While shopping online for other items is becoming ubiquitous, the one sector that has failed to gain any traction-is the supermarket. During the dotcom boom of the late 90’s there were sites like Grocery.com that tried and failed. Peapod is one current American online only player that is making some headway and there are also the likes of SimplyCook who offer monthly cooking kits for health-conscious foodies. Offline big chains like Safeway and Wal-Mart have entered the e-commerce area, with limited success.
Why has This E-commerce Sector Failed to Gain Much Traction?
Unlike electronics, books, sporting goods, pharmaceuticals, and even clothes (which have their own challenges), there are inherent drawbacks to going to the web to get groceries delivered to your door. The biggest is produce and the deli counter. When it comes to fruit and vegetables, people want to touch and squeeze them to suit their preference for ripeness and size. When it comes to the deli counter, again, people want to see what cut of meat, poultry or fish they are getting. Same with the deli ‘sides.’
In order for an online grocer to overcome this major objection, they would have to ensure that the produce and meat are locally sourced to buttress the current ‘farmer’s market’ type consumer whose mantra is “knowing where their food is coming from,’- movement. In other words, the central warehouse or regional warehouse concept won’t work.
Online grocers for the produce section and deli counter would have to be hyper-local, which means they would lose their competitive advantage of ‘economy of scale.’ Even that may not be enough, because you still can’t feel and see the peach, banana, broccoli etc. Another concern is the expiry dates on dairy and other refrigerated items. Many meticulous consumers check these ‘sell by’ dates thoroughly, thus someone else selecting those items for them may pose a problem.
Granted there will be a certain segment of the market that doesn’t care that some other person will be selecting their meat, produce and time sensitive refrigerated items as long as they have the convenience of delivery and price. There is another type(s) of consumer who would benefit from online grocery shopping These are people with mobility issues, whether that be a disability or lack of a vehicle. Still, one has to wonder if these segments are enough to monetize the online grocery sector.
Furthermore with more and more people living alone today, their weekly minimal shopping list may not be worthwhile enough for online grocers to offer free delivery. In an increasing competitive retail environment both online and offline, slim profit margins aren’t going to cut it. If the customer has to pay for delivery, depending on what that charge is, there could be a tipping point to how much they can afford? One way to solve this problem is with minimum-order quotas, in order to get free delivery. Or with small orders, a nominal delivery charge wouldn’t be a burden.
Food is different that buying other items online. It’s highly personal, subjective and important to most people to roll the dice on someone hundreds of miles away making those decisions. While non perishable packaged goods and even frozen food would work as a sensible area of the store that would be successful online, if you consume fresh fruits and vegetables and/or eat deli counter items, you would still have to make two trips to the supermarket, which kind of defeats the purpose of ordering some items online.
Amazon has entered this sector (of course!). If anyone can overcome these obstacles it is them with their deep pockets. But they still only have several regional warehouses throughout the country, leaving one to wonder about the quality of their produce. To go hyper-local, to meet the changing consumer’s appetite would be very expensive.
Wal-Mart and to a lesser extent regional player Safeway may have an advantage in this area since they already have their bricks and mortar stores in many areas.
The extent of e-commerce varies widely by product. Books, electronics, music, movies and office supplies — commodities that are virtually interchangeable from one retailer to the next — sell better online than items that are specific to a particular store or that customers want to see and touch, such as clothes, cars and food.
The grocery industry has been one of the few sectors to stay largely untouched despite the rise of online shopping, but that is beginning to change as companies are implementing more delivery services in addition to technological innovations within their stores. To stay competitive in the increasingly demanding grocery arena, businesses are looking for any advantage they can get, to set them apart from the rest and earn a unique place in the market. Certain customers still don’t necessarily know what they want out of online grocery shopping, so companies will have to experiment and seek feedback before they can make a serious impact on the way people shop for their food.
That's it from me. What's your take on this?