Is Grocery Delivery/Pick-Up Finally Ready for Prime Time?

Discussion
Sep 10, 2012

Grocery delivery has been a "big idea" for years whose time just never seems to come. With a few new twists and wrinkles, it’s possible that is about to change.

At the recent eTail East Conference, Tim Dorgan, VP/GM eMerchandising for Peapod (part of Ahold), said his organization’s sales are nearly half a billion dollars annually, that their goal is $1B within 3 to 5 years, and that Peapod now has 500,000 customers. Peapod’s average order is now at $160 and 55 items, 25 percent of which are made on mobile devices. And with a higher percentage of perimeter department items in the delivery basket than via an in-store visit, perhaps this service represents a "real" business. Peapod obviously has a website, along with tablet, iPhone, and Droid apps. The company is also testing a pick-up service in Chicago and Massachusetts.

Peapod derives significant revenue from consumer packaged goods manufacturers, and a lot of that money comes in because of the exposure and analytics Peapod is able to provide. It seems that a large part of the Peapod model hinges on brands buying into the idea that they need to be on Peapod for new product launches, big events and corporate promotions. And Peapod can most likely, as they claim, offer CPG firms better targeted advertising and analytics than can probably be done in physical stores.

Meanwhile, according to Bloomberg Businessweek, Tesco is beginning to offer drive-thru grocery pickup in the UK. Tesco plans to have collection points open in 150 stores by year-end so shoppers can order online and pick up at the store, for a nominal fee. A Kantar analyst, quoted in the BBW article, said that the service is a growth opportunity for Tesco because the economics are better than home delivery. Logistics have been a challenge, as orders have to be picked and bagged so that they are available when the customer arrives to pick them up. Other issues include training associates on customer service and product return issues, and carving out physical space for the pick-up depot.

Asda (Wal-Mart) is also testing a pick-up service and has ten outlets available, according to Bloomberg Businessweek which also reports that Groupe Auchan, Le Clerc, Casino and Carrefour offer drive-up service in France. Planet Retail predicts Tesco’s online revenue will grow from 6.4 percent of sales in the UK this year to 9.3 percent next year, as the pick-up program grows.

In the U.S., other services include Fresh Direct in the NYC area (expanding to the Bronx earlier this year) which emphasizes perishables delivered from its Long Island distribution center, while Relay Foods of Virginia delivers groceries, perishables and specialty items in five mid-Atlantic markets, and recently expanded into the Baltimore, Washington and Philadelphia markets. Groceries can be delivered by Amazon, although as best we can tell there are still no perishable items offered for delivery. In San Francisco, startup Instacart offers Express delivery (one to three hours) for a fee, and also offers a year-long subscription program a la Amazon Prime, for $99, which includes waving the hourly fee. Other startups offer to pick-up groceries and other items from stores specifically chosen by the customer.

Is it time for supermarket operators to revisit the grocery pick-up and/or delivery business? Which has more potential? Should the primary source of revenue be fees charged to customers, or advertising and fees derived from consumer products companies?

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27 Comments on "Is Grocery Delivery/Pick-Up Finally Ready for Prime Time?"


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Max Goldberg
Guest
6 years 6 months ago

For time-strapped consumers, grocery delivery may make sense, but grocers will need to make sure that perishables are fresh, tasty and good looking — how a customer would describe fresh, tasty and good looking. Most consumers want to choose produce and meats to meet their standards, and standards can vary greatly.

Ben Sprecher
Guest
Ben Sprecher
6 years 6 months ago

When I read the word “delivery,” I always think “last-mile problem.” Unless your delivery route is extremely dense (think Fresh Direct’s routes in NYC), the costs of getting the goods to the consumer’s door tend to be too high for the average customer to be willing to pay.

Drive-thru pick-up has the potential to be lower cost, and ironically it could even be more convenient, since the customer doesn’t need to worry about melting ice cream on their doorstep if they get caught in traffic.

Regarding revenue, it’s not an either-or…retailers should make money from advertising AND from fees to consumers (whether explicitly listed as a delivery charge or just baked into the higher item prices).

Frank Riso
Guest
6 years 6 months ago

In certain cities such as New York, Chicago, and San Francisco, home delivery makes a lot of sense since the expense of delivery is concentrated. In urban areas, the connection to one’s local store is also the best way to order online and pick up in-store. However, there are a great many places in this country and even into Canada that home delivery and even pick up in the store just will not work.

Steve Montgomery
Guest
6 years 6 months ago

Delivery and pick-up both offer their own unique challenges for supermarkets. My question would be, are those that offer these services gaining share and making any money in the process?

