People all over the US have been debating whether online grocery will actually take off and that online isn’t a channel for everything. Many US retailers such as Wal-Mart, Kroger and Amazon believe that there will be a large market in years to come as they have been investing large amounts of US Dollars into online grocery.
The results and reports so far would suggest a huge growth in this industry. For example, Nielsen and the Food Marketing Institute reported that sales were up from $16million in 2015 to $20.5million in 2016. The report went further on to say that online grocery shopping could grow five-fold over the next decade, with US consumers spending upwards of $100 billion on food at home items by 2025. This is the equivalent of sales from 764 grocery stores to 3900.
The players in online grocery retailing are a mixture of grocery retailers like Kroger, Meijer, Albertsons, Target and Wal-Mart. The Store employees tend to pick and assemble these online orders for the customer to pick-up at an arranged time, while other retailers are offering home delivery. Delivery is a new business to a lot of these retailers which is why they have teamed up with third-party operators to look after the logistics. For example, Instacart is the delivery service for Kroger.
There are also third party operators who are disrupting the market but these do not own any stores. Examples would be Fresh Direct, Peapod, Google Express and Shipt. Amazon was one of these disrupters to date but it has just announced openings of up to 30 stores this year meaning they will operate both online and offline channels. These companies have caused many store-based retailers to introduce free delivery and free pick up services to compete in the market.
For online grocery to progress, consumer engagement needs to be the focus. At the moment around a quarter or more of US households currently buy groceries online which is expected to increase to 70% by 2025. But who is actually availing of these services? According to Mintel, usage, and purchasing of technology correlates with household income. The higher earning group has access to more disposable income allowing them to trial and tests these new services. Urban dwellers under the age of 45 who earn $100K+ are most likely to use grocery delivery services. This will slowly filter down as the market for online grocery increases.
So is it worth investing in online yet? It is still hard to say as there are still many barriers which need to be overcome to move consumers from their grocery stores to a website. The experience of shopping and actually picking out items that you like when you are shopping have prevented many consumers from changing to online. Even human interaction and check out services were factors that people said they would miss. It may be something to consider soon as Kantar Worldpanel has stated that 55% of online grocery shoppers repeatedly buy the same brands from the same merchants from one purchase to the next. Before consumer habits are created it may be best to act fast.
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