faint of heart or those with shallow wallets. Walmart, Costco and others are wise to take their time and experiment with possible scenarios.
Too many retailers jumping on the bandwagon here will likely result in another round of “dead pool” ventures, and has the potential to screw up a lot of big retailer brand perceptions with consumers (if they try and fail).
Despite all the chatter and supposed need for speed, I think “go slow to go fast” is the choice to make for most major grocers.
It wouldn’t hurt to make sure the real live experience in store works better as well. Understanding a true shopper engagement model that serves the sets of shoppers that really matter is the truly wiser approach.
When it comes to this, I defer to my friend Tony. He is in the stadium fighting off the lions. My bet is he will be the one to overcome whatever Amazon does in his area.
The way I see it, Amazon is the “me too” online grocer. In markets that have the best potential for success, online grocers have already existed for a long time.
Great comments from Nikki, Tony and others. Many grocers are carefully watching Amazon’s activities and will be looking for signs of success or failure to drive their own activities forward. If they aren’t watching, they will likely fall behind and even if they are just watching, they are likely to find themselves behind the curve WHEN success does happen.
I would also submit that as segments continue to blur and as grocers continue to add more prepared and “almost ready to eat” merchandise, they are going to find themselves competing within some markets that already have a strong delivery offering for similar merchandise, be it pizza, flowers, dry cleaning, or the like. Seems like this may present an innovative partnership opportunity for those willing to think outside the bag.
There is a significant difference between online (pick-up in-store) and home-delivered grocery programs. Those of us that have been involved with the latter know that you must have a customer base that is predominately upscale, urban dwellers to make the numbers work. Therefore, I do not see any immediate new movement into home delivery irrespective of any thing that Amazon or other new players may attempt.
But when it comes to store pick-up programs, there are a number of traditional retailers venturing somewhat successfully into that business. Harris Teeter in North Carolina is an example that comes quickly to mind. MyWebGrocer and others now have software and the process to help these retailers get into online groceries, with store pick-up being the key entry point in this new business.
Accordingly, I think Amazon’s push into online grocery delivering may spark other traditional supermarkets to follow more into the store pick up model than to your door.
In time, however, Walmart and other big boxes may be able to find a niche in home delivery if they can crack the code on delivery costs while quantity discounting paper, pet food, detergent and other commodity categories so that home delivery makes economic sense for the shopper, while Walmart can still make some money in the process.
Ah, if only more people would have listened to George’s mother, then we never would have had “usedlightbulbsdirect.com,” and its brethren, but they didn’t and they still don’t, so yes, someone, somewhere will pursue this unicorn. But then they’ll either drop it or go out of business—depending on how much of a running leap they got before they went over the railing—and then we’ll move on to other topics…like why Amazon started an airline.
To understand the potential for online grocery ordering, pickup and home delivery, it would behoove us to examine two entities that are already making a go of it: Peapod (Ahold) and MyWebGrocer.
The latter is embedded as the ordering and selling platform in 130 supermarket chains, including Kroger, Winn-Dixie and Albertsons. Amazon is not driving this innovation—it is not even a fast-follower.
http://buswk.co/SQpCPz
http://bit.ly/13Ip1lB
You may decide for yourselves, but I prefer to view online grocery as a required service option for existing retailers, rather than a stand-alone business. That’s where Webvan got it comically wrong, and where Peapod and MyWebGrocer have shrewdly established themselves as models for the industry.
AmazonFresh remains an outlier for now. Until it proves it can deliver perishables dependably and enable home pantry management, it will never be a substitute for store visits. It may skim certain transactions from certain shoppers on certain occasions, but in the end, it is just another player in the wallet-share Olympics.
I believe the answer is yes, but what interests me most with this new Amazon offering is less the delivery service itself, and more the light that it will shed on grocery pricing generally. As much as e-commerce has grown, online grocery shopping has lagged behind in North America as compared to in Europe, for example.
I believe AmazonFresh will help to increase price transparency for groceries, just as Amazon’s initial offerings in books and consumer electronics were instrumental in paving the way for the increasingly price transparent retail environment that we enjoy as consumers in those categories. Price transparency increases consumer trust, and increased trust means increased commerce—which benefits the economy as a whole, and all of us personally as individuals.
Shoppers are smart, and are not always looking for the lowest price, but rather the best total offering for their needs. Winning retailers are those that embrace price transparency, obtain visibility on the pricing of their products in the market, and proactively right-price their products in a manner that is consistent with their strategy and offering for consumers (note: RSR Research recently published an excellent study on the behaviors of leaders and laggars with respect to pricing).
