Tuesday, February 4, 2014

Is Online Grocery Finally Ready for Launch?

With Amazon and Walmart among those joining the fray, some are predicting 2014 will be the breakout year for online grocery.

The big story last year was AmazonFresh's rollout to San Francisco and Los Angeles after its long Seattle test. Walmart To Go is now available in several cities, adding Denver in 2014. Peapod, FreshDirect and Safeway are among the e-grocery veterans.

More than a decade after Webvan's collapse, venture capital money is flowing to upstarts like Relay Foods, Instacart, Good Eggs and Greenling. Many outsource delivery for local farms or stores. Google Shopping Express launched last year in San Francisco and Silicon Valley.

One believer is Wall Street Journal personal technology journalist Geoffrey Fowler, who orchestrated a six-city test buying the same 14 basic grocery items at online stores and mid-priced supermarkets.

For consumers, the tradeoffs, he found, include minimum-order quotas, membership fees and some high delivery charges, particularly for same-day turnaround.

But generally, online grocers were found to be competitively priced and doing a better job at offering a full selection of groceries. Problems over bruised fruit from not being able to pick produce in-store were met with no-questions-asked refunds. "Browsing" for meal ideas was also said to be possible online.

The convenience appeal was evident at AmazonFresh with breakfast ingredients ordered by 10:00 p.m. arriving the next day by 7:00 a.m. Price comparison also becomes much easier online.

The annual fee of $299 for free delivery at AmazonFresh appears exorbitant but equals out to $6.00 per delivery spread out across 50 drop-offs in a year. Some online services are providing drop-off points to remove delivery charges.

"The days are numbered where people who feel comfortable doing their Christmas shopping on a phone app still buy their groceries at a supermarket," predicted Mr. Fowler.

Writing for Bloomberg Businessweek, Hannah Clark Steiman, an associate at the innovation strategy consulting firm Innosight, likewise believes economies of scale will eventually arrive for online sellers, with likely only one warehouse required to service a city.

She argues supermarkets should now be pursuing a "dual transformation" approach, investing in e-commerce while positioning stores more as "destinations."

Concludes Ms. Clark Steiman, "They need to enrich their core offerings so they can continue to attract customers to physical locations while they prepare for a world in which a significant portion of grocery spending shifts to the Web."

In a study last fall, consultancy Brick Meets Click predicted online grocery shopping would expand to 11 percent of U.S. grocery spending by 2023, up from a current 3.3 percent. Penetration is expected to approach 17 percent in markets where there are several ways to buy groceries online.

Discussion Questions: 

Do you expect online grocery shopping will gain significant traction in 2014? Is now the time supermarkets should be aggressively investing in their e-commerce platforms? 


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