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[16 comments]

Is online grocery finally ready for launch?

January 23, 2014

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?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

What percentage of overall grocery shopping will take place online 10 years from now?

Comments:

I believe it will and our experience with it has been great. Good quality on fruit, vegetables, etc. and the pricing has been competitive. When you live in the city, it sure beats lugging heavy bags home. We've been using FreshDirect, but I'm confident the others will get it right as well.

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Zel Bianco, President, founder and CEO, Interactive Edge

No doubt it will come eventually. Not likely to be in 2014. The economy is still not so hot for those of us who work for a living and the infrastructure remains off in the future.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

Yes it will continue to grow in large cities, but not rural areas, as delivery costs are too high. This cannot be done for free, and limits the hands-on approach for picking perishables. There is a nice niche (about 20%) of consumers who are more than willing to pay for this service, and it is big business.

Prices will be higher, but it is just like catering, as someone provides the service and needs to be compensated for their time, but the niche will pay for it if it is done right.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

I'm not sure that 2014 will be the breakout year, but it's easy to foresee that logistics-minded companies like Amazon and Walmart will continue to build share in home delivery at the expense of traditional grocers. One way to combat this is to develop a hybrid model, in which the shopper can preorder packaged goods packed and ready for pickup at the specific time that she or he comes to the store to select fresh produce.

At the same time, it's clear that great food merchants like Whole Foods and The Fresh Market continue to grow their models, based in part on the sensory pleasure and impulse buying that drives a lot of the business.

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Dick Seesel, Principal, Retailing In Focus LLC

Growth in large cities will continue because the delivery model can be cost effective. This provides a number of venues for experimentation by supermarkets and any other retailers. Rollout to less populated areas will not happen in 2014, but learning from urban experiments may lead to new models for less populated areas.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

"Significant" traction this year? No. "Traction"? of course!

Supermarkets (as a class of retailers) are likely going to be the last bastion of physical store retailing. They are also going to represent the greatest challenge to positive e-commerce economics.

Part of this challenge is tied to demographics, but in a bit of a counter-intuitive way. It isn't that Boomers don't like shopping online -- it's that, as a cohort, their eating patterns will shift radically with age -- smaller meals, decreased caloric intake and more institutional feeding,

They are also more likely to make frequent supermarket trips with smaller lists in order to enhance the social aspects of shopping. Retirees are not generally looking for reasons to stay home, they are more often desperate for reasons to go out.

So, online shopping will continue to scale, but 2014 isn't going to be the watershed year.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Online grocery shopping will continue to gain traction in 2014 and beyond. Significant traffic expected around 2017. These are large ships, recognizing they do not stop or turn on a dime, there is time for upstarts to sharpen their vision for the last mile.

Supermarkets have a blank canvas: lead, follow or "what?" I believe most supermarkets have started discussing the online strategy including the delivery component. A large majority are waiting and watching trying to filter the noise, like VHS or BetaMax.

Investing aggressively, in WHAT? If you do takeout, or for supermarkets, pick and pack, there are plenty of today delivery options.

Gary Chatman, Business Development, estorerunner, Inc

Online grocery shopping in the US has always remained a niche business due to limited selections and high costs - until now, that this. This experiment by the Wall Street Journal demonstrates that online grocery shopping is starting to make economic sense for shoppers as more grocers (Amazon and Walmart to name but a couple) undertake trials to expand online - and make the channel increasingly price-competitive.

Online grocery shopping provides the unique benefit of price comparison across online stores, described by the Wall Street Journal as a "superpower." With this ever increasing transparency in price and convenience on offer, the days are indeed surely numbered where consumers who do their shopping on a phone app still buy their groceries at a supermarket.

Jannie Cahill, Chief Marketing Officer, Profitero

Human beings are instinctively hunter-gatherers and grocery shopping fulfills this primal need. This is why grocery stores will continue to exist for as long as humans exist.

The current technology I see with grocery shopping being on the inside has more to do with pantry/refrigeration management. The ability to have an efficient inventory of food and access to big data of endless recipes and food recommendations based on what currently exist in the pantry or refrigerator.

The efficient grocery shopping list automatically generated based on the pantry/refrigerator is what I believe is the next revolution in optimizing the grocery shopping experience.

Ed Dunn, Founder, (Stealth Operation)

This discussion stimulated my recollection of the general public's being convinced that selling water in single serving containers was nothing more than madness. This concern at present seems resolved much to consumer liking. While still in the embrace of that historic enactment, I recalled how the initial successful market venture sought a consumer demographic that not only could afford the novelty, but would at the same time embrace it with continuing support. The product evolved to status symbol and has since settled into a form of necessity throughout the world.

This is how businesses would normally proceed with a service like we have in this day's discussion. In fact it is somehow baffling how this service refuses to take off with the financial strength of those companies enrolled for its creation and perpetuation. I am of the opinion that the demographic support information is somehow not providing the investors with the information they need.

