When customers purchase groceries online, the order is overnighted to their home. Or hand-delivered the same day. Or available within hours at a store-side pickup window.
It’s fast, easy, convenient.
Unless the order is delayed. Or shipping costs too much. Or the customer receives tired-looking lettuce.
Online, delivery and drive-thru retailing strategies as supplements or substitutes for brick-and-mortar grocery stores are either the next new thing or an idea whose time hasn’t yet come—and maybe never will. In today’s economic climate, how does a retailer decide whether a new way to sell groceries is worth the plunge? Follow our guide to find out.
Online shopping is surging—U.S. sales are forecasted to grow to $249 billion by 2014, according to Washington, D.C.-based National Retail Federation’s digital division. Arlington, Va.-based Food Marketing Institute’s “U.S. Grocery Shopper Trends 2010” report shows that13 percent of respondents ordered groceries online last year, up from 5 percent in 2005. And while less than 1 percent of food and beverage sales occur online today, the figure is expected to double by 2013, according to New York-based Nielsen Co.
A 2009 Nielsen report, “Online Grocery Shopping: Ripe Time for Resurgence,” lists a variety of reasons for the online boost, including convenience, Generation Y consumers who are approaching grocery-buying age and are comfortable shopping online, faster broadband Internet access and customized websites. Among the reasons shoppers say they don’t order online are shipping costs, inability to inspect perishables and having to wait for deliveries.
“To take advantage of this ripe market, grocers can start by creating a strong online presence and ensuring that their websites are not only destinations for product reviews and digital coupons, but also resources for health and wellness topics and meal planning. Importantly, the sites should support the in-store shopping experience,” writes Maya Swedowsky, associate research director for online retail strategies, in the Nielsen report.
Sheldon Baker, principal with Clovis, Calif.-based marketing and brand development firm the Baker Dillon Group, predicts online shopping will boom and recommends that independent natural products grocers consider adding it to their offerings. “Retailers can have a bigger inventory by offering things shoppers can’t find in the store,” he says. “It’s a way to save money and make money.”
Jim Hertel, managing partner at Willard Bishop, a Barrington, Ill.-based retail consulting firm, agrees with the “hybrid approach” of a brick-and-mortar store with an online presence. If a store offers online shopping, Hertel recommends it sells unique products on the site in addition to what it already stocks in store. Also, Alan Lewis, director of special projects and web marketing for the Natural Grocers chain in Lakewood, Colo., suggests retailers feature new products that are available in the physical store on the website. “Often, people’s first awareness of a new product is online,” he says. “You have to have that presence.”
Not all online grocery sites are tied to physical stores. Tucson, Ariz.-based Shoporganic.com launched in 2008 with about 1,500 shelf-stable organic products. Sales doubled between 2009 and 2010, and the company currently offers about 3,000 organic products, says cofounder Susan Snedaker. “We try to find small organic vendors and offer new and unique products that are not in distribution,” she says. If a customer asks about a product that the company doesn’t offer, “we’ll get it,” adds cofounder Cara Silverstein.
Silverstein says most Shoporganic.com customers are either urban dwellers who have money but no time to travel to a grocery store, or rural residents who don’t have access to retailers that sell organic products.
Shipping costs are the company’s biggest challenge. “People are used to Amazon.com’s free shipping,” Silverstein says. “They want to know why we charge. But a lot of our products are pretty heavy. It’s one thing to ship an ounce of something. It’s another to ship a 25-pound bag of beans. We charge what the shippers charge us.”
Although online grocery shopping sites offer convenience and sometimes hard-to-find products, brick-and-mortar stores will continue to have the edge, according to Hertel and Baker. “While there are advantages to shopping online for many products, there also are disadvantages of not seeing the item before purchasing it,” Baker says. “I believe most people want to physically feel and touch a product before they buy it.” This is especially true for produce. “People want to see it, smell it, touch it,” Hertel says. “That’s the value of going to a store.”
Baker also believes many people are still wary about Internet security. He thinks physical stores offer the benefit of social interaction and personalized customer service, things he calls the “grand moments” of shopping at stores. “You can’t get these online,” he says. “This all might change someday, but for now I think retail is safe.”
Drive-thru or pickup service
Drive-thru grocery service isn’t a new idea. Baker, who grew up in the Chicago area, remembers a store in the early 1960s where shoppers would drive up and give a clerk a list. Runners would gather everything on the list and then hand the order to the shopper.
This concept has experienced a resurgence recently as large traditional chains such as Walmart and Sears Holdings’ MyGofer division are testing same-day grocery pickup service. Lakeland, Fla.-based supermarket chain Publix, which abandoned its online grocery and home-delivery service in 2003, announced last year that it would launch a test of a new online and curbside pickup service in Atlanta and Tampa, Fla. Traditional grocery chains, such as Harris Teeter in the Southeast and ShopRite on the East Coast, also offer online shopping with same-day pickup at many of their stores.
Baker sees the strategy as an easy and relatively inexpensive addition for grocery stores. “You just have to have a dedicated place in the parking lot or somewhere in the store,” he says. “Retailers tack on a ‘convenience fee’ to pay the cost of filling the order. It’s easy to do and can generate greater sales.”
Pointing to a similar service offered by Midwest grocery chain Meijer, Hertel says retailers also can install refrigerated lockers in the store lobby or outside where customers can pick up the groceries they ordered online, without having to worry about collecting them at a specific time. “It’s midway between shopping in the store and buying groceries online,” he says. “People can swing by on their way home from work and pick up their items.”
Just like drive-thru service, home delivery of groceries is making a comeback, either as part of a store’s services or as a separate online offering. Peapod in the Midwest and East Coast and FreshDirect in New York offer online shopping and home-delivery service for a fee, and Whole Foods Market has delivery service at some of its 300 stores nationwide. Service particulars depend on the individual store and region.
Amazon Fresh, Amazon.com’s grocery-delivery division, has expanded its service in the Seattle area, and another website, WeGoShop.com, takes online delivery service even further. Customers either shop on the site or on the websites of particular stores, order online or by fax or phone, and WeGoShop.com employees fill the order and deliver the groceries. Shopping and delivery fees vary based on the order.
Hertel says grocery delivery is a fairly easy and inexpensive customer-service strategy retailers might consider—as long as they nail down the delivery aspect. “You need to figure out how to schedule the delivery. Otherwise, it’s like waiting for the cable guy,” he says.
Still, Hertel sees a real opportunity for independent neighborhood stores. “These guys emphasize quality customer service,” he says. “It could be a great distinguishing factor for them.”
Jane Hoback is a writer and editor in Denver.