Is the digital economy going to eat grocery stores?
The internet has already killed video stores, bookstores, and department stores. Are grocery stores next?
The e-conomy has effectively killed — or severely maimed — video stores, department stores, and bookstores. Is it coming for grocery stores next?
If you're reading the (organic, locally sourced) tea leaves, Amazon's acquisition of Whole Foods this past summer doesn't bode well. The e-conomy giant, responsible more or less for swallowing up the business of bookselling, bought the supermarket chain in June for $13.7 billion, marking its latest effort to get a handle on the food delivery business, which has largely remained elusive to the e-conomy.
But, as Ben Conwell, C&W senior managing director of the Americas, pointed out to Forbes a few months ago, Amazon didn't just buy Whole Foods' brand — it bought all of Whole Foods' existing brick-and-mortar stores, too. "Amazon didn't go out and lease, build, or rehab millions of square feet of industrial space in order to ramp up its grocery delivery platform," Conwell said. "It bought existing retail assets and it did so because the final mile delivery issues for grocery are traditionally different than those for other retail goods."
Of course, Amazon is far from the only company taking a stab at the business of online grocery selling. There's Instacart, Peapod, FreshDirect, and Jet, to name a few.
But these services aren't exactly taking the grocery industry by storm. The latest data from Nielsen reveals that consumers generally aren't on board with buying their groceries online. In North America, just 4 percent of shoppers regularly buy groceries online. A majority — 54 percent — reported that they preferred to buy groceries at a physical store and would not consider buying groceries online. Forbes predicted at the outset of 2017 that online grocery sales would only account for 1 to 3 percent of the sales in the $675 billion grocery business.
That's likely because the online grocery store is an entirely different beast than other online businesses. Books, for instance, have a just about endless shelf-life. Kale, not so much. While you can count on a copy of Pride and Prejudice being roughly the same no matter where you buy it, the quality of food can vary significantly.
At this point, the success of the online grocery delivery business has mostly been in densely populated, urban and suburban areas. When Costco rolled out same-day grocery delivery in October, the option was available in "most metropolitan areas." "We still have yet to see any large-scale successes in the e-grocery space when it comes to sprawl markets or more sparsely populated areas," Conwell told Forbes. "To succeed, operators must be able to deliver from sites that are close to the consumer. And delivering online orders of perishables, especially fruits and vegetables, is unbelievably difficult."
I can personally attest to this point. The one time I tried ordering from an online grocery service, the bananas arrived hopelessly bruised and the spinach was so wilted it had to be tossed just a couple days after it had arrived. I found myself wishing I'd been able to pick out my own apples, a concern it turns out many consumers share. A survey by EMarketer found that 51 percent of people say the reason they don't buy groceries online is that they want to see and touch the product. It's not uncommon that people will buy dried goods like cereal or pasta online, but then go to a physical store to pick out produce and meat.
Aside from the problem of perishables, there's also the puzzle of pricing. Profit margins in grocery stores are already slim, and the online grocery business adds in extra work. Someone has to do the work that people would usually do at the grocery store, selecting the apples and picking a decent cut of meat. Then the grocery service has to package that food and ship it. Yet, customers aren't all that willing to pay a higher price online for potatoes or peaches than they would in the grocery store, leaving online grocers struggling to turn a profit.
This could all very well change. Technology could make it easier for online grocers to deliver perishables promptly and find a way to make it cheaper to pick out groceries for customers. Attitudes toward buying food online could very well shift. And Amazon's persistence in the space proves the e-conomy is not giving up on trying to crack the grocery business. U.S. News & World Report said that the online grocery store business is projected to more than double by 2022.
But for now at least, expect to keep pushing a grocery cart through the produce section — even if that cart is owned by Amazon.