Online grocery is not a fast-growing solution. It’s more of a steady moving necessity.
When a new housing development pops up, along with it comes cottonwood or silver maple trees — easy solutions that will reach into the sky rapidly before eventually becoming a weakened hazard in ice or wind storms.
Think of online grocery, then, as an oak. It may not look like it’s doing much right now, but it’s serving a purpose, waiting for its time to provide shade and shelter.
“This industry tends to move a little bit slower compared to other online industries,” says Darren Seifer, executive director and food and beverage industry analyst for Port Washington, New York-based NPD Group. “The products don’t change as quickly, our habits don’t change as quickly, so when you see little movement from one year to the next, you have to realize that it’s on a trajectory.”
But that doesn’t mean online sales and delivery shouldn’t be a vital part of your grocery approach right now. On the contrary, actually.
“If you look 10 years out from now, I’m willing to bet we’ll see some movement compared to what we see now,” Seifer says. “Just because it’s moving slowly doesn’t mean we shouldn’t get ready now. Now is the time to get ready for online grocery shopping.”
The grocery retail advantage
Barrington, Illinois-based advisory firm Brick Meets Click says retailers are increasingly shifting to online grocery sales and delivery/pickup. Those retailers stand to grow sales anywhere from 25 to 30% in 2019, the firm says, while projecting a 15% growth in online grocery sales overall this year. Those numbers would boost the online share of grocery sales to 6.3%.
“Increasing the number of households who have access to online grocery shopping services with home delivery or pickup could add almost two points to the percentage of the U.S. households who buy groceries online,” says David Bishop, a partner at Brick Meets Click. “At the same time, this will offer a meaningful boost to particular providers in those market areas, as we expect that most of the sales generated by new households going online for groceries will flow toward the brick-and-mortar delivery or pickup providers.”
Brick Meets Click also points out that households that use online grocery delivery or pickup place more frequent orders than those that use Amazon (1.9 vs. 1.6 orders per month) and also spend considerably more money per order ($105 vs. $46). Shoppers may look to Amazon for a majority of their online shopping, but they’re not relying on the giant for their grocery orders.
“It ultimately comes down to creating an experience that customers perceive as a more valuable alternative to shopping — one that better fits the way they want to select and get their groceries,” Bishop says. “While the implications are straightforward, excelling at execution is more challenging. Providers have to understand whether winning more sales depends on simply improving execution, requires refining elements of the strategy, or some combination of both.”
The fresh conundrum
Perhaps the biggest challenge in online grocery sales and delivery lays in the same area that gives retailers their biggest boost in brick-and-mortar.
There still isn’t a perfect way for consumers to order, and for retailers to package and deliver, all the items from the fresh perimeter.
“I know people have concerns about wanting to pick the fresh produce and knowing the cut of meat they’re getting,” says Brian Waldman, vice president of marketing for San Diego-based Mercato, which helps retailers develop an online market. “ I think the industry has to address those things to make people feel more comfortable that they’re going to get the same quality product delivered to them from online as they will in the store.”
Mercato gives consumers the ability to add notes and preferences for specific items during the ordering process. If a shopper wants deli turkey, but wants it sliced thinly, they can add that to the order. They can also specify quantities and weights for items, such as two steaks at a certain weight, instead of just ordering by the pound or simply ordering just two steaks.
Options like that certainly help bridge the divide between perusing the perimeter and shopping from a smart phone, but it’s not a perfect solution.
Shoppers want to pick out their own fresh items. They would rather pick up an apple or smell a cantaloupe before buying it. They’d prefer to see the cut of meat they’re planning on grilling that evening.
“One of the biggest barriers to shopping for food online that people tell us is that they say they want to pick out their own fresh items. That’s definitely a barrier,” Seifer says. “Fresh represents a substantial part of our groceries. We don’t necessarily want to shop in one place for one set of groceries and one place for another set of groceries. That is one thing that holds a lot of consumers back.”
Some retailers and delivery services are building technologies that allow consumers to receive a picture of fresh items before they are packaged up and sent on their way. Shoppers can then give the green light or request another piece of fruit or cut of meat. Again, the perfect solution is still out there, but workarounds are in progress.
In the meantime, perhaps the easiest way around the problem is to ensure that your fresh items are in tip-top shape.
“Especially if you’re an online-only grocer, you really need to make sure your fresh items are particularly good,” Seifer says. “For instance, an avocado: is it ready to use or do you have to wait a week to use it? You really need to make sure that you’ve got your fresh down to overcome that barrier.”
Keeping up with the Krogers
It’s no surprise that larger retailers have a head-start when it comes to online initiatives. Smaller, regional chains and independent grocers have don’t always have the resources to build and execute a program.
Tahlequah, Oklahoma-based Reasor’s Foods, which operates 20 locations in the Tulsa area, has dealt with this issue. Jeff Reasor, the company’s CEO, says that while Reasor’s has offered online shopping for years, it’s not become a much more important part of the business and larger chains are spending money that Reasor’s simply doesn’t have.
That’s where companies like Mercato are hoping to lend a hand.
Founded by Bobby Brannigan, who grew up in his dad’s New York City grocery store before later building one of the internet’s largest online textbook marketplaces during college, Mercato equips grocers with an easy-to-use platform of marketing, e-commerce and service tools, helping them fully step into the world of online ordering and delivery.
“He basically built Mercato for his dad’s store and then began taking it to others,” Waldman says. “The focus from the very beginning has always been on independent grocers and empowering them to compete with the big chains by providing them with more than just a platform to host their e-commerce website and delivery services.”
Mercato now has more than 650 independent grocers on its platform, a number it hopes to double before the end of 2019. The company integrates with a retailer’s point of sale system and brings its entire inventory online, even coming to the store to take pictures of fresh perimeter items that may not be in Mercato’s database of more than 650,000 products.
“We’ll send a photographer out to the stores and take pictures of either store-branded items or prepared foods or whatever it is around the perimeter,” Waldman says. “In many instances, that’s what makes these independent grocers different at the end of the day. That’s really a strength of ours.”
Waldman says a safe estimate is that Mercato’s clients probably average 3 to 5% of their sales online. Some of their more advanced clients are around the 15% mark.
“I keep hearing numbers thrown around that e-grocers is going to be 20% of all grocery sales by 2025,” he says. “I think there will be grocers who hit that 20% mark sooner and they will be people who are more progressive and have a strong website presence on their own and are good partners back to us in terms of wanting to do co-marketing materials.
“Walmart, Kroger, Amazon, they are all dumping money into online grocery and delivery and I think people are going to start to hear about it more and more, and as people start to hear about it more, everybody in the whole ecosystem is going to get more comfortable, from the customers to the stores.”