‘Groceries on the Go’ is Going, Gone at Bashas’
Bashas’ is getting out of the home grocery delivery business because it just doesn’t make financial sense anymore.
"Less than half of one percent of our customers use Groceries on the Go," Kristy Nied, a spokeswoman for Bashas’, told The Arizona Republic. "Profit is a penny on the dollar, and factor in gas prices and the amount of labor it took to deliver groceries and field the calls," she said.
Bashas’ program, which charged $14.95 for same-day and $9.95 for next-day delivery in Tucson and Phoenix, was hurt as consumers looked for a means to cut costs in the current economic environment.
With Bashas’ exit from grocery delivery business, Safeway remains the sole major grocery chain in the state to offer home delivery.
Discussion Questions: Will the tough economic conditions around the U.S. lead others to exit the grocery delivery business? What is your prognosis for online grocery coming out of the current economic rough patch?
Online grocery is clearly a tough business–combine the extra costs of IT and vehicle maintenance with the thin margins of grocery, and you’ve got a business model only a loan shark could love.
Plus, in my experience as a customer, online grocery eliminates a lot of impulse buying–to the point that in the few times I’ve done it over the years, I saved enough money on impulse purchases not made that the delivery charge paid for itself.
But here’s an anomaly: in St. Louis, Schnucks Markets has been doing it since the 1990s. In fact, I just jumped over to their site to make sure they were still doing it.
I’ve never been behind the scenes with Schnucks, or any other grocer in town, so I’m just speculating here, but I think one thing that keeps Schnucks in the business is that they developed their shopping software once and haven’t seen the need to spend any resources to modernize the interface: you either shop online with them and their outdated look and feel, or you put your kiester in the car and head for a store.
That suggests to me they’ve probably long since been able to depreciate their investment in the site and can use it as an incremental source of revenue, rolling their maintenance costs into their overall IT budget. As well, the site is no doubt faster than it was years ago, just because both Schnucks and the customers at home have been naturally replacing their machines with faster ones on a more or less regular schedule.
I also am under the impression that they outsource the delivery to a small business that does very little other than those deliveries. Also, the delivery service picks up the merchandise from a limited number of stores, no matter where the customer is.
I can’t tell you if Schnucks maintains its online service as a breakeven convenience to pay off its current tag line–We Make it Easy–or actually makes a profit.
But the service is apparently here to stay–with a few hints for the rest of us about a business model that might actually work.
Most consumers who use online grocery shopping find that it SAVES them money, and that was BEFORE the gas price issue.
In many instances, the shoppers still use their cars but pull up to a convenient drive-up lane at the store, the groceries are brought out to the car and the consumer is on their way. In other cases where traffic is an issue (New York City or Washington D.C.) home delivery is the norm.
When the systems used to support online grocery shopping today are easy to use, fast, reliable and tie out to other grocery shopping activities (the ad, recipes, loyalty specials, etc.), the shopper finds that the time spent shopping is far less than a trip to the store and they do a better job budgeting their expenditures (while still achieving a far greater basket size for the retailer). Check out Shopritefromhome.com or lowesfoodstogo.com as good examples of sites that have integrated systems with a quick consumer ROI.
Bashas’ systems were not of this type or quality, thus adoption and retention were problematic.
Online shopping and all online marketing has continued to grow at impressive double digit rates (same store) and now plays a significant and growing role in customer loyalty.
Grocery deliver works well where people don’t have car and live in densely populated, vertical areas. Phoenix is spread out, has good traffic flow, high auto ownership, and a decent supermarket on nearly every major intersection.
With very rare geographic exceptions in the US, web-based order AND delivery continues to be a solution looking for a problem.
Bashas’ just came to that realization later than most.
Online grocery is an upscale retail format. Bashas’ user base doesn’t support this. To condemn all of online grocery is a little short-sighted.
It’s unlikely that online grocery makes money for any significant player. It’s very labor-intensive, the margins are lousy, and the probability of error is excellent.
The essence of American retailing is supersonic speedy expansion of any profitable concept. Anything profitable gets hundreds of new locations built in 3 to 5 years, with very few unique exceptions (Ikea and Tiffany, for example). Notice how online grocery isn’t being expanded? Everyone knows how to do it, but no significant expansion. Could it be that thousands of grocery executives haven’t heard about it? Or could it be that everyone who knows the economics knows it’s a money pit?