Photo: Instacart
Have grocers figured out how to successfully do business online?
The recent announcement that Amazon.com will acquire Whole Foods has led to speculation about what the deal may mean for the future of grocery shopping, particularly when it comes to online ordering. While some suggest the deal represents a game-changing event, it’s clear the move by retailers to online ordering had already picked up in recent years as chains expand click and collect services as well as home delivery. This has taken place even as some continue to question whether grocers can turn a profit selling online.
Meijer, which began a pilot program offering home delivery of groceries in the Detroit metro area last year via Shipt’s third-party service, was pleased enough with the results to expand it to the surrounding suburbs and Ann Arbor.
“Convenience is king to customers,” Meijer spokesperson Joe Hirshmugl told the Detroit Free Press. “We’re looking to give them ways to shop our stores in any way they want, whether it’s ordering online and picking up at the curb, walking into the stores — and now, home delivery.”
Speaking last month on last month’s earnings call, Kroger CEO Rodney McMullen said customers using its in-house ClickList and Harris Teeter ExpressLane click and collect services were driving incremental volume for the grocery giant. Kroger is also testing home deliveries through its ClickList system that has deliveries made by Uber.
Mr. McMullen said Kroger was building its infrastructure “to be able to serve the customer the way they want to be served.” While emphasizing the important role that physical stores continue to play, he said the business is “the sum of all parts” and not just one segment.
Wegmans recently began a test to offer home deliveries of groceries using Instacart in Maryland and Northern Virginia. The family-owned chain plans to expand the service to stores in the Boston area as well as New Jersey and Pennsylvania.
“We continue to evaluate additional markets for the service, however, further expansion depends on customer demand, as well as an Instacart presence,” Michele Mehaffy, a spokesperson for Wegmans, told The Buffalo News.
- How Uber-like grocery services are changing retail – Detroit Free Press
- Kroger’s CEO Rodney McMullen on Q1 2017 Results (Earnings Call Transcript) – Seeking Alpha
- Wegmans will roll out grocery delivery in some markets – The Buffalo News
- Will using Uber for home deliveries work for Kroger? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you think grocers have finally figured out how to make online work as a part of their overall business? Do the same metrics apply to assessing success for online grocery as physical store grocery?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Jon Polin
Cofounder and President, StorePower
I think they’ve finally figured out that doing business online is part of the cost of doing business and are trying to minimize their losses. It’s not an accident that Amazon bought Whole Foods. Stores are the only way to generate profit for grocers, because it’s the only way to achieve rapid turns with existing low margin. Perhaps delivery fees can mitigate the cost of home delivery, but it’s not a big money maker. I can’t see how it ever will be, unless those cars, trucks and drones are flying around really, really fast.
eCommerce is definitely a cost of doing business now! Agreed that it’s not a profit center today; however, as some of these new technologies continue to change how people shop, we’ll see new metrics to define “success” from more of a unified channel perspective.
Grocers are continuing to evolve their online offerings to meet customer expectations, but there is no final destination. Online is and will continue to be a work in progress as new technologies and customer requirements evolve. What is clear is that online is very much a part of grocery retailing today and it will only become more important in the future. What is also clear is that online is only a part of the formula for success and traditional techniques of delivering a successful grocery retail experience still very much apply.
I don’t believe grocers have figured out how to make online ordering and delivery work yet. There are several models existing, but no one has figured out the extended supply chain economics. Most grocers do it because they feel they have to offer it, but they don’t understand how the economics of digital marketing or online supply work.
What makes the Amazon/Whole Foods acquisition interesting is that Amazon understands efficient supply chain and they understand the online consumer. So they could make a tremendous amount of headway very rapidly with a food based retail footprint.
Perishables is where the real challenge occurs. Branded boxes and cans are the same no matter where you purchase them. But no one will crack this code until they figure out how to deliver the perishable experience to consumers, which allows consumers to select their own meat, seafood and produce. I believe Amazon will figure that out before anyone because they are so focused and knowledgeable about the customer.
Some successful grocers have made online productive by building their systems internally virtually from scratch. This is most often an expensive way to achieve the right capabilities and often involves trying to reinvent the wheel. Today I’d advise all grocers large and small to leverage successful third-party technologies that are proven in the marketplace and can be implemented quickly and effectively. These tools will provide KPIs that are different in many cases from physical stores. More importantly, the right technologies will employ KPIs that benefit the enterprise as a whole as opposed to having one business-functional silo benefit while detracting from another silo. This is critical for long-term success.
