Will Online Kill the Grocery Store?

Posted by Taylor Haney on Mon, Jul 1, 2013

Very excited to start up our e-Commerce theme for the month of July! Kicking it off is a really interesting post from Simon Glass, Vice President of Business Development at Clavis Technology. Simon discusses the growing trend of consumers purchasing their groceries online and the growth of this space. If you are interested in guest blogging e-mail me at taylor [at] mitx [dot] org.

SimonGlassSimon Glass is a vastly experienced consumer goods expert, who has been at the forefront of the industry for more than 20 years. He has worked with industry giants such as Kellogg, Procter & Gamble (P&G) and Gillette in the US, Canada and the UK. At Clavis Technology he is focused on e-Commerce and helping global CPG companies to maximize sales opportunities through their retail partners’ online stores.

Will the growth of online grocery shopping change the consumer goods sector as much as it has other areas of business? 

Everywhere you turn right now people are buzzing about Amazon’s new online grocery service AmazonFresh. Grocery shopping online is in its infancy, but predictions are that groceries will become just as common an online purchase as electronics or music. According to New York based marketing firm eMarketer, the “Food and Beverage” category is actually a major driver in eCommerce growth right now with a compound annual growth rate of 17% annually. And a recent study by the Hartman Group tells us that 18% of US households bought groceries online between December 2012 and February 2013. Online sales of consumer packaged goods – which include the food category as well as health and beauty and home products – are growing at 25–30% annually and are set to generate $32 billion annually in the US by 2015, according to October 2012 data from market research firm Nielsen.

For naysayers who scoff at the idea of online grocery taking off here’s some food for thought. Home grocery delivery is really nothing new, it actually harkens back to a time many Americans great, great grandparents got milk, bread and eggs delivered each morning. In a blog by my colleague Leah Kinthaert millennials – of whom 95.2% will be mobile phone users by the end of this year – are pointed out as a major influence on the growth of online grocery sales. There’s no reason their propensity to be constantly connected on their mobile phones will be any different when they do the weekly food shopping. 

groceryThere is definitely a “perfect storm” of factors contributing to the not so sudden emergence of online shopping, ranging from the popularity of online ratings with moms (women produce 84% of the user generated content in cpg) to the millennials’ well-known love of couponing (55% of millennials use online coupon sites compared with 30% of the rest of consumers).

A recent interview with a major manufacturer even alluded to a perceived rise in the prevalence  of food-related allergies and illnesses as a possible contributor to the accelerated growth of online shopping. It makes sense, when people require special food items they can’t always rely on their local market having everything they need available or in stock.

However the main and most obvious reason online grocery is catching on now is simply because Americans are busier than ever. Having home delivery scheduled on a weekly or monthly basis with an automatic replenishment gives a person one less thing to worry about.  When it works well, online grocery shopping is very convenient for all types of consumers.

But what does it mean for the consumer goods manufacturers whose products are designed to stand out on a supermarket shelf? Now they also have to consider the endless aisle of the online store when they design new products, plan supply chains and devise clever marketing tactics. As Kraft’s Bonin Bough put it in his blog “We're All E-Commerce Companies Now” for the Harvard Business Review, “for CPGs, reaching consumers at point-of-purchase is no longer simply a battle for shelf space, but a war to connect meaningfully across a wide range of digital platforms and delivery mechanisms.” To achieve this brands need to work with multichannel and online retailers to make it easy for grocery shoppers to buy through digital channels

I don’t have a crystal ball that tells me if we will all completely abandon grocery stores as our go-to for food shopping – but experience from books, music and the travel sectors all point in one direction. There is real opportunity for forward thinking CPG brand owners to increase market share by proactively managing their products and information across online stores, and serious risk for those who don’t.