Time-poor customers are willing to pay more to access options for ordering groceries online and having them delivered (e.g., for a gallon of organic milk, Safeway charges $5.99, and the delivery service Instacart charges $7.39). As a result, in the past five years, annual online sales of groceries have grown by 14.1 percent.32 The set of retailers providing online capabilities continues to expand, with Amazon and Walmart joining the long-standing, online-only retailers such as Peapod and FreshDirect.33 Furthermore, these retailers are joined by companies seeking to add value to the grocery channel by providing delivery services. That is, companies such as Instacart, Shipt, Postmates, and Google’s delivery arm promise to allow customers to place online orders for items with their preferred grocers.34
Still, approximately 30 percent of the online orders placed with grocery retailers involve nonfood items, like paper products or cleaning items. In contrast, sales in stores generally feature only around 14 percent nonfood items. Consumers thus rely on online grocers for lower-profit-margin nonperishable items, rather than higher-margin fresh fruit or meats. As a result, slim margins continue to be a problem for both retailers and delivery services. For example, Instacart earns a profit only if the order is for more than around $68. Finally, even as customers call for grocery delivery
Page 44 services, and the industry has grown from 1.9 percent to 2.9 percent of total grocery sales, online grocery remains much smaller than other online retailing. Part of the reason may be the limited availability of grocery delivery services, which thus far remain accessible mainly in large cities.
Delivery costs are also a factor even as the task is outsourced to relatively low-cost individual private contractors. This factor also might reflect a barrier to the industry’s growth: Delivering perishable groceries to many customers is a lot easier and more feasible in dense, urban settings than across vast, rural distances.
Retailing View 2.2 describes how one online grocery retailer takes a specific approach to maintain its appeal and profitability.
2.2 RETAILING VIEW How FreshDirect Figures Out How and When Customers Order
FreshDirect first started delivering groceries to customers in the northeastern United States in 2002, with the notion that modern technology could facilitate “farm-to-table” shopping for customers.
Underlying its appeal is the recognition that it can be hard for consumers to find and source a variety of high-quality groceries.
Who has time to stop at the butcher shop for grass-fed beef, the bakery for fresh bread, and the farmer’s market for vegetables, then run by the superstore for bulk packages of laundry detergent?
Working with more than 60 local providers, FreshDirect has created an online resource for consumers in Philadelphia, Connecticut, New Jersey, and New York to get all these items, in one place.
But that “place” actually differs a little bit, even if it always involves the Internet. That is, the device that customers use makes a big difference in the items they order. Accordingly, FreshDirect acknowledges its need to understand where, when, and through which channels its customers are shopping during each interaction with the company.
As a simple example, the grocery delivery service has determined that when people place orders on Saturdays or Sundays, they are usually doing so on their mobile devices. During the workweek, though, they largely use computers, suggesting that they are ordering from their desks during their lunch breaks or in the midst of their workday. This difference means that the mobile site could promote more products that appeal to lazy weekend activities.
But the traditional website likely needs to be quick, so that consumers can place their orders before their supervisors notice that they are on a shopping site during work hours.
The company’s chief consumer officer offers a range of scenarios in which omnichannel and multidevice capabilities are critical for the retailer. In particular, she highlights questions about
when and where consumers prefer to find recipes, as well as how they react to potential weather hazards, noting, “Let’s say snow is coming. We don’t know exactly which day. We need to figure out when’s the last time we can fulfill orders this week. Are we going to need to shut down? We know people are panicked and they want their food. So we have to figure out where they are at that moment.
Do we need to give a snow message on their mobile devices? And then coordinate it with what’s on the desktop?”
As people’s time spent interacting with online and mobile content increases, trends suggest that, conversely, their interactions with each individual seller are getting shorter. Online grocery retailers like FreshDirect have just a moment to appeal to these quick- moving shoppers, and a key element of that appeal is understanding how they use their various devices in specific ways.
FreshDirect adjusts its online messages because customers’ orders are different depending on the appliance they are using, as well as where, when, and through which channel they are shopping.
© Mario Tama/Getty Images
Sources: FreshDirect, “About Us,” https://www.freshdirect.com/browse.jsp?
id=about_overview&trk=snav; David Orgel, “FreshDirect Targets Multi-Device Strategies,”
Supermarket News, January 20, 2016.
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