How will online shopping transform the grocery business?

Discussion
Source: ShopRite ad
Feb 01, 2017
George Anderson

A new report from the Food Marketing Institute and Nielsen projects that consumer spending for online grocery shopping could reach as much as $100 billion or 20 percent of total dollar grocery purchases made by consumers by 2025. Those figures, the parties report, are the equivalent of 3,000 grocery stores based on volume.

The research, according to a CNBC report, puts the current market share of online sales at 4.3 percent of total spending for food and beverages. Using their most conservative projection, online grocery sales would roughly double by 2025.

A wide variety of companies from brick and mortar retail (Kroger, ShopRite, Walmart, et al) as well as online (Amazon.com, Door to Door Organics, FreshDirect, et al) are today offering Americans the option of home delivery or store pickup for grocery orders. Companies ranging from Costco to Whole Foods are working with third parties to enable home delivery.

Today, according to the research findings, 23 percent of U.S. households are buying food online. Among these, 60 percent expect to spend over a quarter of their food dollars online.

Younger and more digitally-engaged consumers who have yet to become regular grocery shoppers will help drive further adoption in the years to come.

Center store products representing 40 percent of the segment’s volume are expected to migrate online.

In a press release to announce the report, executives spoke of the grocery industry being at “a tipping point” and of the window to respond “narrowing” for food retailers and their suppliers.

One of the biggest challenges facing grocers is the matter of profitability, a point of frustration going back to Streamline and Webvan in the early days of online grocery. Many believe that store pickup is the key to achieving profitability in the notoriously tight margin grocery business.

DISCUSSION QUESTIONS: Do you see online grocery adoption reaching a tipping point soon? What effects do you think online sales will have on physical grocery stores between now and 2025?

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Braintrust
"Once someone figures out the business model, I think this will go much faster than we've seen in other verticals."

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33 Comments on "How will online shopping transform the grocery business?"


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Jon Polin
BrainTrust

This is THE topic in grocery today! And this is the money stat/quote:
“Amazon spends more on innovation than the twenty largest supermarket companies in America combined. If retailers don’t start investing at a greater level of innovation, they’re going to become lunch served for Amazon.” — Jerry Sheldon, retail analyst with IHL Group.

So the first step is that grocery chains must take action. Once they do, physical stores are likely to change accordingly over the next few years. My predictions for the coming few years are (evolution, not revolution):

  1. Stores will remain unchanged but are used for pick and pack of online orders;
  2. Center store will shrink and much of it will move to ware-rooms within stores for pick and pack of online orders;
  3. Footprints of new stores will tend to be smaller than today, as online operations are moved to dedicated warehouses (first serviced manually, then automated).

And of course stores that ignore the growing consumer demand for e-commerce, or leave it to Amazon to satisfy that demand, will start to fall by the wayside.

Ben Ball
BrainTrust

Jon,

Thanks for saving me a lot of typing on my phone this morning. You nailed it.

Nikki Baird
BrainTrust
Nikki Baird
VP of Retail Innovation, Aptos
3 years 8 months ago

Personally, I’ve been waiting for this for a while. Grocers lag pretty much every other sector in retail in terms of embracing online shopping. I think they have been too complacent. Once someone (ahem, Amazon perhaps?) figures out the business model, I think this will go much faster than we’ve seen in other verticals, if only because consumers ARE already trained in online shopping. There is some pain for the shopper in moving your grocery list online, but once you’ve done that, it becomes a maintenance exercise. I can see a future where grocery stores are 80 percent fresh, 20 percent shelf-stable and impulse, and a big warehouse section for either home delivery or curb-side pickup. And that’s definitely not how grocery stores look today, which means the transition will be painful.

Max Goldberg
Guest

People buy groceries online for the convenience. They get what they want, when they want it, without having to visit a store and they are willing to pay a bit more for it. Grocers take heed, your stores make shopping difficult. The aisles are crammed with stand-alone displays, stores are difficult to navigate, there are too many line extensions cluttering the shelves, checkout takes too long, non-food items are too expensive compared to Amazon and it’s hard to find assistance. Time-starved consumers would rather shop online and have orders delivered. Grocery stores need to adapt or watch their business migrate elsewhere. Emphasis should be placed on speed, efficiency and in-store experience or grocers risk more than 10 percent of business migrating online by 2025. And making consumers come to the store to pick up orders is not the answer.

