IT ’S GETTING CROWDED ON THE GROCERY DELIVERY BANDWAGON
To compete against Amazon and Walmart, it’s no longer a perk but ‘a must-have for retailers’
As Americans insist on convenience in every aspect of their lives, grocery delivery is having a moment. ❚ But will a business model made popular long ago by the milkman make a true comeback? ❚ “We started during the cold spell in late November,” said Jenn Gerlach, a 29-year old Detroit blogger. “It allowed me to not have to go out of the house with the kids. I can be doing something else while someone else does my shopping.” ❚ She estimates that she buys 35% of groceries online for her household — herself, her husband, one grandmother, five children and two cats.
Walmart’s announcement last week that it’s expanding its grocery delivery service to more than 100 metro areas with the potential to serve more than 40% of U.S. homes is just the latest blast in this frontdoor food war.
Grocery delivery is a
$4.5 billion industry — a small sliver of the $680 billion for grocery overall, according to Chicagobased food industry consulting firm Pentallect, whose 2017 data excludes sales of pet food, health and beauty aids, flowers and alcohol. That figure is expected to jump 12.5% each year and reach $9 billion out of $735 billion in
2022.
“As more people get used to it, it’s become more popular,” said David Livingston, a supermarket consultant with Wisconsin-based DJL Research. “The business model for this has been getting better.”
Adding to the appeal are lower delivery costs, more precise delivery time windows and packaging that keeps frozen foods cold. And Walmart is testing a service in which the delivery person enters a customer’s home and puts the groceries in the fridge and freezer.
But how much of this rush of retailers into grocery delivery — be it Target’s $550 million acquisition of delivery service Shipt or Instacart’s
partnerships with everyone from Costco and Kroger to Wegmans and Aldi — is panic about Amazon’s play for groceries and how much is stores’ sincere belief that home delivery is the future?
“Just about all the chains are involved in this,” Livingston said. “They don’t want to lose sales to competitors, so they have to do it.”
Amazon, which made online shopping as American as the apple pie it now sells, upped its grocery game when it bought natural-food supermarket chain Whole Foods Markets. Since 2016, Amazon has also offered a broad, fee-based grocery delivery service, Amazon Fresh, to Prime customers and is now available in multiple U.S. cities. Last month, Amazon launched free, two-hour deliveries of Whole Foods orders to Prime members, now available in six test markets.
It’s no longer an optional perk but “a must-have for retailers,” said Brittain Ladd, a retail and supply chain consultant. “The days of being a stand-alone grocery retailer like Kroger are coming to an end.”
Six percent of Americans used a delivery service to buy groceries in the past 30 days, research by Pental-
lect found. The average amount spent per grocery delivery was $95, which includes the delivery fee but not the tip.
Delivery fees differ by service. Walmart, for example, charges $9.95, and a minimum purchase of $30 is required, while Amazon has a monthly membership fee of $14.99 with free delivery for orders above $50 and $9.99 for smaller orders.
Those extra costs — delivery fees and tips — aren’t the only additional things customers pay for. In some cases, groceries cost more online than when purchased in stores.
Gerlach, the Detroit blogger, says extra money she spends on Instacart vs. in a Kroger store near her is worth it. She has seen price differences as big as $1, but mostly, they’re around 25 cents. She also noted that in-store sale prices aren’t matched online.
“All prices on Instacart are set by our retail partners. Prices are often the same as in-store, and where they are not, we clearly note that so our customers can make educated shopping decisions,” the company said in an email.
Karen Philip of Marblehead, Mass., has noticed the price difference, but she still shops online for groceries weekly and has tried Instacart, Amazon Fresh and Peapod, which is owned by supermarket giant Ahold Delhaize, whose chains include Stop & Shop and Food Lion. Her favorite delivery time is Friday from 6 a.m. to 8 a.m.
“We’re a two-parent-working household with a 4-year-old. I do as much as I can for convenience,” the 41-year-old advertising executive said. “It’s 10 times easier.”
She likes that the Instacart deliverer is the person who picks her produce, as opposed to Peapod and Amazon, where she’s gotten “fuzzy strawberries and dented peaches.” She applauds Amazon’s refrigerated totes and the fact that Instacart workers don’t expect tips but dislikes that if a selected item is out of stock, Peapod automatically substitutes something else, while Amazon omits it.
Still, many Americans remain uninterested in grocery delivery. Not everyone has a two-hour block of time to wait for a delivery, the money to pay delivery fees or the trust or desire to have strangers coming into their kitchens to put away groceries.
“I’ve been studying home-delivered groceries for about 20 years. What we find over and over is it either fails massively or never gets beyond 3% to 5% of households,” said John Deighton, professor emeritus at Harvard Business School. “We can’t believe a situation as expensive, time-consuming and central to the lives of a household can be incapable of being disrupted.”
For many shoppers, going to the supermarket isn’t a chore but a weekly adventure. Paying for the privilege of not having that fun makes no sense to them.
“People love the sensation of the supermarket (and) learning about new products by looking at shelves,” said Deighton, a grocery delivery expert.