Trends & ForecastsDecember 9, 2019

Grocery Delivery Should Be a Hit—Here’s Why It’s Not

By SHAMONTIEL VAUGHN | Contributing Writer‍

[RETHINK Retail] — “Can you go to the store to get ___?” It’s the cringeworthy question all teenagers hear from their parents the minute they get a driver’s license. And if a grocery store is nearby, count on this question being asked two times as much. So in the era of grocery delivery from Target, Walmart, Amazon Fresh, Whole Foods Market, Aldi and other retail stores, it would seem like grocery delivery would be a hit. Surprisingly, it’s not — at least not yet.

According to Bain & Company, only 3 percent of American grocers purchase their groceries online. Meanwhile in the United Kingdom and South Korea, online grocery shopping ranges anywhere from 10 to 15 percent. Online shopping is clearly not a total bust in the United States though; consumer electronics (40 percent) and footwear (20 percent) get plenty of American customers.

So why is online grocery shopping the one area that’s not making much of an impact? Similar to trying on clothing apparel, some consumers really would rather shop at physical retail stores to make sure their grocery experience is just the right fit.

 

When online food shopping convenience is inconvenient

While a grocery list online can work out the same in person, both retail stores and consumers lose out on a few grocery essentials.

One, grocery retailers lose extra money from impulse buys in the checkout lanes. Two, retailers are already paying stock employees to complete inventory, and unpack and stock empty store shelves. If people are buying online, that could put stock employees out of a job. Three, for customers who are unhappy with the product, there’s no way for managers or customer service representatives to provide in-person discounts to complete the sale; they just have to wait for the customer to return the item to be restocked or discarded. Or, the customer will lose trust in ordering this particular grocery item online again. In turn, the store loses money.

“One of the hardest things to master is getting fresh [foods] right, but fresh is so critical to grocery success,” said Carol Spieckerman, the president of Spieckerman Retail, during an episode of the Retail Rundown. “It’s that first impression. If you screw up your fresh offerings, then you don’t get the opportunity to sell anything else, and sometimes you don’t get a second chance.”

On the consumer’s end, shoppers miss out on the ability to quickly navigate store shelves in their regular grocery stores. Although online purchases usually end up with website suggestions for similar products, it’s not the same experience as seeing inspiration (or guilty pleasures) in person. And for the less web-savvy consumer, product comparisons aren’t quite as clear. (How else would you know for sure why two bags of apples cost different prices?) Additionally, online grocery consumers may feel added pressure to reach a specified total to qualify for free shipping, and go over their budgets on that price plus delivery tips.

 

From clicks to bricks

“What I’m seeing more and more across the world is that the clicks are buying more and more into bricks,” Tony D’Onofrio, the CEO of TD Insights, said during a Retail Rundown episode. “Amazon’s [upcoming grocery store] is just the latest example of that.”

While Amazon is still rumored to be in the planning stages of its own grocery store, for now, its partnership with Whole Foods Market is still taking the lead. But could stores like Alibaba’s Freshippo (formerly HeMa) change the online grocery game altogether? Maybe.

“They have 149 of them open, and they are again an experience center,” D’Onofrio explained. “They are not just a typical store. It’s an app-driven store. You can get fresh food delivered within 30 minutes. It’s really a fulfillment center, so that changes the game. It’s also a place to go eat and enjoy fresh food, and it’s a full supermarket. That’s really the examples that I think [Amazon needs] to look at. [Don’t] just make a regular grocery store.”

 

Meeting the demands of the grocery store customer 

But “regular” grocery stores had to learn how to survive the hard way, too. In the past couple of decades, people are less reliant on traditional mom and pop shops. Target has been selling groceries since 1995. And that was after Sam Walton launched Hypermart in 1987, before creating Walmart Supercenters. These popular retail stores then started creating their own grocery brands: Walmart created Great Value, and Target had Archer Farms and Simply Balanced before phasing these two out to create Good & Gather.

Also, consumers who lived in food deserts no longer had to be reliant on drug stores, dollar discount stores and convenience stores for their perishables. Walmart alone made a point of popping up in these ignored neighborhoods, and even offered two-day shipping and/or online delivery so consumers didn’t have to make the trek to get there. While rural online delivery is a mixed bag for accessibility, and some consumers simply cannot afford to pay online delivery options, getting affordable grocery stores in deserted neighborhoods was half the battle.

So what else can retailers learn about making their grocery options successful and accessible? Larry Appel, CEO at the Fresh Market, believes “category management” can help in any retail environment.

“In most traditional food retail environments, the goal is to make sure that the broad variety of guests that come in are going to have an interest in different types of products,” Appel revealed on a RETHINK Retail podcast. “You should have everything [for] a full shop. If [customers] come in looking for soup, you want to make sure you have their favorite soup so that they can buy that and they don’t have to go somewhere else to buy it.”

Online retailers could follow the same advice. The last thing companies want to do is to make customers open up a new window tab to buy the same item from another online store. Or, lose interest altogether if the item isn’t available online and drive to a competitor’s store.

Then there’s brand loyalty for groceries.

As of now, if an Amazon Prime member purchases a list of items to be delivered from Whole Foods Market, there is an option to purchase a substitute item if the original item is not in stock. But the way Amazon’s site is set up, online grocers cannot see exactly what the substitute item will be. Even a simple bag of chips may be a dealbreaker; one brand’s salt and vinegar chips may not taste the same as another. And now the customer is stuck with a substitute version she doesn’t even like, or she has to opt out. In a physical store, a retail consumer can simply see an empty shelf, see the competitor items and choose something different. Online grocery shopping has a bit more gambling involved in both finding the best items and hoping the in-store shoppers don’t let the customer down.

And should a delivery driver just drop the grocery package off without ringing the doorbell, there’s also the risk of theft. Research firm Edelman Intelligence (via NBC) estimated that 23 million Americans had at least one holiday package stolen since 2014. This happened most often while residents were at work. This means online grocery consumers better be able to beat the clock coming home if they want to get their groceries “early” or prepare to stay home during the best delivery window time.

But if customers are too busy to sit home and wait, prefer to go to the grocery store to make sure their groceries aren’t stolen, only want the ideal quantity and quality, and would rather choose their own alternative items, then why not just go to the grocery store in the first place? In order to boost that 3 percent online grocery rate, brick-and-mortar retailers and online companies must be able to acknowledge and answer all of these expectations.