To say grocers (or anyone else for that matter) have figured out how to make online work as part of their overall business is premature. Retailers of all types are experimenting and finding ways to meet the expectations of digitally-empowered shoppers. Click-and-collect and home delivery are two options that seem to be resonating with shoppers. We are at the very early stages of this journey and we will see and experience continual evolution and new additions to forging the online and physical retail worlds into a seamless shopper experience.
As the traditional lines of vertical demarcation between grocery, retail and QSR/fast casual continue to blur there will be many new and exciting possibilities for RFID supply chain management, IoT processes, experiential design and geolocation marketing and merchandising. The opportunities are endless!
I think grocers are getting better with online services but there is still some tweaking to be done. We have used an online shopping service now for about a year with our local ShopRite and it’s great. However I have heard pros and cons from friends and family using their grocery chain’s online shopping. Some complaints are that the vegetables or fruits might not be the ones they would have selected, their orders are not correct or there are items left off. So these issues need to be improved.
For the grocer the biggest disadvantage is the loss of impulse buying, so they need to work on their websites with offers and suggestions to entice the customer to impulse buy while at the same time not inundating them with offers they won’t want. There is a lot to be resolved, but the service is in demand because it’s a huge convenience. I think in time, grocers will figure out the balance of online services and in-store shopping with the customer choosing when to shop online and when to go to the store.
Meijer spokesperson Joe Hirshmugl said it best: “Convenience is king to customers.” Are retailers asking if their initiatives are making it more convenient for their customers? That is the first question that grocery retailers should be asking themselves. And if it doesn’t mean going into the store, they should aggressively find ways to serve the customer without them going into the store.
I live in the city and have a doorman, so home delivery is the name of the game here. But for those folks in the ‘burbs that may not work, as no one may be home to receive a delivery. So pickup at the store on the way home from work or while doing errands may be the key.
While every retailer thinks, “let’s get people into the store and they will buy more” the alternative today is that forcing them to go into the store may actually chase them to a competitive alternative.
I am not sure if grocers have finally figured it out. But they will either proactively do so or they will go out of business.
Great points Gene. Customer experience is defined by the customer’s wants and needs, not the store’s. It’s why Best Buy’s biggest growth is online — consumers make choices that suit them.
“And if it doesn’t mean going into the store, they should aggressively find ways to serve the customer without them going into the store.” Yup. I just addressed this in point 5 of my article “Five Pain Points Grocers Must Address Immediately to Survive in an Amazon/Whole Foods World>/a>.”
“forcing them to go into the store may actually chase them to a competitive alternative.” Yup again. While I wouldn’t say “force,” we now choose to receive $200-$400/month of non-perishable grocery delivered to our home, all of which comes from former Whole Foods in-store purchases. There is no convenience wasting our time grabbing the same boxes and bottles that are delivered at lower cost (not from Amazon BTW!).
Not entirely. The challenges are still many and complex. Does the retailer do this in-house or outsource? Outsourcing via Instacart expedites the process. However the customer is really an Instacart customer. Developing and maintaining one’s own process can be expensive, time consuming and a distraction to running a brick-and-mortar operation.
Make no mistake, the Amazon/Whole Foods deal creates additional pressure on traditional retailers to move swiftly to an omnichannel perspective. Omnichannel is about customers, not channels. It is about your customers and how they interact and access your products and services!
Having said this, I still believe there is a tremendous opportunity for store-based food retailers to integrate online and in-store shopping. Make the store the final mile or destination. Click-and-collect allows for center store replenishment online while permitting the romancing of the rest of the store.
The one significant advantage brick-and-mortar stores had over Amazon was the knowhow to run traditional stores. With the Whole Foods acquisition, that advantage is now obviated. The time to act is now or never.
No, I don’t think grocers have figured out how to make online work. It’s becoming such a distraction they are ignoring their brick-and-mortar business. Sensationalized headlines are creating overreactions. Will Amazon acquire Whole Foods or did they just make that announcement for shock value to see the reactions? Time will tell but it reminds me of wolf packs coming down and distracting a herd of buffalo, disrupting their routine and causing them to make mistakes.
Short answer: They know it’s the future and they’re figuring out how to make it work. Now the longer version.
