September 10, 2015
Google teams with Costco and Whole Foods to deliver groceries
Forget about search engine optimization, wearable tech or self-driving cars, Google is getting into the online grocery business.
Earlier this week, Brian Elliott, general manager of Google Express, told Bloomberg that the tech giant was planning to deliver fresh foods and groceries from Costco and Whole Foods as part of a two-city test of a new online grocery service that will launch before the end of the year.
Mr. Elliott spilled the beans of the online grocery test as part of a larger announcement that Google is expanding next-day deliveries in locations across the Midwest including in the states of Indiana, Ohio and Wisconsin. Google Express already delivers goods from a wide variety of retailers to consumers in the Chicagoland market.
Expanding into groceries will enable Google partners such as Costco and Whole Foods to now use the Express service to deliver all the goods they sell to customers instead of just a portion of what is stocked in stores.
![[Image: Google Express]](data:image/svg+xml;base64,PHN2ZyB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciIHZpZXdCb3g9IjAgMCAxIDEiIHdpZHRoPSIxIiBoZWlnaHQ9IjEiIGRhdGEtdT0iJTJGcHVibGljJTJGaW1hZ2VzJTJGZGlzY3Vzc2lvbnMlMkYxODUzMCUyRmdvb2dsZS1leHByZXNzLXN0aWxsLmpwZyIgZGF0YS13PSIxIiBkYXRhLWg9IjEiIGRhdGEtYmlwPSIiPjwvc3ZnPg==)
Google, should it expand on the test, will be entering an online grocery market that gets more crowded by the day with grocers employing click and collect offers, as well as home delivery either through third-party services, such as Instacart and Shipt, or via their own trucks (AmazonFresh, Door-to-Door Organics, FreshDirect, Peapod, etc.).
As an ABC News report points out, parties moving into online grocery see a large potential upside as only about two percent of current grocery sales are conducted online.
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Recent Discussions
Discussion Questions
Should it expand beyond the test phase, what impact will Google’s move into online grocery with partners including Costco and Whole Foods have on the market? How do you see the online grocery market shaking out over the next several years?
Poll
I wonder if this would hurt Costco because a lot of their income is from membership fees. Seems to me Google would help consumers bypass the membership fee since they are doing the shopping. As more people continue to work from home and are able to be around to accept deliveries, we will see more people shopping online. Still for the most part grocery shopping is still fun and enjoyable as long as consumers have access to the premier retailers. For me, whats the point of having groceries delivered from Whole Foods when you are paying extra for the shopping experience? If you get groceries delivered from Costco you miss out on all the free samples. If I were to want groceries delivered I’d want them from Aldi. Because the only point in shopping at Aldi is just to get groceries.
The virtual ecosystem serving the “last mile” of delivery to omnichannel consumers is expanding exponentially, and for good reasons. The consumer is now the Point of Sale. They determine when and where they shop, how they pay and where they want delivery of their purchases — even fresh produce and groceries.
Amazon understands that last-mile delivery is a core differentiator. They are rapidly expanding grocery delivery, piloting delivery of local farm-fresh produce, and even delivering meals in an hour in Seattle. Google is in the “services” business and sees a huge opportunity for retailers who do not have Amazon’s infrastructure and capabilities.
WWWD — What will Walmart Do? 49 percent of Walmart’s business is in groceries and consumables. They too are piloting delivery, but also pushing buy online and pick-up at store options. Walmart is not standing idly by.
The race is on to “own the delivery” to the consumer regardless of whether it is the delivery of a fresh tomato, groceries, or a hot tub spa.
It’s a great time to be a consumer. A very tough time to be a retailer, especially if you are not Amazon. If it can deliver, Google has a clear winner.
As the giants of the grocery and e-commerce business (Amazon, Walmart and now Google) enter the fray, the losers over the long haul may be the companies like Peapod who originated the home delivery business. It’s also noteworthy that the two stores partnering with Google have a “destination” (rather than saturation) location strategy where they tend to draw from a wide geographic area. This allows both Costco and Whole Foods to gain share in households not willing to drive 20 miles out of the way to shop in their brick-and-mortar locations.
Lots of interest in this, as the big players are now entering with large cash reserves to fight off the other players, which eventually will settle itself in a few years. As I have stated before many times, grocery delivery is the most difficult delivery option as it costs more to do it right. My concern as a consumer is how safe my perishable foods would be when it got to my house, as it would take a very expensive vehicle to do it right, requiring multiple temperatures on each truck to keep produce, meats and frozen foods safe. The other concern is that someday you just know legislation will mandate the same standards as stores have to make sure the food is safe for delivery, and that plays into the hands of the big players, who are the ones that can afford to comply with this.
