Will online grocery gain traction in 2017?

Photo: RetailWire
Dec 29, 2016
John Karolefski

Through a special arrangement, presented here for discussion is a summary of a current article from the monthly e-zine, CPGmatters.

The slow take-off in online grocery shopping in many Western markets is partly due to consumers remaining skeptical of product quality and convenience, according to a global study from Euromonitor International for SIAL Paris. At the same time, internet delivery services remain expensive and logistically difficult to implement for retailers.

Further, the recent rise of discounters, with limited online options, has inhibited online shopping.

While South Korea, China and the United Kingdom have seen noticeable traction in online grocery in recent years, “the numbers generally remain relatively unimpressive for many countries. By 2019, many markets which are conducive to internet retailing growth will see sales hover around 3-4 percent of total grocery shopping,” the report states.

Some key takeaways from the study:

Food shoppers follow the same habits online and offline in Western Europe: Staple foods account for the greatest share of both food baskets.

The product mix will blend value with exclusive online options: Smaller snacking products are not popular with retailers for sale online due to their low cost. Consumers don’t want these products online anyway. Larger pack sizes appeal to both retailers and shoppers online.

Impulsivity will be re-imagined: Impulse purchases can be powerful online. Companies need to work with retailers to maximize the visibility of their products online and increase the possible interactions shoppers can have with their products. Services such as Amazon Dash have real potential as impulse channels.

Interacting with Amazon and Google will be important in the U.S.: With their greater online expertise relative to brick-and-mortar rivals, the importance of Amazon and Google in the future of U.S. grocery retailing should not be underestimated. Manufacturers should boost their presence on these platforms.

DISCUSSION QUESTIONS: What are the biggest impediments to online food retailing in the U.S.? Do you see online grocery gaining significant momentum in 2017?

"It will take a major disruptor, like Amazon agreeing to pay for outfitting USPS trucks with coolers, to reach the economic threshold required."
"Delivery isn't for everyone, but for people who don't drive it's a godsend."
"Coming from the UK, I used this service every week for several years and never had an issue with quality that wasn’t sorted immediately."

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19 Comments on "Will online grocery gain traction in 2017?"

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Shep Hyken

Consumers want convenience. Online food retailing is a convenience that has not yet hit its tipping point. For their entire lives, consumers have gone to the store to buy their groceries. Now we’re telling them they don’t have to.

Think about the trend of online sales for just about anything else you want to buy. Look at the history and you can see an increase, year over year. The same will happen with groceries. Just give it time.

Max Goldberg

Online grocery will continue to grow, albeit more slowly than some retailers would like. The primary consumer concerns will be quality and cost. Retailers need to insure that all products, particularly produce and meats, meet customer expectations. And then there are the delivery costs. Consumers hate them. Retailers need them to offset the cost of delivery.

Ron Margulis

For years I have been relating the analogy of the milkman in this space to describe the challenges of last-mile delivery. Most of us born in the ’60s or before remember getting milk delivered to our homes once or twice a week. Gradually, however, shoppers began buying their milk and other dairy products from supermarkets and convenience stores, and the milkman was delivering to fewer and fewer homes. At some point, perhaps when only half of a neighborhood was buying from the milkman, it was no longer profitable for the dairy to continue the service.

I’m now convinced that it will take a major disruptor, like Amazon agreeing to pay for the outfitting of all U.S. Postal Service trucks with coolers, to reach the economic threshold required to make home delivery on a mass scale financially feasible.

Sterling Hawkins

There’s a difference between home delivery and eCommerce. For example, click and collect avoids home delivery all together even though consumers are ordering online.

While we’ve seen retailers very interested in eCommerce as it’s a requirement for them to move into the digital world (you can’t shop your store with Alexa if your store isn’t online), that last mile is starting to be filled with third party players including Uber, Google and Starship Technologies (robot delivery) that change the economics and scalability of home delivery from what any one retailer could do alone.

Cathy Hotka

I’m not sure about the impediments to online grocery shopping, but I do know one selling point: Millennials without cars. Younger customers who take the subway and Uber to get from place to place want to have heavier items like milk and cat litter delivered (and the delivery fee replaces a car insurance payment). Delivery isn’t for everyone, but for people who don’t drive it’s a godsend.