Amazon’s online grocery will most likely “morph” into a local 3rd party pick up service. At $4.00/gallon for gas, the prospects for food delivery as a means to increase Amazon sales significantly is not worth a second glance. A very close look at what made Amazon big in sales will find those same product categories shrinking in sales. Even faster than gold!
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It seems to me that everyone’s been dabbling in it for quite some time. But I think a lot of grocers have not pushed ahead in eCommerce grocery because of the spectacular failure of WebVan and its ilk during the internet bubble. That scared them all off, and they’ve been dragging their feet ever since. The thing is, yes, the WebVan model didn’t work—building new, massive distribution centers to try to serve large tracts of geography. With big traffic problems and logistics issues that rapidly made home delivery out of those big, central DCs wildly unprofitable, why would you want to try to replicate that?
If I were a chain-based grocer, I would be trying to figure out the Carrefour/Auchan drive model (the Tesco dark store model). The answer isn’t going to be distribution on the scale that Amazon is used to. It’s going to be found in the stores that already exist in all these neighborhoods already—in a buy online, pick-up in store model that encourages more frequent visits, that becomes as convenient to the shopper (or more so) than just waiting two days for it show up from Amazon Prime.
The future of distribution isn’t going to be about scale—what Amazon and Walmart (and, frankly, a lot of eCommerce pureplays) are good at. It’s going to be in the customization/personalization of orders and the last mile of getting it into consumers’ hands. Store-based retailers are much better positioned to deliver on this kind of capability—if they have the courage to go after it. And that’s definitely not “me too.”
Smart grocers will monitor AmazonFresh’s progress by staying in touch with consumers within their trading area. Most grocery chains are deeply stored within their chosen markets, with locations within 3-4 miles of their primary shoppers’ homes.
The online food offering is an added service, not a completely disruptive service compared to book stores, where Amazon’s origins are.
No need to jump on this bandwagon prematurely. Grocers will do well to run to their other strengths first and foremost—convenient location, quality merchandise, solid pricing, broad selection, service, reward points, etc.
A way to compete is to look at how Amazon does business. Sure they are HUGE, but they also partner up with good companies to help facilitate their success, so this would be the model I would choose. Doing delivery of groceries is bound to fail internally, due to huge capital investment in vehicles, manpower, and regulations with insurance carriers.
There are some great start-up companies that can handle this for the supermarkets for a flat fee, and take the stress out of having to start this alone. C-storerunner.com is one of them, and is in Southern California already doing business, and other delivery options are providing this service as well in other cities.
So before you jump in, if it were me, check out the options that exist, that have the delivery system already set up for the stores to use for their online customer deliveries. Big cities will all have to play this game soon, as Amazon will focus on densely populated areas, so start partnering up now, and work out the bugs, before Amazon steamrolls into town to take your business away. Best of luck to all.
If food retailers expect to engage in omni-channel distribution, the question should be not will they launch bona fide online operations, but when. In my opinion, food retailers with an omni-channel presence will present a challenge to those like Amazon, offering single channel access to food shopping. So much so that I expect Amazon to consider bricks and mortar outlets along the lines of the Apple Store.
Consumers are seeking experienced focused shopping environments, not simply product focused. The type of experience I envision is a food retail environment with its current perimeter expanded and romanticized, similar to the European street markets with stalls/displays of delicious fresh fruits and vegetables; along with gourmet cheeses, artisan breads, fresh flowers, as well as today’s lunch or tonight’s dinner. This multi-sensory experience would be balanced by drive up locations in which pre-ordered online purchases would be loaded into the vehicle.
Does this not represent a more enjoyable shopping experience than the present options? This is something that the “pure play” online retailers would have difficulty duplicating.
Remember the late 1990s when many companies with deep, deep pockets jumped into online grocery businesses? Hundreds of millions of dollars were spent. And where did Webvan and the like wind up? In what TechCrunch calls “The Dead Pool.”
Online grocery is not for the faint of heart or those with shallow wallets. Walmart, Costco and others are wise to take their time and experiment with possible scenarios.
Too many retailers jumping on the bandwagon here will likely result in another round of “dead pool” ventures, and has the potential to screw up a lot of big retailer brand perceptions with consumers (if they try and fail).
Despite all the chatter and supposed need for speed, I think “go slow to go fast” is the choice to make for most major grocers.
