The Race to Bring Groceries Online in the US
Online grocery, especially the purchase of food and beverage products, faces an uphill battle in the US. Consumers tend to prefer the store experience, especially to inspect the fresh products. They also hesitate to pay for delivery and do not like waiting at home for the delivery. Another issue is “out of stocks” that make for a less than compelling customer experience. As a result, grocery products have been the last categories to move online but the race is on to crack this market.
Many different types of players in the race
Different companies are working to persuade Americans to buy groceries online. Pure online grocers, such as Peapod and FreshDirect, have built specific warehouses to improve selection and delivery of grocery products. They have been joined by third party logistics players, such as Instacart and Postmates, which use stores as warehouses to deliver products in less than two hours of the order being placed. There are also traditional brick and mortar grocers, such as Walmart and Kroger, which offer click and collect services for grocery products.
Amazon makes various bets in online grocery
Amazon is making bold moves to conquer the grocery category. Grocery is the last major category for Amazon to move into. Its first move was in 2007 when it launched AmazonFresh. This is an additional service that costs Prime members US$14.99 a month for the delivery of grocery items, including perishables. The program had been slow to roll out to many cities, but picked up pace in 2016 and 2017.
In 2014, it launched Prime Pantry, which allows Prime members to purchase groceries for a flat shipping rate for all items that fit within a particular box and are under a certain weight. At the end of that same year, it also launched PrimeNow. It is a service that allows Prime members free two hour delivery and a fee of US$7.99 for an hour delivery. While Prime Now isn’t a dedicated grocery delivery service, its most popular products that are delivered are groceries.
But the biggest news is that Amazon is experimenting with stores for grocery products. The Amazon Go convenience store allows people to shop and simply walk out of the store. The technology will automatically bill the Amazon account. Another concept is the AmazonFresh Pickup stores. Prime members will be able to order online, reserve a pick up time and drive up to the store. An Amazon employee will load their car with their order. Both concepts are currently in trial mode, being tested by Amazon employees.
American consumers are more comfortable buying groceries online
These industry initiatives, coupled with Americans becoming more comfortable with online purchasing in general, are resulting in higher food and drink sales through internet retailing, which grew by 57% over the past five years. Euromonitor International expects another 60% growth in the next five years.
There’s also been a dramatic shift in consumer behavior in the past three years. According to Euromonitor International’s Global Consumer Trends Survey, 25% of Americans shopped for groceries online at least once in 2013. The percentage increased to 38% in 2016.
The frequency of online grocery shopping increased in that time frame. Interestingly, the percentage of Americans between the ages of 20 and 29 who shopped online for groceries daily or weekly doubled in the past three years. With younger generations shopping more frequently online for groceries, it is likely that this channel will grow.
Note: The totals by age group do not sum to 100% because the chart excludes those that shop less than monthly and never.
Still early innings but the potential is strong
There is demand to purchase groceries online and that demand will continue to grow, especially as younger consumers develop the habit of buying groceries online frequently. But it is still early in the shift from offline to online grocery purchases. It remains to be seen which company type with which delivery mechanism will win out or if consumers will prefer to shop in different ways.