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A growing market: online grocery sales

Thursday, June 27, 2013
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Online grocery sales rose nearly 17 percent last year and likely will continue at a double-digit pace annually through 2017, according to the latest assessment of food retailing by consulting firm Willard Bishop.

The suburban Chicago company, which has been analyzing food sellers’ sales and market-share data for 20 years, sees e-commerce as “one tremendously overlooked growth opportunity.” Grocery sales totaled $1.1 trillion last year, with traditional supermarkets ringing up almost 40 percent of the total, or $442.6 billion, according to Willard Bishop. Nontraditional formats such as drugstores, convenience stores, warehouse clubs and discounters’ supercenters accounted for the rest.

But the supermarkets’ share of the market will tick down several points over the next few years as the other formats expand their food lines, the company says.

Yet the pivot to online has been slow, due to what Willard Bishop calls a “Webvan hangover” — a hesitancy attributable to the spectacular crash and burn of that former Silicon Valley dot-com that tried to establish an online grocery order-and-delivery business nationwide.

The idea is back, though, as giants Amazon and Walmart test the water in select markets for online sales through AmazonFresh and Walmart To Go.

Those won’t be the only contenders, Willard Bishop partners Jim Hertel and Craig Rosenblum explained in a webinar held last week in conjunction with release of the firm’s annual “Future of Food Retailing” report.

“E-commerce will not be small in the future,” Rosenblum said, suggesting it could account for 8 percent to 15 percent of a retailer’s business in the years ahead. Hertel pointed to demographic changes, such as the rise of digitally savvy Millennials, that will help set the stage for e-commerce.

The men noted that one challenge for food sellers will be finding the most cost-effective e-commerce model that also meets consumer needs: Is it “click ’n collect” (order online, pick up at the store), “true” home delivery (order online, the store delivers) or something else?

A number of traditional supermarkets already have started online services, including ShopRite and Price Chopper in the Capital Region. Both offer pickup or home delivery of online orders in several dozen ZIP codes served by their stores in Albany/Colonie, Niskayuna and Bethlehem/Slingerlands.

I asked Hertel whether grocers that have added online services should worry about the likes of AmazonFresh and Walmart To Go, but he didn’t think so, as long as they remain shopper-focused.

“[I]f a strong brick-and-mortar operator does a good job in e-commerce before new entrants pop up, they have a very good shot at retaining loyalty,” he said. “A mediocre operator or a late entry by an existing operator will be playing catch-up and likely not make it.” But he didn’t make light of the big guys, each of which is approaching online food sales deliberately, carefully studying the results along the way. AmazonFresh, for instance, just expanded into Los Angeles after a five-year run in Seattle; Walmart To Go is focused for now on San Jose and San Francisco.

“What scares traditional operators about Amazon is their analytic expertise: the ability to make great ‘suggestions’ about what else that customer might like to order,” Hertel said. “Given there’s still work to do to hone the e-commerce business model, traditional operators fear Amazon might take a big bite out of the potential market profits before the traditional folks fully figure the business out.”

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at marlenejkennedy@gmail.com.

 
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