It wouldn’t hurt to make sure the real live experience in store works better as well. Understanding a true shopper engagement model that serves the sets of shoppers that really matter is the truly wiser approach.
When it comes to this, I defer to my friend Tony. He is in the stadium fighting off the lions. My bet is he will be the one to overcome whatever Amazon does in his area.
The way I see it, Amazon is the “me too” online grocer. In markets that have the best potential for success, online grocers have already existed for a long time.
Great comments from Nikki, Tony and others. Many grocers are carefully watching Amazon’s activities and will be looking for signs of success or failure to drive their own activities forward. If they aren’t watching, they will likely fall behind and even if they are just watching, they are likely to find themselves behind the curve WHEN success does happen.
I would also submit that as segments continue to blur and as grocers continue to add more prepared and “almost ready to eat” merchandise, they are going to find themselves competing within some markets that already have a strong delivery offering for similar merchandise, be it pizza, flowers, dry cleaning, or the like. Seems like this may present an innovative partnership opportunity for those willing to think outside the bag.
There is a significant difference between online (pick-up in-store) and home-delivered grocery programs. Those of us that have been involved with the latter know that you must have a customer base that is predominately upscale, urban dwellers to make the numbers work. Therefore, I do not see any immediate new movement into home delivery irrespective of any thing that Amazon or other new players may attempt.
But when it comes to store pick-up programs, there are a number of traditional retailers venturing somewhat successfully into that business. Harris Teeter in North Carolina is an example that comes quickly to mind. MyWebGrocer and others now have software and the process to help these retailers get into online groceries, with store pick-up being the key entry point in this new business.
Accordingly, I think Amazon’s push into online grocery delivering may spark other traditional supermarkets to follow more into the store pick up model than to your door.
In time, however, Walmart and other big boxes may be able to find a niche in home delivery if they can crack the code on delivery costs while quantity discounting paper, pet food, detergent and other commodity categories so that home delivery makes economic sense for the shopper, while Walmart can still make some money in the process.
Ah, if only more people would have listened to George’s mother, then we never would have had “usedlightbulbsdirect.com,” and its brethren, but they didn’t and they still don’t, so yes, someone, somewhere will pursue this unicorn. But then they’ll either drop it or go out of business—depending on how much of a running leap they got before they went over the railing—and then we’ll move on to other topics…like why Amazon started an airline.
To understand the potential for online grocery ordering, pickup and home delivery, it would behoove us to examine two entities that are already making a go of it: Peapod (Ahold) and MyWebGrocer.
The latter is embedded as the ordering and selling platform in 130 supermarket chains, including Kroger, Winn-Dixie and Albertsons. Amazon is not driving this innovation—it is not even a fast-follower.
http://buswk.co/SQpCPz
http://bit.ly/13Ip1lB
You may decide for yourselves, but I prefer to view online grocery as a required service option for existing retailers, rather than a stand-alone business. That’s where Webvan got it comically wrong, and where Peapod and MyWebGrocer have shrewdly established themselves as models for the industry.
AmazonFresh remains an outlier for now. Until it proves it can deliver perishables dependably and enable home pantry management, it will never be a substitute for store visits. It may skim certain transactions from certain shoppers on certain occasions, but in the end, it is just another player in the wallet-share Olympics.
I believe the answer is yes, but what interests me most with this new Amazon offering is less the delivery service itself, and more the light that it will shed on grocery pricing generally. As much as e-commerce has grown, online grocery shopping has lagged behind in North America as compared to in Europe, for example.
I believe AmazonFresh will help to increase price transparency for groceries, just as Amazon’s initial offerings in books and consumer electronics were instrumental in paving the way for the increasingly price transparent retail environment that we enjoy as consumers in those categories. Price transparency increases consumer trust, and increased trust means increased commerce—which benefits the economy as a whole, and all of us personally as individuals.
Shoppers are smart, and are not always looking for the lowest price, but rather the best total offering for their needs. Winning retailers are those that embrace price transparency, obtain visibility on the pricing of their products in the market, and proactively right-price their products in a manner that is consistent with their strategy and offering for consumers (note: RSR Research recently published an excellent study on the behaviors of leaders and laggars with respect to pricing).
Amazon’s online grocery will most likely “morph” into a local 3rd party pick up service. At $4.00/gallon for gas, the prospects for food delivery as a means to increase Amazon sales significantly is not worth a second glance. A very close look at what made Amazon big in sales will find those same product categories shrinking in sales. Even faster than gold!