Dr. Stephen Needel
BrainTrust

We should keep in mind that Nielsen has been projecting very high numbers for years – they simply keep pushing out the timeline of when we’ll hit those high numbers. There’s your grain of salt.

Jon Polin
BrainTrust

True, but … Amazon is now proving to be as serious as ever about figuring out e-grocery. I wouldn’t bet against them and, if I were a grocery chain, I wouldn’t watch idly as they figure it out.

Gene Detroyer
BrainTrust

But adoption is generally a slow roll, then an acceleration. If not 20 percent by 2025, I predict 50 percent by 2030. The real question to ask, with what online grocery can offer, is not “why?” but “why not?”

Ralph Jacobson
BrainTrust

The adoption of online food sales has a lot to do with a factor we discussed yesterday. Haptic technology needs to address other human senses beyond sight. People want to touch, smell, etc. food. Online grocery shopping has been around for literally 30 years. The market will adopt this service widely over time, however we are still easily five years away from the true tipping point away from in-store shopping … if ever.

Lyle Bunn (Ph.D. Hon)
Guest

Where online orders suit grocery refreshment, in-store visits will suit discovery of alternate or new products and will be an outing for those who enjoy the tactile experience. For both reasons, grocery retail can compete more successfully by taking their customer experience to the next level. Providing information during product selection and cross-selling serves all interests.

Bob Amster
BrainTrust

The trend will continue because retailers will make it easier for consumers to shop for groceries online. The impact of increased online grocery shopping will be the same as it has proven to be for hard goods and apparel, albeit maybe to a lesser extent. That is, that store’s footprint will have to decrease commensurately with the increase of online ordering or grocers will have to experiment with other products or services to fill the unneeded space.

Liz Crawford
BrainTrust

Between restaurant delivery (GrubHub, Uber EATS, et.al.), meal kit delivery (like Blue Apron) and dry goods grocery delivery, there won’t be much reason to “shop” the grocery store any more, except fresh. And for that we have farmers’ markets and fresh delivery. Grocery needs to find a role in the future of meal solutions and home replenishment shopping. I believe that grocery needs to really corner the market on grab-and-go, grocerant-style food with some fill-in dry goods categories.

Frank Riso
BrainTrust

Today, many households need two incomes to enjoy the lifestyle they want to have and so I do see online shopping for groceries reaching the tipping point sooner than later. We will continue to see smaller chains either sell out or disappear and it will be a survival of the fittest. The industry will adjust as it did to the advent of c-stores, super centers, dollar stores and even in response to the rise of quick-serve restaurants. It will be better but smaller with chains such as Kroger, Publix, Albertsons, Wegmans and Whole Foods doing well.

Ken Lonyai
BrainTrust

This is shaping up to be a 25-year overnight success. Among physical shopping, grocery has always been more of a hassle than a source of delight, so what is now finally an internet-savvy (at least comfortable) society will surely embrace the convenience. Plus most Americans still eat the SAD (Standard American Diet), choosing commercial brands that they are familiar with. So without an interest in carefully scrutinizing labels or picking fresh food items, it’s a big time saver.

Our family eats very differently than the majority so hand-selecting fresh organic fruits and vegetables is paramount, but for packaged items, like pasta, we buy online and take the savings and doorstep delivery convenience. And no, Amazon is NOT competitive with other merchants on these items.

Adrian Weidmann
BrainTrust

As we Baby Boomers continue to age, we will begin to use online grocery shopping more and more. Although we’re not digital natives, we’ve become digitally aware and can use the tools more readily. As more seniors stay in their homes longer the need for these services will increase, particularly for those of us that live in the northern latitudes (Minneapolis in my case). The winters — never mind the temperatures — have an impact on traveling conditions and having groceries delivered will continue to be embraced.