Dave Nixon

Great point Cathy! ….and as people continue to migrate to the urban core (empty nesters and Millennials), these types of conveniences will only grow.

Tony Orlando
For me, who does this everyday, online grocery can be good for staples, as a can of Del Monte corn is the same anywhere you go. However consumers are much more picky about their perishables and simply don’t trust e-commerce to deliver the custom meats and deli/bakery products that they can get locally. Produce would fall into that category as well. If I wanted to get into perishable delivery, above and beyond my catering drop off, it would take a significant investment to do so. A special multi-temperature van for starters, and the ability to fill orders in a time frame that would allow my meat room to prepare the product for the next day, as a one-to-two hour window would be almost impossible to do properly. Eventually this will grow, as some well-financed stores will do this right and hook up with a third-party delivery service that is equipped properly to handle it, with a separate charge for delivery. I could be wrong, but getting some frozen pre-packed steak will not satisfy the needs of consumers, as they want fresh custom-cut product that meets their needs and not something that the retailers want to push for their own convenience.… Read more »
Ross Ely

Online grocery platforms are still in their infancy, so there are still barriers to usage including complexity and cost. There continues to be tremendous investment in online grocery, and momentum will build in 2017 as costs come down and ease of use improves. Grocers will integrate more of their promotional offerings into their online environment, including loyalty programs and a wider assortment that includes impulse-type items.

Keith Anderson

The biggest barrier to online grocery growth in the U.S. has been a lack of availability.

The only thing that motivates retailers more than consumer demand is competition — and over the last 24 months, Instacart and AmazonFresh have forced retailers’ hands.

After decades of “slow and steady” online grocery growth in a handful of big metros, Walmart, Kroger and other leading grocers are leaping off the sidelines and into the fray in tier 2 and tier 3 markets, while Amazon, FreshDirect, Peapod and platforms like Shipt and Instacart are raising the bar across the landscape.

There are many complexities to online grocery for consumers, retailers and suppliers alike. But as availability continues to grow, so does awareness and trial.

And as online grocers compete ever more effectively on price, selection, quality and freshness, ask yourself whether those who can afford to have the work of shopping for and shuttling groceries done for them would prefer to do it themselves or not.

Ralph Jacobson

This shopping “channel” has had fits and starts literally since the ’80s. I do believe it is getting traction in the U.S. and a few other countries, however profitability and supply chain optimization challenges still remain. Beyond that, shoppers also need to find true convenience in making online food shopping a real replacement for in-store shopping. That generally hasn’t happened — yet. One aspect of food shopping that few discuss is that it involves the human senses more than other categories of retailing. For instance, people use their senses of smell and touch in a supermarket, and that has yet to have an effective response from technology to date.

Lee Peterson

I’ll bet if you walked into the depths of Amazon’s headquarters you’d find a big bullseye with “Walmart Grocery” in the center of it. Walmart does more than half of their business in groceries. Yeah, that’s approximately $250 billion. Between them and all the traditional grocers out there, you’d have to call that a “soft target.” Because if Amazon could solve that the way they’ve solved the rest of retail, they’d be over the hump of being the dominant U.S. retailer.

Why do you think Walmart’s opening pickup centers for grocery? They’re protecting their turf — smart. The enemy is at the gates!

Richard J. George, Ph.D.

The biggest impediment has been the slow transition to online by traditional brick-and-mortar food retailers. The stars are aligned: Millennials, convenience stores and Amazon will become legitimate omnichannel participants.

The questions for food retailers to ask are; 1.) what jobs are consumers hiring us to do? and, 2.) are there more efficient and effective ways of doing this job without requiring customers to roam through vast caverns containing thousands of SKUs?

Answering both of these questions becomes a mandate for online expansion.

Dan Farmer

We do see online grocery gaining momentum in the US in 2017 and beyond. Unata’s annual eGrocery Forecast findings (to be published mid-late January) are showing that the number of consumers who bought groceries online in 2016 doubled from the year prior to 19%, and will increase again to 31% in 2017.

