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: 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?
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24 Comments on "Have grocers figured out how to successfully do business online?"
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Co-founder, RSR Research
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.
Co-founder, CART
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.
Founder, CEO & Author, HeadCount Corporation
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.
Founder and CEO, CrunchGrowth Revenue Acceleration Agency
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.
Global Retail & CPG Sales Strategist, IBM
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.
Managing Director, StoreStream Metrics, LLC
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!
Chief Executive Officer, The TSi Company
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Consultant, Strategist, Tech Innovator, UX Evangelist
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!).
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
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.
Independent Board Member, Investor and Startup Advisor
Cofounder and President, StorePower
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.
Editor-at-large, RetailWire
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.
Founder, CEO, Black Monk Consulting
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.
Owner, Tony O's Supermarket and Catering
CEO, The Customer Service Rainmaker, Rainmaker Solutions
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.
Principal, Cassarco Strategy & Analytic Consultants
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.
Editor-in-Chief, CPGmatters
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.
Retail and Customer Experience Expert
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.
CFO, Weisner Steel
“…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.
CEO, President- American Retail Consultants
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.
Managing Partner Cambridge Retail Advisors
Retail Transformation Thought Leader, Advisor, & Strategist
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.