Am I skeptical? Yes, as it is very simple to deliver staples and it is being done as we speak quite well from many stores and suppliers, but if you start adding in two-inch t-bone steaks and deviled egg salad from the deli, you had better do it safely is all I’m saying, and yes it will have to cost more than store level to do it.
There are millions of consumers who can afford this service, especially in the larger cities, and it will go well if they can figure out the perishable side of the equation. Who knows, maybe someday I can partner up with someone in my town to deliver these goods properly and we can all make some money. Hey Google, I’ll be here if you want to test market a small rural town, just saying.
I believe Google’s move into this space will have significant impact. First, both of these retailers have partnered with Instacart. The effect on Instacart remains to be seen. However, the current Instacart relationship directs users to the retailer products without totally capturing the unique brand offerings, such as Whole Foods. In other words, the Whole Foods Instarcart site does reflect the natural and organic differential advantage enjoyed by Whole Foods.
Second, Google introduces a competitor to Amazon with resources beyond those currently available to Instacart, Jet.com and other startups attempting to enter this space. It will be interesting to see this evolve and watch Amazon’s response.
In the end, this is great news for consumers as more and more outside and formidable players are getting into the fray of grocery delivery — something the industry itself (meaning, a grocery retailer) has really never been able to solve on its own beyond densely populated urban areas.
Perhaps this is just what was needed to expand the test of a sustainable delivery model for low-margin consumer goods — a variety of retail sources (e.g., Costco, Whole Foods, Toys “R” Us, etc.) and a variety of delivery options (Instacart, Google, Amazon, Uber, etc.). Something that has been seemingly impossible for one retailer or one delivery service to provide over decades of attempts. I think the more the merrier in this grand experiment that may finally result in a winning business model for home delivery of grocery products!
Opportunities occur where larger-than-average pools of profits and inefficiencies exist. Although grocery shopping can be enjoyable, it also can be time consuming and anytime you have to drive to more than a couple of destinations, the inconvenience of driving, parking, navigating aisles and standing in a checkout lane can be draining.
So we have new collaborative business models between traditional and new retail players that create novel opportunities to change the basics of grocery shopping and in turn how value is created and monetized.
Current entrants can benefit from the failures of those that came before them and their deep pockets offer them staying power while they go through the test-modify-test cycle. The winner in all this is the consumer with added choices of where, when and how they shop — and how they pay.
Looking forward, the online grocery market will become a core element of any grocery strategy and will involve traditional and new entrants engaged in hybrid business (and delivery) models. The future belongs to not only those that can re-imagine the future but can also execute on that vision.
This may be of tremendous significance because a large share of groceries are either routine and can be purchased most reasonably online; or they are in the long tail that seldom sell and are a serious drag from inventory costs: parked capital. See: “The Problem: Parked Capital” at http://www.shopperscientist.com
I’ve been a Google Shopping Express customer for a few years now, first as a beta user and now paying for a yearly membership. I LOVE this service and don’t see myself discontinuing it at any point. The reason being, I live in the Bay Area where the traffic can be so horrible it takes an hour to go 10 miles, and a “quick” grocery run would be at least an hour out of my day. I work within a mile of a Costco and live within two miles of another one. I live within 1/4 mile of a Whole Foods, yet I consider the parking and line situation at both stores to be such a hassle, I’d rather not visit either, unless it’s under special circumstances. I currently buy dry goods from Costco and Whole Foods on GSE and would welcome the opportunity to shop more of the grocery selection at both stores via GSE.
@David Livingston, you do need an active Costco membership to purchase from Costco via Google—there’s a spot in your profile where you enter your member number, along with other loyalty numbers.
The convenience Google offers actually increases my purchases at stores in their system. It’s great for bulky and heavy items that don’t fit in my two-seat car (like bulk paper towels, toilet paper, soda and cat litter). It’s wonderful to have the big stuff show up at my doorstep and not have to haul it out of the store, to my car and then into the garage. I also don’t forget things now, because I can keep a running grocery cart going and then submit the order once or twice a week.
We also have a test in the area of Walmart To Go (fresh groceries), and it’s another fantastic option for shopping Walmart without the in-store experience and lines. The nearest Walmart is 15 miles and over a bridge—or 60+ minutes one way when there’s traffic.
Additionally, Google offers 26 stores beyond Whole Foods and Costco in my area—the array includes Walgreens, Target, Bevmo, Smart & Final, Petsmart, Nob Hill Foods, Bed Bath and Beyond, Toys R Us, Staples, and more.