More and more consumers are open to buying their groceries online, but their expectations are high. Retailers need to focus on creating that seamless, personalized omni-channel shopping experience that allows their consumers to shop however they like, whenever they like, from wherever they like. That includes creating a digital experience that caters to and recommends all types of products, including those smaller one-off specialty items and impulse purchases.

James Tenser
The online grocery order and delivery concept has been a major topic of interest for more than two decades now. One fundamental truth emerges for food retailers: taking the digital order is pretty easy; delivering on the physical promise is hella hard. Fabled early attempts like Streamline and Webvan failed spectacularly because they woefully underestimated the costs and complexity of home delivery mechanisms. More recently, “click-and-collect” operators in Europe, like Carrefour Drive and ASDA have made headway by substituting convenient picking and pick up processes for an unwieldy fleet of delivery vans. Turns out that the particular convenience offered by home delivery of groceries is desirable only to a subset of customers on a subset of occasions. If 10% of shoppers 30% of their transactions delivered, the resulting 3%-4% of all trips will never constitute critical mass for the industry. The numbers get even tinier when we divide a geographic market among more than one competitor. Amazon’s potential work-around for this problem depends on skimming a profitable fraction of commodity items and co-delivering them via the same channels it uses for other non-perishable products. To reach scale, I believe it will have find ways to beat everybody — from warehouse… Read more »
Lesley Everett

Online grocery shopping has to be the way forward. Yes it will take time for consumers to trust the quality. Coming from the UK, I used this service every week for several years and never had an issue with quality that wasn’t sorted immediately. The system works very well. Now living in the US, this is a convenience I truly miss — I know I spent more on groceries using the online system as it was just so simple and easy to use. This is definitely the way grocery stores need to go and soon.

Ken Lonyai

Online grocery is just as inevitable as online books and online everything else. However, the majority of food shoppers are old enough to be habituated to the local grocery more than say, tech buyers. As they slowly gain comfort with online grocery and younger buyers comfortable with digital shopping assume more grocery buying responsibility, the tipping point will come to the fore. Certainly, 2017 will see growth in the category, but not at break-out unless someone steps up with a major disruptive paradigm in the next few months.

While I don’t expect any to have the commitment and resources, the door is still open for local/regional supermarkets to claim their market online before Amazon or Walmart do to them what Amazon did to tech or fashion stores. Hurry guys.

Mark Price

Online grocery seems to be lagging almost every other category of e-commerce, potentially driven by the high frequency rate. But since most consumers purchase mostly the same products at the grocery store, the category seems right for digital disruption. Perhaps auto-replenishment, where consumers receive products on a regular schedule, or even more likely, some combination of Amazon Echo or Alexa, where consumers can simply order grocery products as they are running out, and those products simply appear at their door, will be the answer.

But e-commerce as a simple one for one replacement for grocery shopping is unlikely to fill the bill.

gordon arnold

It is inevitable that all online shopping will increase next year and for many years to come. Grocery shopping is still evasive in terms of a profitable delivery service for reasons of market identity and user friendliness. The market segments that appear to on the highest potential list include the working single parent society and the over 55 gang.

The initiative to gather participation should come from the retailer in the form of letters of information to the 55+ communities and single parents in condominiums. This is quite a departure from the shotgunning social media attempts that are not providing the results sought after but it may be worth a try. Time and ability are the hot buttons for these two crowds.

Single parents consider time their most precious commodity and the over 55 group struggle with heavy and/or large products. Addressing class specific areas of concern and making the solution easy to own and use is and will always be a means for the success of any venture.

Dave Nixon

Online grocery will grow as the supply chain draws from local providers. As the local supply chain grows, and becomes more commonplace, people will drop their expectations of quality and freshness, to gain shopping convenience.

"It will take a major disruptor, like Amazon agreeing to pay for outfitting USPS trucks with coolers, to reach the economic threshold required."
"Delivery isn't for everyone, but for people who don't drive it's a godsend."
"Coming from the UK, I used this service every week for several years and never had an issue with quality that wasn’t sorted immediately."

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