I’ll go way out on the limb here, but let me suggest that in our fast-paced and technology-rich world, personalized convenience can be the addictive elixir for customers. You come to expect it, seek it and even desire it. Price then becomes secondary and the more market share you control, the more pricing power you will have in the market. Amazon’s ability to scale and spread investment costs across multiple industries and segments gives them an inherent cost advantage if others choose to compete on the same terms.
Grocers have figured out that online grocery will be core to the future sales mix and are in various test and pilot stages. The key to success is that there is no single destination that all must target, rather they need to do four things: 1.) change how they account and treat their stores from cost/liability into opportunities to add convenience for their customers — their stores are a huge asset if properly viewed. 2.) Drop the not-invented-here syndrome and turn to a small number of trusted partners to launch or continue their digital journeys AND create new value propositions for their customers. 3.) Turn local and community initiatives (from farms to schools to special events) into a strategic in-store theater that redefines what a local grocery store is all about. 4.) Grocery boards need to take a good hard look at their oversight role and refresh their membership to reflect retail’s new reality and the primacy of technology and the consumer.
Figured it out? No. But figured out that, as retailers, if they don’t offer customers what they want, a competitor will? Yes. With Walmart, Kroger, Peapod, Fresh Direct, Meijer, HyVee, ShopRite, and some chains partnered with Instacart, Shipt or StorePower all plowing ahead in online grocery, this game is on, and retailers will continue to improve all aspects of grocery e-commerce to drive more profitability. The stores sitting on the sidelines do so at their own peril. The U.K. is 10 years ahead of the U.S. and online grocery is a significant percent of the U.K. grocery market, and all the U.K. players are continuously increasing their profitability online.
Retailers have made huge gains in establishing online businesses. They obviously feel more comfortable with it, and that certainly includes such chains as Walmart, Wegmans, Kroger and Meijer. But compared to Amazon, they face a barrier that makes this progress an uphill struggle with an uncertain outcome — that barrier is culture. Amazon does over $100 billion in online sales. It owns 49 percent of the online business. It has been doing this and nothing else for 20-odd years. Its executives know how online customers function, what metrics should be used for decision-making and what procedures work best to get product into the hands of customers. Chain retailers are grafting online operations onto their well established, smoothly running brick-and-mortar businesses which they know backwards and forwards. Each of the chains mentioned above have powerful internal cultures that are specifically geared and strongly oriented to running large retail units. For online to be successfully integrated and develop profitably, these cultures have to change. That’s no easy task and top management mandates won’t do it.
It’s an interesting question. I guess it depends on how you define the endgame.
Solutions like click-and-collect or home delivery are great in the short term, but result in customers bypassing stores — or at least the inside of stores — and that has some potentially ominous implications for the future. If I get out of the habit of going to the store, or going into the store, why do I need stores? And if I don’t need stores then supermarkets are competing head-to-head with e-tailers on item, price and service and losing the advantages associated with merchandising and marketing.
I am not saying that physical retailers don’t need an online strategy, but I am saying they need to be careful what they ask for — because in a rapidly changing consumer market, they just might get it.
It seems that this discussion continues to evolve, and for me it comes down to simple economics. Yes I can take orders online for deli, meats and catering, and can deliver for an extra fee which can start at $10 (up to $25 in outlying cities). Most of it is catering, and I have the proper equipment to bring it safely.
Here is my concern, as food safety is never mentioned when this topic keeps coming up. There are laws on safe delivery of perishables and Uber, Lyft and Instacart so far are skirting the issue on this, whereas Amazon Fresh has the proper vehicles to deliver the food safely. Who would you want bringing the food to your house in an area where the heat is soaring that day? What if, when your groceries get to your home the milk, eggs and ground beef aren’t as cold as they should be?
I live this every day. Outside of the economics of trying to make a profit on home delivery, the safety of the food is number one for me. Someone is going to get sick due to some of these delivery services as a Toyota Prius should not be bringing deli salads and meats to a home without proper refrigeration.
The answer is providing the delivery with safely equipped vehicles. That takes a big investment which, again, goes back to Amazon who is already is doing this.
I agree that we as store owners need to be more proactive on doing something different via social media, click and collect or safe home delivery, but each store must look at the investment and the bottom line (if there is one) before throwing money at this.
If at first you don’t succeed … That is where I think this program is now. Grocers have tried unsuccessfully for a long time now to make online business work. As long as they keep trying they will eventually find the right formula. But as of now it is a system that has not been perfected.