There is no question that food retailing is a tough business and everyone is looking for an edge, but at what cost? Can all the retailers make enough money on the “back side” from selling data, etc. to offset the additional cost, if market basket profitability doesn’t increase?

Tesco says the economics of pick-up are better than home delivery. Okay, but being smarter than my dumb brother doesn’t make me smart, and better economics doesn’t mean it is profitable.

Gene Hoffman
Guest
Gene Hoffman
6 years 6 months ago

Grocery delivery business has appeal primarily for the affluent people. The grocery pick-up business appeals mainly to very busy people. Which of these groups grow the greater tomorrow will answer the question of potential, and it will also depend on which group is willing to pay for the service provided … primarily in urban areas.

The source of fees should be from those serviced. You pay from what you want. Let’s not further complicate the relationship among CPG companies, non-participating retailers, and the delivery and pick-up groups.

Paul R. Schottmiller
Guest
Paul R. Schottmiller
6 years 6 months ago

In terms of home delivery, the economics of this when trying to retrofit to current store/distribution models continues to be challenging. There is a niche, but I don’t see this at any kind of mass tipping point.

However, I do think the time is right for increased “convenience pick-up” options — drive throughs, lockers, curbside, etc. This has been around for awhile also; (anyone remember Circuit City’s 24/24?) but advances in mobile and multichannel make this more likely to find traction in the near-term.

Zel Bianco
Guest
6 years 6 months ago

Supermarkets should move forward with pick-up and delivery services. Everyone has busy schedules these days, and due to this consumers could select supermarkets that offer these services; shoppers would take advantage of the time savings and convenience. Delivery service works well in city settings (most grocery stores in New York City deliver groceries, but only after the shopper has visited the store to make their purchases) and pick-up service would work well in suburban settings. Supermarkets should be able to generate revenue through delivery fees, as I think consumers are willing to pay nominal delivery fees for the convenience of ordering online/smartphone/tablet and having groceries delivered to their door.

Nikki Baird
Guest
Nikki Baird
6 years 6 months ago

I think delivery is going to be challenging — especially for groceries, someone has to be home to get them and put them away. In-store pick up — drive ups — pose a much bigger opportunity, to me.

I hear from some grocers that they are concerned that the drive up model will lead to smaller basket size, but my counter to that is, can smaller basket size lead to more frequency? How does it net out in the end really? Because in today’s shopping environment, I think the retailer who provides the greatest convenience is going to win — especially for something that is a chore vs. entertainment. The more grocers can make the weekly shopping trip more convenient, the more business they will win from consumers.

As for the revenue model, why not leave it up to the customer? Free shipping with advertising, or pay to be ad- or sample-free….

Ian Percy
Guest
6 years 6 months ago
If you want to look at it from a purely mechanistic perspective, someone will certainly turn doing your shopping for you into a viable business, and apparently already have. When you look at it from a spiritual and/or emotional perspective, however, it is terribly sad. We are racing to disconnection with pretty well everything that makes us human; that is the joy of engagement and making choices for ourselves. Once you disconnect and stop making choices, you die. And that doesn’t mean your heart stops. Prison punishment is simply a matter of removing choices with the ultimate punishment of making one last choice — your final meal. That final choice is actually part of the punishment, a reminder of how you used to make choices. We already twitter and email instead of actually having human, physical connection to each other. We already have companies ready to chose someone for you to have lunch or a date with. There are people ready to do anything and everything for you so you don’t need to engage in… Read more »
Robert DiPietro
Guest
6 years 6 months ago

Yes, it is time to revisit delivery, but only in the appropriate geographic areas. It may not make sense for Logan City, Utah but does for Natick, MA.

The PRIMARY source of fees should be merchant funded, as the grocer can help with product launches product placement on the site and ideally targeted marketing. It could easily mimic Amazon with $5 for delivery and site with ads, $9.99 with no ads.

Marketing needs to focus on time-starved consumers trying to keep healthy meals on the table for their families — it is not a one size fits all, but a niche to cater to.

Dr. Stephen Needel
Guest
6 years 6 months ago

You are all clearly way too young to remember the days when urban grocers delivered groceries. It always made sense for them to do this and it still makes sense now. But that is for safe urban areas with the density that Ben mentions. Make it too expensive and you lose your advantage, regardless of where the fees come from.

