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Is Grocery Delivery/Pick-Up Finally Ready for Prime Time?

Written by RetailWire Staff

Grocery delivery has been a "big idea" for years whose time just never seems to come. With a few new twists and wrinkles, it's possible that is about to change.

At the recent eTail East Conference, Tim Dorgan, VP/GM eMerchandising for Peapod (part of Ahold), said his organization's sales are nearly half a billion dollars annually, that their goal is $1B within 3 to 5 years, and that Peapod now has 500,000 customers. Peapod's average order is now at $160 and 55 items, 25 percent of which are made on mobile devices. And with a higher percentage of perimeter department items in the delivery basket than via an in-store visit, perhaps this service represents a "real" business. Peapod obviously has a website, along with tablet, iPhone, and Droid apps. The company is also testing a pick-up service in Chicago and Massachusetts.

Peapod derives significant revenue from consumer packaged goods manufacturers, and a lot of that money comes in because of the exposure and analytics Peapod is able to provide. It seems that a large part of the Peapod model hinges on brands buying into the idea that they need to be on Peapod for new product launches, big events and corporate promotions. And Peapod can most likely, as they claim, offer CPG firms better targeted advertising and analytics than can probably be done in physical stores.

Meanwhile, according to Bloomberg Businessweek, Tesco is beginning to offer drive-thru grocery pickup in the UK. Tesco plans to have collection points open in 150 stores by year-end so shoppers can order online and pick up at the store, for a nominal fee. A Kantar analyst, quoted in the BBW article, said that the service is a growth opportunity for Tesco because the economics are better than home delivery. Logistics have been a challenge, as orders have to be picked and bagged so that they are available when the customer arrives to pick them up. Other issues include training associates on customer service and product return issues, and carving out physical space for the pick-up depot.

Asda (Wal-Mart) is also testing a pick-up service and has ten outlets available, according to Bloomberg Businessweek which also reports that Groupe Auchan, Le Clerc, Casino and Carrefour offer drive-up service in France. Planet Retail predicts Tesco's online revenue will grow from 6.4 percent of sales in the UK this year to 9.3 percent next year, as the pick-up program grows.

In the U.S., other services include Fresh Direct in the NYC area (expanding to the Bronx earlier this year) which emphasizes perishables delivered from its Long Island distribution center, while Relay Foods of Virginia delivers groceries, perishables and specialty items in five mid-Atlantic markets, and recently expanded into the Baltimore, Washington and Philadelphia markets. Groceries can be delivered by Amazon, although as best we can tell there are still no perishable items offered for delivery. In San Francisco, startup Instacart offers Express delivery (one to three hours) for a fee, and also offers a year-long subscription program a la Amazon Prime, for $99, which includes waving the hourly fee. Other startups offer to pick-up groceries and other items from stores specifically chosen by the customer.

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