I am in the middle of a wonderful book, The Great A&P and the Struggle for Small Business in America, which is an amazing book about the beginnings of the modern grocery industry. It is such a hard, complex business, highly impacted by the environment around it (suppliers, distribution, consumers) with virtually no room for error. The rise of e-commerce doesn’t seem so much disruptive as yet another inevitable evolution in an industry hypersensitive to its environment. Has ANYONE figured out online grocery? Absolutely not. Is it alarming? Certainly. But for those that signed up to work in the grocery business, this upheaval is just part of the game. Evolve or go the way of those that didn’t — ironically, including A&P, which for so long thrived by innovating and adapting, until it didn’t.
The only way to successfully do business online is to try it and evaluate the results, and not just research and evaluate other grocers’ efforts. Obviously, grocers nowadays need to offer options for shopping. Online is one of them. But it never will be a major part of the business.
Online grocery is something consumers want for convenience, but are unwilling to pay a premium for. For pure grocers, the low margin on staples means delivery is a loss leader and a means to hopefully support the shoppers at the stores. Amazon buying Whole Foods is going to be interesting because any losses on grocery delivery can be made up by other higher margin Amazon items (Order groceries, and pick up a phone charger in the basket.) Going to be interesting to see how that works going forward.
“…some continue to question whether grocers can turn a profit selling online.”
And there we have the issue in a nutshell. Although it seems like RW constantly pushes the concept that “work” = become the dominant mode of selling, I think the real issue is “how big of a niche market (no pun intended) can online become or will it not make money even at that level?”
I think the “no it can’t work at any level” argument is too pessimistic. Certainly there are large numbers of people who can’t — like the elderly, carless, handicapped, or won’t, like the “too busy” crowd — venture down to the local store, and they have sufficient income and demand for a viable model, even at the higher prices, I think online will eventually require to be sustainable.
As for whether or not the same metrics apply, of course they do: ultimately a business has to have a positive cash flow … regardless of how it sells its products.
Grocers may not have figured out how to make online work, but the impact to their overall business is minimal. This is because consumers aren’t really demanding this as part of their everyday shopping experience. Until this happens, the online grocery business is only a model waiting to grow.
Smart retailers are taking advantage of this time to beta test their models and prepare them for what will eventually become a major part of their business. Fortunately for everyone, until this happens, this is a solution looking for a problem.
For major online retailers, adding some hard good grocery items offers a chance to sell more products while claiming to offer expansion into the grocery segment. But the total grocery picture is still just a small future-focused solution waiting for the consumer to demand this model as its mainstay.
The leading grocery chains are laser focused on offering customers flexible ordering and pick-up and delivery options. Whether or not they are fulfilling online orders profitably remains to be seen. However, profitability for online orders may not be critical. What is more important is keeping loyal customers by offering what they want.
Like other retail categories, we are seeing retailers move to new metrics to measure success. Instead of looking at in-store and online as separate businesses from a profitability, some retailers are now assessing performance from a market area perspective – recognizing that online sales impact in-store sales and vice versa.
The model will evolve over time, but retailers should learn from the Webvan experience, then not let that color their vision of the future. Webvan lived in a pre-GPS world where traffic logjams where not updated in real time like today … no wonder they failed.
Maybe our future might look a little like the past using the Mix & Match experience from Cemex, the Mexican cement manufacturer, who preloaded cement on their fleet of trucks and rerouted them on the fly to satisfy demand. In grocery it is an 80%/20% market basket where 80% of orders look very similar if not the same. This technique would service metro areas very well with next day delivery for items that are not mobile stock.
Stores are still the hub of commerce for grocers and will remain that way for the foreseeable future. That said, there’s no doubt that ecommerce and mobile commerce will have a role to play in the grocery segment, and grocers are finally figuring out they need to innovate in this area or outsiders (packaged meal startups, Amazon, etc.) will step in and take market share. Grocers haven’t found the secret sauce yet to make these extended sales channels profitable in and of themselves, but future success isn’t dependent on that — it’s about increased customer satisfaction and retention and lifetime value. It’s about driving customers to buy more and visit the store more.
Delivery will also play a role but it won’t be a profit driver — it’ll be something consumers want and will use but their purpose is to drive loyalty and repeat business. Grocers that figure that out first will be the most successful.