It is no secret that the financial lifestyle of a majority of the worlds inhabitants has changed on a down slope since 2007 and is continuously worsening as more and more of the population enters the working force. So too have the names of the places where the rich and successful call home. I am wondering if these changes are accurately in place and working to provide inquisitors of demographic databases the tools they need for success. I would be slow to support information that was not in current - less than three months old - condition for any high-priced venture with a large front-end leasehold expense like we have here.

'gjarnoldjr'

Grocery shopping in-store has been losing its appeal for years. Those "new" things in stores considered top-notch by retailers and manufacturers have been partially overshadowed by technologies and by more competition and product availability.

Meanwhile, online shopping purveyors have been trying find a profitable position in the game of who takes care of our grocery needs. Things are changing and e-commerce is growing wildly in non-perishable areas. But groceries handled by another person's hands or even in drones your lettuce wilts, bananas brown and meat toughens faster and at increased prices via e-commerce.

It costs more money to escape the chores of supermarket shopping and more of the consumers' money will be heading to Washington in 2014. The various vicissitudes in today's life encourages tradeoffs but 2014 isn't the year that supermarkets will be gladly investing more heavily in e-commerce.

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Gene Hoffman, President/CEO, Corporate Strategies International

The writing has been on the wall for a long time. Grocers have been slow to react for either cost reasons or disbelief, or both. Combat example: we did a "store of the future" presentation for a grocery CEO and exec team over 2 years ago now, which included a high degree of home delivery based on the increase in online shopping and Amazon's early ventures into their space. After the meeting, they told us, "we've been talking about this for a while now," but hadn't done anything.

Sometimes, as many of you know, you can ignore the obvious for long time if you can get away with it. But the risk is, if you wait too long, you just may get run over by it. The time for waiting has ended.

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Lee Peterson, EVP Creative Services, WD Partners

Online grocery shopping will take off as soon as we no longer have access to cars. Nothing has really changed for most Americans. Grocery shopping is still fun. People who live in dense urban areas that only use public transportation, well they have been getting grocery delivery ever since the first grocery store opened. Instead of calling, they began faxing. Now it's done online.

The only way I see it taking off is if online shopping and free delivery is more cost effective to consumers than going to the supermarket.

David Livingston, Principal, DJL Research

Absolutely. As someone who lives in Seattle and has had the privilege to use Amazon Fresh since the beginning, I can tell you that there is serious potential in this business. As they fulfillment centers become more sophisticated and the delivery logistics become simplified, this will become a service that many people will choose.

Additionally, as bigger cities become more crowded and the trend toward driving and car ownership declines, this will provide even more reason for customers to want online grocery delivery.

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Jesse Karp, Omnichannel Consulting Manager & Loyalty Practice Lead, Cognizant Business Consulting

No, 2014 will not be a "major" step forward for online grocery shopping. But it will continue to grow year over year for the next decade.

Obviously, traditional grocers need to get involved to avoid losing some business to providers of online grocery shopping. But it also should encourage retailers to enhance the shopping experience in their physical stores. Not everyone can be a Stew Leonard's,
but there is a lot that can be done to attract and maintain food shoppers. Invest in it!

Meanwhile, in some respects, it amuses me to witness the growth of grocery shopping online instead of going to a store, or of the popularity of drive-through pharmacies instead of actually getting out of the car and walking into the store. Hey, let's cut back on all physical activity as much as we can, while we lament about the growth of obesity in the country and the lack of exercise by its well-fed citizens.

Oh, it's because we're time pressed? I say it's time to get priorities straight.

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John Karolefski, Editor in Chief, CPGmatters.com

The one thing we can say with a fair amount of certainty is that online grocery will grow over the coming years. As for 2014 specifically, it depends how we define "significant traction." As with any early stage market, there are a number of disruptors who are trying new models. I think we can expect to see a significant amount of trial and error as these early movers try different approaches and jockey for position. And it is fair to say that certain products (non-perishables), markets (urban), and psychographic groups (time-pressed, less price sensitive convenience seekers) will see a higher level of adoption.

I would expect that the majority of the larger grocers, on the other hand, will take a wait-and-see approach to how the market evolves. The winners are not necessarily going to be the first to market, but rather the ones who do it right and mobilize the resources to do so. Albertsons, Kroger and Walmart, for example, have all publicly stated that they are either not doing anything with online delivery at this time, or simply testing their approaches. The major grocers still drive over 96% of their business through the stores, and will continue to see those as their primary channel for 2014.

That said, I think we should also expect some of the more innovative grocers to introduce increased convenience options, both to fend off the new entrants, as well as to attempt to differentiate themselves versus their later-adopting competitors. According to a recent article in Business Week, for example, Giant and Stop and Shop are both offering free pickup in some locations.

Regardless of whether 2014 is a year of significant traction for online grocery, there is no doubt grocery driven through via online will represent a much higher proportion of the overall grocery market in the next 5-10 years. As such, it certainly makes sense for all grocers to be actively monitoring the market, in terms of competitive pricing and business models, and to be actively formulating their strategies to adequately prepare themselves for the coming growth.

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Alexander Rink, CEO, 360pi

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