Gordon Arnold
Guest
6 years 6 months ago
Time is the critical stimulus for the pickup/delivery tools to be a significantly important offer. The successful millennial generation household has the partners working 2 full time jobs and one or more part time job(s). These standard efforts place a high value on the time away from work. Any and all changes in the amount of time it takes to perform needed life maintenance tasks will be closely considered and incorporated as an accepted way of life if cost effective. The efforts to include this generation in advertising for delivery and pick up of grocery orders service have been subdued by the weight of information indicating they prefer to dine at restaurants. Prepared meal menus might be the answer to this dilemma. Offering prepared meals or rather the making of a meal for the table serving a selected number of children and adults might improve success rates. This requires the store to think in terms of number of orders in place of items per cart for the service industry aspect of the business. The key… Read more »
Mark Heckman
Guest
6 years 6 months ago
Having managed a home delivery/pick-up service for a supermarket chain many moons ago, I do think that both the technology and consumer climate for these services are much better now than ten years, even five years ago. Over this time period, Peapod, MyWebGrocer, and the Grocery Shopping Network, have been working diligently to find an audience that represents critical mass. With new shopping apps, mobile payment options, and better in-store logistics to facilitate both delivery and pick-up, I do believe the shoppers are ready to embrace these services. Shopping Apps are being used, and pre-planning for the shopping trip is at an all time high. Now for the caveats. Price of the service must be reasonable. In this economy paying more than $10 an order for pick up service is likely to be a deal breaker in most markets. Harris Teeter has had some success with their Express Service at $4.95 per order. If advertising revenues can indeed keep pick-up service prices low and keep the service profitable, that enhances the business model tremendously. Secondly,… Read more »
Brian Numainville
Guest
6 years 6 months ago

Regardless of how the program is funded, from a “busy consumer” standpoint it is time for more options. Whether it is home/office delivery, which has an inherent set of challenges including freshness and cost, or a “quick pick up” at a store location, providing more options to fit today’s consumer is key.

Mike Spindler
Guest
Mike Spindler
6 years 6 months ago
Interesting stats on Peapod. And they aren’t even the largest online grocer in the states. At MyWebGrocer, we had stores in all kinds of towns, who ran successful pickup models, on which they made nice money. They make money because: – The orders are huge, as Peapod claimed above. – If the grocer does a good job, the customers become enormously loyal and become great references. – If you are the first or only grocer offering the service you WILL pick up customers from other grocers. If you do a better job than the other grocer in your online channel, you WILL pick up customers from those grocers. – If you do a credible job in understanding customer purchases and more importantly what they are NOT purchasing from you…the customer basket just continues to grow and grow. – oh, and did I mention that the orders are huge? One thing is for certain. There were more customers using and wishing for online grocery shopping each year I was with the company, there are more today… Read more »
Joel Rubinson
Guest
6 years 6 months ago

I really like the pick-up idea. The control freak in me has a problem with grocery delivery. Will it arrive on time, will the order be correct? Will the meat and produce be to my liking? I think pickup is the perfect tradeoff of simplifying shopping with still giving the shopper some control and last say.

Kai Clarke
Guest
6 years 6 months ago

No. The time is not now or anytime soon. Grocery shopping is still a look, touch, feel, and smell experience that is driven by impulse purchasing as well as planned purchasing. This is not going to change for the majority of customers who shop in this environment. It is the very reason why milk home delivery went away in the first place….

Ed Rosenbaum
Guest
6 years 6 months ago

I am not ready to buy into this yet. Let me start by saying I do very little of our household shopping. Yet recently, my wife had an accident, thus forcing me into the role of shopper. I am slowly turning this back over to her; and may I add quite willingly.

During this period she taught me how to look for things like use by dates, etc. I can not see her, as an experienced shopper, leaving it to an order filler to select the products she prefers. Nor can I see her leaving it to an order filler to select the meats, chickens and perishables for her. So the jury is not even going into session on this, as far as we are concerned.

Ralph Jacobson
Guest
6 years 6 months ago

Fulfillment has been the primary challenge for this business model for years. Coming from Chicago, I remember Peapod as far back as when I didn’t even know what the Internet was. I’m thinking the idea actually was generated in the late ’80s or early ’90s.

The challenges have only gotten worse with fuel costs rising. This cuts in to the already narrow margins of typical home delivery models. Tesco does it among the best. They have a great fulfillment model. Pick up at store may have its benefits, however, home delivery has a unique, compelling attraction for consumers.

Lee Peterson
Guest
6 years 6 months ago

It is DEF time to re-think deliver/pick-up because if you don’t, you’ll get run over by the Amazon train in a second. The only way to cover the delivery will be with added cost in some fashion, but if you’re Amazon, you can cover that over a million items — whereas if you’re a traditional grocer, you’ll have to go at it with what you’ve got.

In any case, traditional grocers need to test delivery under varying models to find the sweet spot; delivery charges or cost up charges — OR, more positive promotions, like discounts on other, higher margin goods if you do pay the up charge. The time is now, before you lose the middle store.