There is a growing concern, I think, out in the public that the ultra-speedy new delivery offerings for online purchases will increasingly have to involve drones. This came up independently in conversations at a family reunion two weeks ago, was overheard at a Labor Day picnic, and during a book group function earlier this week. Many people are genuinely concerned about this use of airspace and the number of reported drone crashes in yards and sporting events, and interference with pets, people, and other vehicles. I think this all needs to be factored into grocery retailers’ rush to promise delivery, as I think delivery method will greatly affect consumer acceptance of these services.
@David Livingston—not only do you need to have a Costco membership to shop there via Google, the payment method has to be a credit card in the member’s name. So you can’t even share membership numbers unless you’re also willing to pay for the other person’s purchases.
And I agree with your Aldi comment. I’ve walked out of there without buying stuff because of the lines. Talk about a terrible shopping experience.
I believe this will expand beyond the test phase as Google seeks to partner with other retailers — perhaps in other categories (think pet or automotive supplies!). This is a continuation of the omnichannel evolution, and I believe much more is on the horizon. Uber’s Purple (and other similar models) that fills your car’s gas tank when and where you want it is another example of pushing the envelope on convenience!
The online grocery market will be fueled by innovation, technology and localization.
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I wonder if this would hurt Costco because a lot of their income is from membership fees. Seems to me Google would help consumers bypass the membership fee since they are doing the shopping. As more people continue to work from home and are able to be around to accept deliveries, we will see more people shopping online. Still for the most part grocery shopping is still fun and enjoyable as long as consumers have access to the premier retailers. For me, whats the point of having groceries delivered from Whole Foods when you are paying extra for the shopping experience? If you get groceries delivered from Costco you miss out on all the free samples. If I were to want groceries delivered I’d want them from Aldi. Because the only point in shopping at Aldi is just to get groceries.
The virtual ecosystem serving the “last mile” of delivery to omnichannel consumers is expanding exponentially, and for good reasons. The consumer is now the Point of Sale. They determine when and where they shop, how they pay and where they want delivery of their purchases — even fresh produce and groceries.
Amazon understands that last-mile delivery is a core differentiator. They are rapidly expanding grocery delivery, piloting delivery of local farm-fresh produce, and even delivering meals in an hour in Seattle. Google is in the “services” business and sees a huge opportunity for retailers who do not have Amazon’s infrastructure and capabilities.
WWWD — What will Walmart Do? 49 percent of Walmart’s business is in groceries and consumables. They too are piloting delivery, but also pushing buy online and pick-up at store options. Walmart is not standing idly by.
The race is on to “own the delivery” to the consumer regardless of whether it is the delivery of a fresh tomato, groceries, or a hot tub spa.
It’s a great time to be a consumer. A very tough time to be a retailer, especially if you are not Amazon. If it can deliver, Google has a clear winner.
As the giants of the grocery and e-commerce business (Amazon, Walmart and now Google) enter the fray, the losers over the long haul may be the companies like Peapod who originated the home delivery business. It’s also noteworthy that the two stores partnering with Google have a “destination” (rather than saturation) location strategy where they tend to draw from a wide geographic area. This allows both Costco and Whole Foods to gain share in households not willing to drive 20 miles out of the way to shop in their brick-and-mortar locations.
Lots of interest in this, as the big players are now entering with large cash reserves to fight off the other players, which eventually will settle itself in a few years. As I have stated before many times, grocery delivery is the most difficult delivery option as it costs more to do it right. My concern as a consumer is how safe my perishable foods would be when it got to my house, as it would take a very expensive vehicle to do it right, requiring multiple temperatures on each truck to keep produce, meats and frozen foods safe. The other concern is that someday you just know legislation will mandate the same standards as stores have to make sure the food is safe for delivery, and that plays into the hands of the big players, who are the ones that can afford to comply with this.
Am I skeptical? Yes, as it is very simple to deliver staples and it is being done as we speak quite well from many stores and suppliers, but if you start adding in two-inch t-bone steaks and deviled egg salad from the deli, you had better do it safely is all I’m saying, and yes it will have to cost more than store level to do it.
There are millions of consumers who can afford this service, especially in the larger cities, and it will go well if they can figure out the perishable side of the equation. Who knows, maybe someday I can partner up with someone in my town to deliver these goods properly and we can all make some money. Hey Google, I’ll be here if you want to test market a small rural town, just saying.
I believe Google’s move into this space will have significant impact. First, both of these retailers have partnered with Instacart. The effect on Instacart remains to be seen. However, the current Instacart relationship directs users to the retailer products without totally capturing the unique brand offerings, such as Whole Foods. In other words, the Whole Foods Instarcart site does reflect the natural and organic differential advantage enjoyed by Whole Foods.
Second, Google introduces a competitor to Amazon with resources beyond those currently available to Instacart, Jet.com and other startups attempting to enter this space. It will be interesting to see this evolve and watch Amazon’s response.
