March 18, 2011, 1:23 PM

Online grocery shoppers like home delivery

Consumers buy more often from e-grocers that deliver, a food industry group says.

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Though few retail grocers offer home delivery of web orders, a survey from the Food Marketing Institute, a grocery industry trade organization, suggests that consumers respond more to web grocers that offer to deliver online orders compared with grocers that require pickup at their stores.

In 2010, 32% of consumers responding to an FMI survey said their primary grocery store offered online ordering, and 28% said they had done at least some online ordering at those grocers. 4% said they shopped online at those grocers one to three times per month, and 2% said at least once a week. But 22% said they shopped online at those grocers less than once a month, with another 73% saying they never shopped there online.

By comparison, the FMI survey showed that only 17% of respondents said their primary grocery store offered home delivery—but 13% said they ordered home delivery one to three times per month, and 5% said they did so at least once a week, higher figures than for when home delivery was not an option. 17% said they ordered home delivery less than once a month, leaving 65% saying they never did. Those results would seem to favor e-retailers such as Peapod LLC  and its competitor in the New York City market, FreshDirect, each of which is reporting rising sales. Peapod is No. 47 in the Internet Retailer Top 500 Guide; FreshDirect is No. 70.

Peapod, based in Skokie, IL, and part of Dutch supermarket company Royal Ahold, provides home delivery in three states in the Midwest—Wisconsin, Illinois and Indiana—and in several eastern states from New Hampshire to Virginia. In addition to fulfilling orders from its own fulfillment centers, it also uses warehouse facilities that operate as part of Ahold’s store system. Ahold’s holdings in the U.S. include the Giant Food and Stop & Shop supermarket chains.

Regardless of the demand for it by consumers, however, home delivery of groceries isn’t for all retailers, experts say. “Home delivery is only going to work for really big folks with profitable online grocery operations offered in places where the retailer has a reasonable density of customers,” says Jack Horst, a retail strategist at retail industry consultants Kurt Salmon.

The category of “really big folks” surely includes Amazon.com, the largest web-only retailer, and Wal-Mart Stores Inc., the world’s largest retailer and the leading U.S. grocery merchant. Both Amazon and Wal-Mart are experimenting with home delivery of groceries. Amazon is running a test of its Amazon Fresh home delivery service in its hometown of Seattle, offering “same or next-day delivery” of products ranging from fresh produce, meat and seafood to paper towels and DVDs.

Amazon did not respond to repeated requests for an interview about its plans for Amazon Fresh, and its chief financial officer, Tom Szkutak, was coy when asked about it by stock analysts in January. “Stay tuned to see if we do more there,” he said.

Colin Sebastian, an analyst who follows Amazon at Lazard Capital Markets, says he believes Amazon has invested in its own fleet of local delivery trucks but has trimmed back its Amazon Fresh services. Amazon is No. 1 in the Top 500 Guide; Wal-Mart is No. 6.

Wal-Mart, meanwhile, offers home delivery of a limited number of dry goods, including breakfast cereals, beverages, snacks and candy, that it fulfills from warehouses or has drop-shipped by suppliers. Those items are delivered to customers through either Wal-Mart’s own trucks or contracted carriers, a spokesman says. Walmart.com offers tools for letting shoppers plan in-store shopping of fresh produce and other goods, but the retailer isn’t commenting on its plans for other online grocery shopping services. It also offers a Pick Up Today service, which is limited to select electronics, video games and appliances.

Meijer Inc., a retailer of groceries and general merchandise, recently began shipping non-perishable grocery items to all 50 states from its Michigan-based warehouse.

Other than Peapod, the retail grocer that appears to have the largest home-delivery network that includes fresh produce as well as non-perishables is Safeway Inc., 92 in the Top 500 Guide, which offers the service with products picked from its stores in the densely populated areas of northern California, Portland, OR, Seattle, Phoenix, Philadelphia, the state of Maryland and Washington, D.C.

MyWebGrocer, a provider of e-commerce and digital marketing technology and services to more than 110 grocery retailers, has supermarket clients including ShopRite that offer home delivery in some markets. But most MyWebGrocer clients focus on store pickup of online orders, says MyWebGrocer CEO Rick Tarrant.

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