Natural Foods Merchandiser

Online grocery shopping: Is it for your store?

Consumers' desire for convenience and their wish to avoid crowded stores and parking jams has led to a boom in online shopping—a growth of $100 million from 2005 to 2006, according to Nielsen/Netratings. Web surfers are purchasing books, toys and video games in soaring numbers. But what about natural foods?

Selling food online is quite a bit different from selling uniform, manufactured items such as electronics or media—and presents a big set of challenges.

Some business owners are finding creative ways to approach these cost and logistics issues, but it seems that online shopping will not threaten traditional bricks-and-mortar natural foods stores, or become a huge moneymaker for retailers in the near future. Still, it's a phenomenon for retailers to watch.

Customers clamor for convenience
The problems with online shopping have little to do with customer desire. As American lifestyles get busier and more fast-paced, consumer demand for convenience in products and services increases. And online grocery shopping might be the ultimate in convenience.

"Everyone would love to figure out how to make money doing this, because consumers love it," says Mark Lilien, a consultant with Retail Technology Group in Stamford, Conn. Lilien points to the popularity of Fresh Direct, a fledgling New York conventional grocery-delivery business that is extremely successful.

But Lilien is skeptical about the long-term potential of online grocery shopping services because of high costs and the fact that they face the same challenges that ended businesses like Webvan, the California company that promised to revolutionize supermarket shopping but went bankrupt in 2001.

"I think it's a dream that's not going to happen," Lilien says. And, pointing to the demise of the neighborhood milkman who was a fixture in the 1950s: "If anything, things have gone in the opposite direction."

But Eric Satz, owner of three-year-old Nashville, Tenn.-based natural grocery and prepared meal delivery service Plumgood Food, says he has found a system that allows his company to make money and cater to the growing demand for quick and easy shopping.

Satz's system capitalizes on the idea that shopping isn't the only chore that consumers want done for them—there's meal planning and list making, too. Plumgood allows consumers to choose a type of diet—standard, gluten-free, dairy-free and others—and choose recipes online, which automatically adds the ingredients to the customer's shopping cart. Soon Plumgood will launch a service that will allow a consumer to pay $25 a week to have a personalized meal plan created by a dietitian.

"We differentiate on convenience," Satz says. "Our mission from day one has been to make life easier."

Challenges of selling online
Selling online successfully requires finding ways to overcome a number of challenges unique to the business:

  • Cost of labor. Picking and packing perishable items takes a lot of time. And, of course, time is money. "The cost of labor is high compared to the margins," Lilien says. "You have to take time to pick and pack carefully because food damages easily, and it's fragile. Then, there's delivery, which also takes a lot of time."

  • Solutions require cutting back on service or getting creative. Lakewinds Natural Foods, a full-service cooperative grocery in Minnetonka, Minn., eliminates delivery issues by offering online shopping with drive-through pick-up of orders by customers.
  • Logistics. The more choices customers have, the more difficult it can be to fulfill orders. But Satz solves that problem by limiting SKU offerings. "You can't be all things to all people," he says, noting that Plumgood offers two to four choices for each type of item instead of 10 to 20. "A typical grocery store stocks 50,000 items, and less than 10 percent of those move in a week. From a distribution standpoint, we don't want to occupy that kind of real estate."
  • The avocado dilemma. Lilien uses the example of choosing avocados to describe a common online food-shopping dilemma: "What might be a group of attractive avocados to me might not be a group of attractive avocados to you," he says. "And even if you can articulately describe the avocado you want, it is time-consuming to communicate that, and that avocado might not be available." Dealing with organic produce adds another layer of difficulty, Lilien says, because, "Organic produce has more variety and diversity than conventional."

    To try to head off this problem, Plumgood Food sends its pickers and packers to "produce school" to learn about the look and feel of quality fruits and vegetables. "We send back more produce than any other grocer in Nashville," Satz says. "It's a learning process with the supplier—we have to be hands and eyes for customers, so we have to be picky."

Should you offer online shopping?
While online food shopping isn't likely to make traditional natural foods retailers rich anytime soon, it is a service some customers would probably appreciate. But would that make it worth it for you? Here are some things to think about if you're considering adding an online shopping service:

  • What do you hope to gain? Lake?winds started offering online shopping about three years ago, but store executives were realistic about their goals; they knew it was unlikely to transform their business, but offered it as a way to increase customer loyalty and expand the store's customer base. "We just saw the potential for some additional customer service and bringing in more people," says Lakewinds' e-grocery coordinator, John Moran. "The people who stick with it are very happy with it, and I get new customers trying it all the time."
  • Who would handle operations? Implementing an online shopping system involves many logistics issues, such as creating and maintaining an online database that reflects new and out-of-stock products, and, if you choose to offer it, coordinating and handling costs of delivery. At Lakewinds, it's a one-man show. "I spend most of my time shopping for customers and maintaining the database," Moran says.
  • How would you control expenses? Lilien says building volume in a densely populated area is key to cost-effective delivery. "The only way you can make money is to have tremendous market share so the truck doesn't have to go many feet before the next delivery," Lilien says. Of course, there's the option of charging a premium for the service, but then it depends on how many customers would be willing to pay that amount.
  • "The stereotype of the natural foods customer is that they're higher income, but even with a relatively high-income customer there is tremendous price resistance, and a very high-income customer is demanding of world-class service. But that increases your cost tremendously as well," Lilien says.

    Moran says retailers should carefully consider what they're getting into before jumping into online shopping because, of course, you don't want to start offering a service and then discontinue it.

    "It's been difficult—the overall expense, and the time it takes," he says. "It might not be worth it for everybody, but it's certainly something to look into."

Allie Johnson is a freelance writer based in Kansas City, Mo.

Natural Foods Merchandiser volume XXVIII/number 4/p.19

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