Revenue increased 11.9% in Q1 of 2015, to $17.26 billion compared with $15.42 billion in the year-ago period.
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“The challenge to grocery sales online include the sheer volume of product, with some retailers offering 60,000 or more SKUs on a site, the frequency of price changes, and the complexity of promotion that takes place in grocery sales,” says Rich Tarrant, CEO of MyWebGrocer, which provides e-commerce and e-marketing solutions to more than 85 retailers including ShopRite, Lowes Food Store and other grocery chains.
Another issue is that of perishable merchandise that can melt, spoil or wilt. For the grocery merchants to which it provides full e-commerce services, MyWebGrocer tackles the problem of handling a range of perishable and non-perishable goods with a model that bypasses dedicated warehouses to pick directly from its grocer clients’ stores. “There are over 36,000 grocery warehouses already in the U.S. They are called grocery stores,” Tarrant says. “Our technology is designed to leverage current systems, process and labor already in a retail grocery store. Our model leverages the current infrastructure; it does not try to recreate it.”
FreshDirect, which serves a geographically limited number of markets including parts of New York City, took a different approach: it picks orders from its own warehouse. Chief marketing officer Steve Druckman says the climate-controlled facility has seven temperature zones geared to the storage requirements of different fresh products, which he says beats the two temperatures for fresh foods found in grocery stores (refrigerated and room temperature) and preserves food better for fresher delivered goods.
The warehouse approach didn’t work for Webvan, which built in anticipation of widespread and immediate demand that didn’t materialize. FreshDirect does something different. It has one 300,000-square-foot warehouse and it expands its service area very cautiously, based on a formula that calculates how much demand for service is coming from outside zones it already serves, and when there is enough of it to fill a truck. It captures the demand data on its web site, where first-time customers are asked to supply location information.
Under that strategy, FreshDirect, which launched in 2002, has expanded to all five New York City boroughs and parts of Long Island and Westchester County. “FreshDirect was successful because it expanded deliberately, almost block by block,” says Hauptman. “They’re doing it only in extremely high-density areas and it is much more difficult to do that in a marketplace where everything is more spread out.”
That hasn’t stopped Peapod from growing its service area. Peapod, with centralized warehouses in the Chicago and Washington, D.C., areas, and a number of smaller “warerooms” adjacent to partner stores elsewhere, delivers to a broad range of neighborhoods across the two metro areas as well as parts of Connecticut, Rhode Island, New Jersey, Massachusetts and New York.
Peapod’s expansion has been fueled in part by the fact that it has access to the resources of Royal Ahold since it was acquired by the Dutch food retailing giant in 2000 after launching as an Internet startup in 1989. It’s also grown via an expanded business model in which it supplies e-commerce for the grocery store chains owned by parent Royal Ahold.
Peapod, as does any online grocer that is successful, positions itself in part on what the Internet excels at providing to consumers: information, in an interactive format that allows shoppers to easily customize their planning and shopping experience. For example, Peapod’s online product sorting options include not only unit price or total price, but sort by calorie per serving. A just-launched “Nutri-filter” identifies food products approved for different diet regimens, such as gluten-free or peanut-free.
“If you can combine information, especially nutritional information, to create something value-added for consumers that’s simple to use, long term it’s something that will make people want to shop more online,” Brennan says. “They can shop smarter and faster. It’s harder to do that in a practical way in a store.”
A loyalty driver
MyWebGrocer’s range of services to grocery retailers includes providing interactive shopping lists, electronic circulars, and marketing and advertising services as well as powering a grocer’s entire e-commerce operation. “Through myriad online tools and timely delivery of relevant information, grocers can save their consumers time in completing their shopping. Convenience has always been a driver of loyalty,” says Tarrant.
Grocery merchants that don’t have e-commerce are stepping up to leverage the Internet as a way to drive shoppers to stores and products offline. The web site of Aldi, a German-based discount grocery supermarket with 900 stores in the U.S., doesn’t offer online shopping. What the site, re-launched in September, does offer are shopping features aimed at making it a planning destination for Aldi’s offline customers.
For example, an interactive meal planner, added last year, lets shoppers search for recipes under a range of sorting options such as low calorie, then save those recipes into an on-site “cookbook.” The meal planner allows shoppers to plan meals for a week or a month, then generates a shopping list for the ingredients needed in the recipes.
A click of a button populates the list with the right amount of ingredients needed to double or even triple the listed recipes, if shoppers want. And in a clever cross-channel play, the items in the shopping list appear in the order that corresponds to where the items are located in Aldi’s standard four- or five-aisle store layout, thus saving the shopper a lot of in-store searching.
Laura Bauer, vice president in charge of Aldi’s web operation, says the meal planner feature had 45,000 hits in April-interestingly, from all 50 states even though Aldi operates stores in only 28. About 80% of the meal planner’s users are first-timers. “Once someone gets into the meal planner the length of time they stay is impressive,” says Bauer. “It shows us consumers are using all the tools it offers.”
Optimizing customer data
Online grocers also win by using the web to gather information about customers, tracking what a shopper buys, how much and under what circumstances, and by putting up offers and merchandise targeting different segments. Offline grocery stores also gather much of this information through the loyalty cards shoppers swipe at checkout to get club member prices on what they are buying, but they don’t use it as well as online merchants do, according to Cohen of Kurt Salmon Associates.