Technology, e-commerce and omnichannel solutions have penetrated nearly every corner of American consumerism, with few holdouts.
One of those holdouts up until recently was the grocer landscape. It’s easy to see why. Two-day delivery can be enticing when you’re ordering running socks or patio furniture, but it just doesn’t sound as palatable when you’re out of swiss chard.
Still, where there’s a window of opportunity, there’s a way. Especially when Amazon gets involved. Though online grocery ordering has been around since the last tech boom – the Dot.Bomb days that ushered in the new millennia – the current grocer shakeup really only started when Amazon acquired Whole Foods for $13.7 billion in August 2017.
Feeling the Amazon Effect
“When Amazon purchased Whole Foods not only did it create a tremendous brick-and-mortar base for them overnight, it also provided Amazon the opportunity to get into the delivery of groceries in a big way by accessing its delivery platform in the fresh food arena,” says Rick Chichester, president and CEO of Faris Lee Investments, and partner office of X Team Retail Advisors.
The digital grocer trend may still be in its infancy in terms of acceptance, but Chichester contends it’s poised for takeoff now that Amazon has entered the market.
“Amazon has widened the appeal of online ordering for all products to be commonplace,” he continues. “In doing so, this has shifted the mentality of the consumer to expect that they can get whatever they want, delivered where they want, when they want. While grocery delivery has been around for over a decade, it has not been widely accepted by consumers until recently.”
This mental shift by consumers, as we know, led many retailers like apparel companies to overhaul their logistics and delivery platforms to compete with Amazon’s standard two-day shipping policy for Prime members. As previously mentioned, however, the terms “perishable” and “two days” don’t exactly complement one another. This has created a digital arms race for grocers to deliver curbside or home delivery orders in an hour, or even half an hour, in some instances. “Pickup from Whole Foods Market is a perfect option for customers who want to grab healthy and organic groceries at their convenience, all without leaving their car,” says Stephenie Landry, worldwide vice president of Prime Now, AmazonFresh and Amazon Restaurants. “A customer can order at 5 p.m., pick up at 5:30 p.m., and we’ll have their groceries loaded into their car just minutes after arrival. For an even faster experience, customers can tell us they are on their way using the Prime Now app and groceries will be ready as they arrive.”
Amazon rolled out this program in Whole Food’s Sacramento, Calif., and Virginia Beach, Va., locations last August. Prime members who place their order via the Prime Now app and choose the pickup option can obtain their groceries in little as an hour for free (on orders of $35 or more), or in 30 minutes for a $4.99 fee.
High Tech, High Time
Naturally, Amazon is not the only player in this space. Wal-Mart is actually nipping at its heels as the discount retailer gobbled up 11.1 percent of U.S. digital grocery sales in 2017 (the latest figures available), compared to Amazon’s share of 12.5 percent, according to Deutsche Bank. The bank also predicts Wal-Mart could account for around 17 percent of digital grocer sales by 2025.
“Wal-Mart acquired [ecommerce company] Jet.com to quickly ramp up its ability to deliver to its customer base, and to be able to compete with Amazon on all products, including groceries,” Chichester notes. “During 2017, Wal-Mart increased its online grocery offerings by 30 percent. Many of the orders are ‘click and collect,’ with customers ordering online and picking up curbside at the store.”
The traditional grocer players are investing in this trend as well. Aldi has partnered with Instacart, Target acquired Shipt, Albertsons created its Digital Marketplace and Kroger has partnered with UK-based online grocer Ocado. Kroger’s enhanced omnichannel approach has led the grocer to announce the addition of 20 customer fulfillment centers with Ocado. The first is opening in the Cincinnati suburb of Monroe, Ohio, followed by two more in Central Florida and the Mid-Atlantic region. Kroger is investing $55 million to build the first 335,000-square-foot fulfillment center, an automated warehouse facility with digital and robotic capabilities, also known as a “shed.”
From left, Dave Cheatham, president of Velocity Retail Group; and Rick Chichester, president and CEO of Faris Lee Investments
"Ocado is a UK-based company with global ties and advanced digital and robotic capabilities,” explains Alex Tosolini, Kroger's senior vice president of new business development. “Working together, we will develop the strongest possible supply network to support a seamless customer experience that can serve every person in America. It's all about building a seamless supply chain to provide our customers with an amazing shopping experience."
There are other tech-enabled objectives on the grocer industry’s agenda as well. These include everything from drive-thru windows, e-commerce lockers, and cashier-less checkout like Amazon Go, as well as on-site restaurants that can prepare meals from items purchased inside the supermarket.
Convenience may be the end goal for customers, but for grocers, these automated processes and digital orders result in much more. “For customers who order online, specific pick-up areas and reserved parking keep the process simple and uncomplicated,” says Dave Cheatham, president of Velocity Retail Group and X Team. “For grocers, the click and collect model of online ordering can provide much more information on a customer than they previously had.”
Chichester notes that logistics don’t begin and end online, however. Not when it comes to integrating these in-store digital amenities, anyway.
“If a customer is ordering online, grocers will most likely need to provide dedicated parking spaces for pickup customers,” he advises. “The online customer expects convenience throughout their transaction, not just when ordering.”
As online shopping picks up the pace, grocers may need to think differently about the size of their stores and parking. “With fewer people coming into the store they may be able to relax their parking requirements, or even go into smaller spaces. This can be beneficial when a grocer is looking to expand,” Cheatham adds.
Though the digital grocer trend is more of a spark than a full-blown blaze at this point, Chichester and Cheatham believe it’s only a matter of time before enough heat is generated. After all, the numbers don’t lie.
Market Force Information noted that 15 percent of Americans utilized a grocer’s online app as of June 2018. This is an increase of more than 10 percentage points from 2016. KPMG’s most recent study showed nearly half (48 percent) of American shoppers have purchased at least some of their groceries online, while 59 percent intend to do so in 2019.
It’s stats like these that have made the U.S. the third largest online grocery market in the world, behind China and Japan, respectively. The nation’s online grocery market is currently a $23.9 billion industry, though the Institute of Grocery Distribution (IGD) predicts this number will swell to $59.5 billion by 2023.
“This represents a great opportunity for investors,” Cheatham says. “You have to clearly understand the grocer’s business plan from a corporate, regional and local level – including sales, number of stores, performance ranking, etc., but if you can do this and appreciate the ways technology can enhance this business, there can be great reward.”
— By Nellie Day, staff writer. This article was written in conjunction with Faris Lee Investments, a content partner of Shopping Center Business.