In the end, this is great news for consumers as more and more outside and formidable players are getting into the fray of grocery delivery — something the industry itself (meaning, a grocery retailer) has really never been able to solve on its own beyond densely populated urban areas.
Perhaps this is just what was needed to expand the test of a sustainable delivery model for low-margin consumer goods — a variety of retail sources (e.g., Costco, Whole Foods, Toys “R” Us, etc.) and a variety of delivery options (Instacart, Google, Amazon, Uber, etc.). Something that has been seemingly impossible for one retailer or one delivery service to provide over decades of attempts. I think the more the merrier in this grand experiment that may finally result in a winning business model for home delivery of grocery products!
Opportunities occur where larger-than-average pools of profits and inefficiencies exist. Although grocery shopping can be enjoyable, it also can be time consuming and anytime you have to drive to more than a couple of destinations, the inconvenience of driving, parking, navigating aisles and standing in a checkout lane can be draining.
So we have new collaborative business models between traditional and new retail players that create novel opportunities to change the basics of grocery shopping and in turn how value is created and monetized.
Current entrants can benefit from the failures of those that came before them and their deep pockets offer them staying power while they go through the test-modify-test cycle. The winner in all this is the consumer with added choices of where, when and how they shop — and how they pay.
Looking forward, the online grocery market will become a core element of any grocery strategy and will involve traditional and new entrants engaged in hybrid business (and delivery) models. The future belongs to not only those that can re-imagine the future but can also execute on that vision.
This may be of tremendous significance because a large share of groceries are either routine and can be purchased most reasonably online; or they are in the long tail that seldom sell and are a serious drag from inventory costs: parked capital. See: “The Problem: Parked Capital” at http://www.shopperscientist.com
I’ve been a Google Shopping Express customer for a few years now, first as a beta user and now paying for a yearly membership. I LOVE this service and don’t see myself discontinuing it at any point. The reason being, I live in the Bay Area where the traffic can be so horrible it takes an hour to go 10 miles, and a “quick” grocery run would be at least an hour out of my day. I work within a mile of a Costco and live within two miles of another one. I live within 1/4 mile of a Whole Foods, yet I consider the parking and line situation at both stores to be such a hassle, I’d rather not visit either, unless it’s under special circumstances. I currently buy dry goods from Costco and Whole Foods on GSE and would welcome the opportunity to shop more of the grocery selection at both stores via GSE.
@David Livingston, you do need an active Costco membership to purchase from Costco via Google—there’s a spot in your profile where you enter your member number, along with other loyalty numbers.
The convenience Google offers actually increases my purchases at stores in their system. It’s great for bulky and heavy items that don’t fit in my two-seat car (like bulk paper towels, toilet paper, soda and cat litter). It’s wonderful to have the big stuff show up at my doorstep and not have to haul it out of the store, to my car and then into the garage. I also don’t forget things now, because I can keep a running grocery cart going and then submit the order once or twice a week.
We also have a test in the area of Walmart To Go (fresh groceries), and it’s another fantastic option for shopping Walmart without the in-store experience and lines. The nearest Walmart is 15 miles and over a bridge—or 60+ minutes one way when there’s traffic.
Additionally, Google offers 26 stores beyond Whole Foods and Costco in my area—the array includes Walgreens, Target, Bevmo, Smart & Final, Petsmart, Nob Hill Foods, Bed Bath and Beyond, Toys R Us, Staples, and more.
There is a growing concern, I think, out in the public that the ultra-speedy new delivery offerings for online purchases will increasingly have to involve drones. This came up independently in conversations at a family reunion two weeks ago, was overheard at a Labor Day picnic, and during a book group function earlier this week. Many people are genuinely concerned about this use of airspace and the number of reported drone crashes in yards and sporting events, and interference with pets, people, and other vehicles. I think this all needs to be factored into grocery retailers’ rush to promise delivery, as I think delivery method will greatly affect consumer acceptance of these services.
@David Livingston—not only do you need to have a Costco membership to shop there via Google, the payment method has to be a credit card in the member’s name. So you can’t even share membership numbers unless you’re also willing to pay for the other person’s purchases.
And I agree with your Aldi comment. I’ve walked out of there without buying stuff because of the lines. Talk about a terrible shopping experience.
I believe this will expand beyond the test phase as Google seeks to partner with other retailers — perhaps in other categories (think pet or automotive supplies!). This is a continuation of the omnichannel evolution, and I believe much more is on the horizon. Uber’s Purple (and other similar models) that fills your car’s gas tank when and where you want it is another example of pushing the envelope on convenience!
The online grocery market will be fueled by innovation, technology and localization.