Monday, February 25, 2013

Is online grocery shopping about to take off in the US?

It appears there is a growing acceptance of online grocery shopping. A recent online survey conducted on behalf of CouponCabin, revealed that 15% of U.S. adults have shopped for groceries online, and an additional 19% said they don't currently, but plan to do so in the future.

This same survey credits the high cost of food as a primary driver behind online grocery shopping. However, the ability to view items such as meat or produce was a primary inhibitor to shopping online as was having to wait at home during a specific time window for the items to be delivered.

It is estimated that online grocery shopping currently represents about 2% of total spend on US groceries. In contrast, the UK market share of food and grocery bought online was about 4% in 2011 and is estimated to increase to 6% by 2016.

The European online grocery market is growing and is quite competitive. Even transportation and logistics provider DHL entered the online grocery shopping market in 2012 by acquiring a stake in German online grocer Handelsblatt. According to its CEO, "We plan to deliver groceries and household products in the whole of Germany by 2016.”

Gone are the days of Webvan who rolled out their brightly painted delivery trucks in the early 2000s delivering food across 10 large US markets. Today, the market is mostly regionally focused. Even Amazon’s grocery delivery service is only available in the state of Washington. It deploys a fleet of trucks from its refrigerated warehouse just north of Seattle and delivers to about 80 zip codes. Given the razor-thin profit margins and competition among supermarkets, it is a difficult business model to roll out nationwide.

Safeway supermarket sells groceries online and offers one hour delivery windows, but it does not consider it a significant part of their business. Other grocers offer a sort of hybrid solution. For example, Harris Teeter and Piggly Wiggly provides online shopping with curbside pickup for a $5.00 charge.

Still, other options include a few online grocers that still exist from the dot com days of the late 1990s. For example, Netgrocer is a nationwide online grocer with delivery generally 3-7 days utilizing FedEx.

Another online grocer is Peapod, a subsidiary of Royal Ahold. It delivers mostly in the Northeast and upper Midwest with a same day delivery option via 2 hour delivery window. It also allows consumers to shop via mobile devices.

FreshDirect delivers organic foods, produce, meats and other specialty foods to homes and office in the New York area. Like Peapod, consumers can shop via mobile devices and choose to have goods delivered same day.

As with many retailers with an online presence, the ability to think creatively is a must. The logistics of running such an operation can be quite cumbersome and expensive. However, perhaps by providing different fulfillment methods and varying delivery points maybe beneficial. UK grocer, Tesco, for example, picks and packs goods via its warehouses as well as in-store.  It also offers not only home delivery but also curb pick up as well as in-store pickup.