Shep Hyken
BrainTrust

Grocery is retail. The shift of brick-and-mortar retailers (not including grocery) doing more business online is the norm. They are figuring out the balance on how to change their distribution system, stock properly and more. Grocery should take a lesson from the retailers in other industries to learn how they have adapted to the new way the consumer likes to shop.

Lee Kent
Guest

Since I am not a grocery shopper I should probably stay away from this but … I have always thought that staples would be the hot market for e-commerce. Those things that you buy regularly and can predict when you will be out. Many staples are groceries. So grocery is long overdue to jump on the e-commerce bandwagon. With Amazon in the mix, things are going to stir up quick!

For my 2 cents.

Kai Clarke
BrainTrust

“Lies, damn lies and statistics,” said Mark Twain, and he is very correct. Online grocery shopping is a solution looking for a problem. Grocery retailing survives on very thin margins, the appeal of personally choosing fresh fruit, vegetables, meats, etc. Plus the local grocery store is a destination location for community, chat and discovery. Go into any great grocer like Whole Foods or Trader Joe’s and you will see this thriving. Replacing this from a business perspective will be difficult to say the least and certainly not profitable.

Elizabeth Meaney
Guest
3 years 8 months ago

Agreed! While there is a trend towards delivery and online shopping replacing mundane errands, grocery-shopping is a pleasure for many people. Do you think there will be some pushback from stores like Trader Joe’s or Whole Foods making shopping even more of an experience (with coffee/wine tastings, cooking classes, etc)? Or will consumers combine the two — delivery for boring standard necessities, and that saved time spent enjoying the experience of a farmers’ market or shopping for the perfect gourmet cheese?

David Livingston
Guest
3 years 8 months ago

All those projected sales are always stated way out into the future. Online shopping still isn’t practical. I’ve seen it work well for people in remote locations like Lanai or Molokai, rural Alaska, etc. But for people with cars, grocery shopping is fun and people like doing it themselves. If it’s not fun, you are not going to the right store.

Gene Detroyer
BrainTrust

Sorry David, I live in NYC and except for trips to Whole Foods for specific purchases all our grocery shopping is online, as it is for my son’s and daughter’s families (they showed us the way). In my building, only Amazon beats Fresh Direct with number of delivers per day.

Al McClain
Staff

Gene, I really think you are an outlier in terms of the percentage of shopping you do online. I am, too, but where shoppers have access to supermarkets and other grocery stores like Publix, Trader Joe’s, and Whole Foods and are in areas where service is good, most folks still like to get out of the house and pick their own groceries, especially fresh items.

David Livingston
Guest
3 years 8 months ago

I should have clarified: for people who are living in urban areas where it is impractical to own a car, online shopping is a good option. Or for people who can no longer drive.

Richard J. George, Ph.D.
BrainTrust

Maybe not a tipping point but the wave is washing ashore and, to-date, grocery retailers have been slow to respond. It is similar to the predictions that have been made over the last few years with still little pro-active omnichannel planning in process by brick-and-mortar retailers.

The FMI/Nielsen report forecasts that a significant number of brick-and-mortar categories, representing 40 percent of center store volume, will migrate to an online shopping experience. This prediction is sobering and its fruition will have serious deleterious effects on physical grocery stores in the not-so-distant future.

Graeme McVie
Guest
Online shopping will have a major impact on the grocery business: Amazon Dash is showing how repeat purchases of routine items are being put on auto-pilot. Auto-replenishment could have a striking impact on the center of the store and lead it to shrink dramatically. The question is, what will grocers do with the space that becomes available when center store categories shrink? In some locations they will expand the fresh areas of the store, in others they will introduce more experience-based elements into their stores; some will use the space to fulfill online orders; some will simply reduce the size of their stores and move fulfillment of online orders to cheaper warehouse-like locations. The grocery store will not vanish completely as some shoppers will still want/need to go to the store for some purchases, but the size/layout of the stores and the prevalence of them will be impacted by online grocery shopping. We also have to remember that many shoppers only start thinking about the evening family meal during the day and they visit the store on the way… Read more »