Is Online Grocery Shopping Really About to Soar?

Stephen DeAngelis

June 16, 2015

“Since the early days of the internet,” writes Cooper Smith (@CooperASmith), “entrepreneurs have dreamed of moving grocery shopping online. It’s finally starting to happen.”[1] Over the past couple of years, there have been an increasing number of articles written about the growth and future potential of online grocery shopping. I have followed this topic with some interest (see my articles entitled Supermarkets and Digitalization, Part 1 and Part 2, Grocery Shopping: The Digital Path to Purchase is Here and It’s Mobile, Online Grocery Shopping Continues to Grow, and Online Grocery Shopping: Is That Your Supper in the Mailbox?). As Smith notes, the move towards online grocery shopping continues to gain momentum and he thinks it’s about time. He claims that “grocery shopping has not changed for ~90 years” and that the food and beverage sector has been “the least disrupted” sector in the digital age.

 

Although online grocery shopping remains just a sliver of overall grocery sales, Smith reports that it is growing at a compound annual growth rate of 21.1%. Bill Bishop, Chief Architect at Brick Meets Click, agrees with Smith that online grocery shopping has a bright future. Bishop reports research by his firm concluded, “If current trends, activity and investment continue, we forecast that online shopping will account for between 11% and 17% of grocery spending in most U.S. markets within 10 years.”[2] Bishop elaborates:

“Today, online grocery growth is driven by highly focused online food retailers like Door to Door Organics, Relay Foods and Artizone, who are doing a good job of serving the needs of particularly well-defined market niches. It will grow even faster when the big operators start expanding their online programs — when Walmart rolls out ‘click and collect’ to more than 4,000 stores, Amazon Fresh moves into new markets, or Google rapidly expands their Shopping Express service to grocery retailers.”

Paul Weitzel reports that loyal in-store customers are also proving to be loyal online grocery shoppers. He writes, “While Amazon and Walmart commandeer media coverage, grocery retailers continue to win the hearts and wallets of their preferred shoppers. In fact, core store shoppers that have tried online grocery shopping are now spending 30 percent of their dollars online. In other words, the store’s most important shoppers are also the most digitally engaged, proving that grocery eCommerce is indeed ‘sticky.’ Additionally, nearly 90 percent of all online baskets are stock-up trips (sessions), making grocery eCommerce even ‘stickier’.”[3] If you are not a marketer or a technology expert, you might be wondering what the term “sticky” means. Weitzel explains:

“In technology, being ‘sticky’ is critical to long-term success. Stickiness means the target audience has progressed along the adoption continuum by moving from the trial phase to the repeat phase. From here the audience begins to expand usage as they continue their recurring purchases and/or behaviors. A ‘sticky’ solution becomes so deeply engrained that it’s hard to return to the way things were. In essence, stickiness changes the status quo. Can you imagine returning to a regular cell phone that only provides talk and text capabilities? Of course not, because smartphones, and their applications, are ‘sticky’.”

Since online grocery shopping still represents such a small percentage of the overall sector, it might be a bit premature to place the “sticky” crown upon its head; nevertheless, most indicators predict that online grocery shopping is going to continue to grow. A couple of years ago, David Dillon, Kroger’s Chairman and Chief Executive Officer, stated, “People sometimes use the words ‘digital’ and ‘e-commerce’ interchangeably, but they are not interchangeable. The digital world is more about communicating with customers — it’s sharing information, and moving data around. E-commerce is just a piece of the digital world.”[4] Mark Hamstra reports that Dillon remains firmly committed to traditional stores and “remains convinced that while customers increasingly enjoy the convenience of … digital interactions, they overwhelmingly remain committed to shopping in their local bricks-and-mortar supermarkets — where they interact with their neighbors and store employees — for the bulk of their grocery-shopping needs.”

 

One of the reasons that traditional stores have remained the shopping venue of choice for most consumers is that they like to ensure product quality and freshness in person. Smith reports that a survey conducted by AT Kearney confirms that consumer concern with freshness remains the greatest barrier to increased growth of online grocery shopping. This is especially true in the areas of fruits and vegetables, prepared foods, meats and seafood, dairy, eggs, and bread. Another survey cited by Smith (this one conducted by Harris Interactive) found that 78% consumers still prefer to shop in-person for general food items and 57% of participants indicated they preferred buying specialty foods and beverages in-person. Weitzel reports that supermarket chains aren’t the only enterprises stepping cautiously into the online environment. Consumer Packaged Goods manufacturers are also treading lightly despite eCommerce’s potential. He elaborates:

“While grocery eCommerce will impact every CPG manufacturer, only a few are truly capitalizing on the opportunity today. Those that are digitally engaged are expecting as much as 40 percent of their growth to come from eCommerce. In addition to growth, astute manufacturers are collaborating with retailers as they are now positioned to regain market share that has migrated to alternative channels. This new level of collaboration will also help to deliver a seamless shopping experience for millennials, the fastest-growing consumer segment.”

As greater numbers of digital natives (i.e., members of Generations Y and Z) reach grocery-shopping age, attitudes about online grocery shopping are likely change. Increased urbanization will also contribute positively to an environment that encourages online grocery shopping. At the moment, however, Steve Banker (@steve_scm) insists, “For grocery chains and the brand owners that supply them, the demand driven supply chain for traditional in-store shopping may continue to offer the larger opportunity.”[5] Bishop concludes, however, “Some don’t believe this major disruptor is going to affect their grocery market, but I do.” I agree with Bishop that the future of the food and beverage sector is going to undergo significant changes in the years ahead as grocery retailers and CPG manufacturers more fully embrace omni-channel operations.

 

Footnotes
[1] Cooper Smith, “How E-Commerce Is Finally Disrupting The Massive $600 Billion Grocery Industry,” Business Insider, 6 November 2014.
[2] Bill Bishop, “Ready or not, here comes online grocery,” Supermarket News, 14 October 2014.
[3] Paul Weitzel, “Grocery Retailers are Making eCommerce ‘Sticky’,” Progressive Grocer, 5 May 2015.
[4] Mark Hamstra, “Kroger Lets Customers Lead the Way in Digital World,” Supermarket News, 4 November 2013.
[5] Steve Banker, “In-store Shopping Apps and the New Grocery Supply Chain,” Logistics Viewpoints, 15 December 2014.