- In the U.S., a mere 3 percent of grocery spending takes place online today.
- A new study by Bain & Co. in collaboration with Google finds shoppers are still reluctant to try delivery services and often don’t stick with them.
- But the firm predicts grocery delivery will ultimately take off as companies continue to invest in it.
You might think that just about everybody is buying groceries online today, as retailers like Walmart, Kroger and Amazon race to perfect their delivery services and tout their abilities to get food to shoppers’ homes in under an hour. But that’s not exactly the case.
Grocery shoppers are still concerned they’re being charged higher prices online and complain about delivery drivers being late, among other disappointments.
In the U.S., a mere 3 percent of grocery spending takes place online today. Americans haven’t been as quick to jump on board with placing their grocery orders from their computers or smartphones, especially when compared with markets like the U.K. and South Korea, where online grocery penetration can be as high as 15 percent.
Only a quarter of consumers have tried an online grocery service in the past year, according to a new survey of more than 8,000 U.S. grocery shoppers completed by consulting group Bain & Co. in collaboration with Google. And only 26 percent of those shoppers, or 6 percent of all U.S. consumers, went on to say they order groceries online more than once a month. Instead, most Americans are taking multiple trips to the grocery store each week.
“We’ve been early adopters in this country in almost every other retail category,” Bain & Co. partner Stephen Caine said. “We know online grocery will explode at some point.”
For now, though, grocery chains like Albertsons and Ahold Delhaize and delivery providers like Instacart and FreshDirect alike are grappling with how to get more shoppers to take advantage of their services. Fear of Amazon’s dominance has pushed many companies to make these investments, even if they eat into profits.
“If one retailer is doing it, the others need to offer it,” Stewart Samuel, program director at food and consumer goods research organization IGD, said. “It does have the potential to bring in new customers to your business. … Retailers wouldn’t be expanding [grocery delivery] at this pace if customers weren’t responding.”
Still, there’s some convincing to be done.
Many shoppers want to be able to see and even touch certain foods like meat or produce before they buy it. That’s also why packaged goods like chips and granola bars tend to be the most popular items placed in online shopping carts. And then there are always flaws with delivery services, like items being out of stock or a driver being late.
Only 42 percent of people using a grocery delivery service for the first time say it actually saves them time, according to Bain & Co.’s survey. One bad experience can potentially ruin a shopper’s perception of the concept and make them never want to try it again. It’s important for a company to get it right the first time because 75 percent of online grocery shoppers say they continue to use the first retailer they shopped from, the survey found.
And then there are other trust issues over pricing.
Typically, there are two pricing models that retailers follow when deciding how to mark up groceries and delivery fees online, Caine explained.
One is: a retailer will price items on the internet exactly like they would be in stores and then be transparent about how much the extra service charges are on top of that. Second is: a retailer will hike prices on items online to cover for the extra fees. Because some prices are noticeably inflated, “people tend to minimize what [groceries] they buy online because they think they are getting fleeced,” Caine said. “You don’t know whether you are getting a fair price.”
A competitive landscape
It would appear the grocery industry in the U.S. has been in an arms race ever since Amazon bought Whole Foods in 2017, showing just how serious it was about gaining a bigger footing in food and food delivery.
Walmart is racing to offer grocery delivery from 1,600 locations by the end of fiscal 2020. It continues to outsource drivers from delivery providers like Deliv, DoorDash and Roadie to help it meet those goals and reach new markets. Then, it has Jet.com in its arsenal to target city dwellers in New York, who otherwise wouldn’t be close enough to a Walmart store for delivery.
Target, which doesn’t have as strong of a grocery business as Walmart, has taken steps to reach more customers with grocery delivery, too. It acquired delivery platform Shipt last year, which now gives Target customers access to same-day grocery delivery in certain markets, so long as they pay an annual Shipt membership fee of $99. Though it’s owned by Target, Shipt continues to help out other retailers, like Costco and Publix. Target has said Shipt’s membership has tripled since it was acquired.
Kroger, which owns other chains like Harris Teeter and Fred Meyer, is currently delivering groceries from about 2,000 stores. A spokeswoman said it hasn’t announced its plans to expand that part of the business this year, yet.
“Scale definitely helps,” IGD’s Samuel said. “Retailers see that shoppers who shop more than one channel are more profitable overall. They may be less profitable on e-commerce, but when they come into the store they are buying more.”
Some grocery chains, though, have decided that offering online grocery delivery isn’t worth it altogether.
It was reported just last month that Trader Joe’s would halt its online grocery delivery service in New York next month, and instead will focus on customer service and better utilizing space in stores.
“Over time advances in technology and delivery will gain traction,” Vince Tibone, an analyst at Green Street Advisors who looks at strip centers, said. “Grocery stores need to evolve.”