Matt Schmitt
Guest
6 years 6 months ago

The pickup side of the business seems ripe for grocers to leverage. It’s compelling to look at the prospects for more items per basket, and probably won’t be surprising to see good results when weighing in the “saved time” factor for the shopper. How many times do shoppers’ journeys get more rushed as they make their way through their lists?

Assuming the cost factors of pickup versus delivery, it seems like a win/win.

I’m not sure about having the consumer brands bearing the costs for everything. If the value proposition of saved time and more convenience are compelling to many shoppers, then why can’t some service fees be passed along?

Craig Sundstrom
Guest
6 years 6 months ago

The first sentence of this article said it all; maybe a few “twists and wrinkles” will really change things, but what are they? Phoning-in orders and then delivering them — the predecessor to online ordering — has been available for well over a century, so the concept is hardly novel. Contrarily, the market is so small it will probably always seem like a big growth opportunity.

Robert Hilarides
Guest
6 years 6 months ago

It is past time to reinvent the way groceries are purchased. While there have been many incremental enhancements to the process (self-checkout, evolving formats, etc.) the power still resides with the retailer and (ever less) the manufacturer. Someone who puts the power in the hands of the consumer/shopper will have blockbuster.

Peapod has done a beautiful job of developing revenue streams where they create value, which is for both the manufacturer and the shopper. Both should be willing to pay for enhanced value (insights and programming for the manufacturer, convenience for the consumer), but the big upside is likely with improved consumer value, leveraging trends like mobile, social, coop, etc. This will happen.

Anne Bieler
Guest
Anne Bieler
6 years 6 months ago

Yes, it is time to revisit the pick up and/or delivery side of the business. Saving time is important to most shoppers, and many of the purchases are repeat, familiar products. Many shoppers value the convenience of having the pantry staples delivered, or at least ready at the store for pick up.

It makes sense now; consumer trust and technology have evolved to make this work. The large order size confirms this — going through the store to pick up and cart the heavy, bulky items is not time efficient. This is a way to increase customer loyalty and learn preferences to develop more shopper centric marketing. Shoppers will still come to the store for perishables, and see what is on, but will save the heavy lifting. A reasonable fee can be passed on to shoppers, but the marketing opps for CPGs have value here, and can become revenue for retailers in this model.

Tom Redd
Guest
6 years 6 months ago
Let me keep this simple — the most convenient to each shoppers’ unique lifestyle wins. Call it the “Have it YOUR WAY” Model for retailing. We have all seen how retailers are shifting their shape to map to their targeted markets. This might have meant stronger web stores for some and more entertaining stores for others. Lots of ways retailers are shape shifting. On grocery or food delivery/pick-up it is all about mapping the method and style to the targeted marketplace. So NYC and Chicago are great for direct delivery. Other regions/markets where that does not apply as well may find the drive through model works very well. In Ohio and Michigan the Drive thru liquor stores are great…that was just an example. Walgreens and other pharma retailers hit the money with drive thru pick-up of prescriptions. My wife loves the convenience. For food — this pick-up is FREE. Home deliver is a charge or it uses loyalty points — like an upgrade to first class on an airline does.
John Thompson
Guest
John Thompson
6 years 6 months ago

The grocery pick-up/delivery business will become an important “piece” of retailers’ efforts to reach a wider and wider audience. The management of these programs for profit, and other “tactical” issues aside, retailers must continue to develop methods to grow their reach, and provide relevant services and value to their customers to remain a vital part of their customers’ shopping regiment.

As the grocery shopping mantle passes from generation to generation, the retailers best positioned to sustain a viable growth model are those that build a flexible infrastructure where communication channels can be dialed up or down, dependent on the needs of their customers. Whether it is delivery, pick up, texting, fast check, in-store signage, loyalty programs out or other technologies…all must be integrated to work together and at proper balance to effective. Delivery/pickup models will play role to more and more consumers. Time and experience have taught us what is needed to make them profitable, now the key in integrating it into the bigger consumer relationship building strategy.

Justin Time
Guest
6 years 6 months ago
One would hope. It’s a battle cry that I shout from the top of my lungs every day, since this issue is very personal to me. I support the care of an elderly mom long distance, since she lives 250 miles away in Pittsburgh. What a stranglehold the one ton gorilla, Giant Eagle, has on this market. They have teased the Pittsburgh public for years with rumors that they would be starting a grocery delivery service, always retracting the initiative in the media. So to fill the void, a dozen or so small “bandits” found a niche and began offering selective grocery delivery services whereby the two or three individuals per operation lease small delivery vans and on a good day, charge a $10 flat delivery fee plus a 15 percent surcharge on the total bill. Several of them allow you to choose a store like Bottom Dollar or ShopNSave and do the shopping for you, but don’t allow you to use your own loyalty card, thereby accumulating and claiming the gas points, perks etc.,… Read more »
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