By Jason Kohn, Contributing Columnist
Shoes? Check. Computer gear? Check. Clothes? Flatware? Hot tubs with built-in TVs? Check, check, and check. There’s almost nothing these days that we don’t buy online. But there is one area where the local brick-and-mortar store still reigns supreme: grocery shopping.
When it’s time to stock the fridge, the vast majority of us still do it the old fashioned way. We trek out to the store, walk up and down the aisles, and fill up physical rather than virtual shopping carts. But just maybe, that’s about to change. A number of retailers are experimenting with online groceries, and a growing number of consumers are ready to buy.
A Growing Trend
Even as we buy everything else with a mouse, when it comes to selecting fresh produce, meat, and other food items, most of us still prefer to do it in person. But a 2012 Nielsen survey of consumers in 56 countries suggests that opinions are changing:
The number of people stating they intend to buy food and beverages online grew by 44 percent over the last two years.
More than one-quarter (26%) of global respondents said they planned to purchase food and beverage products via an online connected device in the next three to six months—a jump from 18 percent reported in 2010.
And just last month, online coupon aggregator CouponCabin.com published a survey showing that more than a third of U.S. adults shop for groceries online or plan to, and that nearly four in ten wish their local grocery store offered online shopping.
The interest is obviously there, and retailers are exploring ways to meet it. Cathy Roberson recently surveyed the market in Transport Intelligence:
The European online grocery market is growing and is quite competitive. Even transportation and logistics provider DHL entered the online grocery shopping market in 2012 by acquiring a stake in German online grocer Handeslblatt. According to its CEO, “We plan to deliver groceries and household products in the whole of Germany by 2016.”
Today, the market is mostly regionally focused. Even Amazon’s grocery delivery service is only available in the state of Washington. It deploys a fleet of trucks from its refrigerated warehouse just north of Seattle and delivers to about 80 zip codes….
Safeway supermarket sells groceries online and offers one hour delivery windows… Other grocers offer a sort of hybrid solution. For example, Harris Teeter and Piggly Wiggly provide online shopping with curbside pickup for a $5.00 charge.
Other options include a few online-only grocers that still exist from the dot com days of the late 1990s. For example, Netgrocer is a nationwide online grocer with delivery generally 3-7 days utilizing FedEx.
Making it Work
In a world where you can buy anything from live crickets to your own private island online, the idea of buying groceries is not exactly revolutionary. So why is the trend taking so long to take hold? Because when it comes to groceries, it’s very hard to introduce the economies of scale that benefit other e-commerce models.
To compete on price, online grocers must settle for extremely slim margins. But since fresh food can spoil quickly, they also need to fund major storage and distribution infrastructure everywhere they wish to sell.
Amy Martinez described some of the difficulties in the Seattle Times last week, while profiling Amazon’s online grocery experiment in Seattle, AmazonFresh:
Safeway sells groceries online but does not consider it a significant part of its business. Albertsons gave home delivery a go for a decade before pulling the plug in 2009.
Issaquah-based Costco Wholesale, which has a fast-growing e-commerce business, ruled out home delivery of fresh foods as too expensive.
“We’ve looked at home delivery, and we don’t think it works. Not with the slim margins we have,” said Costco Senior Vice President Joel Benoliel.
At the same time, analysts believe the market is ripe for growth. Martinez reports that research firm IBISWorld projects that, “over the next five years, online grocery sales will grow at an annual rate of 9.5 percent to $9 billion.”
So how will online grocers overcome the barriers and capitalize on that opportunity? Many are finding that the solution is to go local. AmazonFresh in Seattle is a great example. In addition to delivering standard groceries, the service offers fresh produce, fish, meat, and prepared foods from dozens of local shops, boutique markets, and popular Seattle restaurants.
Another great example is Good Eggs. Instead of offering major grocery store brands, Good Eggs focuses on locally produced food from small farmers and local vendors—a kind of online local farmer’s market. Alexandra Chang profiled the company in Wired last month:
Good Eggs, which launched last summer as the Etsy of local food, is expanding in a bid to become the Amazon of local food.
The San Francisco-based company launched a new web platform that lets users select items from local vendors and farmers and combine them in a single order ready for delivery or pickup. That’s transforming Good Eggs from a web stand for multiple vendors to a central hub for purchasing and delivering local food.
It’s too early to tell which online grocery models will ultimately prevail. But it’s certainly one of the biggest stories in e-commerce.
Have you used an online service to buy groceries? What was your experience like? If you wouldn’t buy groceries online, why not? Let us know in the comment section.
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