51% of Americans prefer to shop online. That number jumps to 67% when you consider millennials only. Convenience, value and guaranteed availability all play a part in driving consumers online, amongst other reasons. While many people almost exclusively shop for books, apparel and technology online, online grocery retail has yet to capture the imagination of the majority, accounting for just 2% of overall grocery spending. For retailers, this doesn't necessarily indicate that online grocery is dead, only that there are issues to be solved before customers are ready to truly embrace it. This has become even more of a concern since Amazon's $13.7 billion purchase of Whole Foods.
The deal between Amazon and Whole Foods Market took many by surprise. Amazon is not new to the grocery sector, but the Whole Foods deal was seen as an attempt to disrupt the bricks and mortar retail industry while dominating online grocery. And while it's not clear why Amazon has decided to suspend its Amazon Fresh service in at least nine states, it does seem that even the giants of e-commerce realise that online grocery isn't quite as simple as 'build and they will come'.
The Problem with Online Grocery
One of the biggest barriers to growth in online grocery is that customers prefer to physically choose their own groceries. This is particularly important in the fruit and vegetable aisle, where the quality of the produce you receive depends almost entirely on the picker. Retailers need to build trust with their customers by offering a high-quality service that people will recommend to others. Another concern customers have about online grocery is that you need to be home to receive your groceries, particularly in the case of perishable goods. Meal kit companies get around this issue by shipping in insulated boxes, and online grocer Jet.com uses dry ice to ensure refrigerated and frozen items stay cold. For grocery retailers who are serious about adopting a 'digital-first' approach, finding a cost-effective way to deliver fresh groceries is vital.
While Walmart and Amazon want to solve the fresh food delivery issue by using a combination of smart locks and security cameras to gain access to your home, Click and Collect may represent a more straightforward opportunity for retailers. The UK's Click and Collect market is expected to grow 78% by 2020, suggesting that it has a huge part to play in the future of online grocery. Avoiding crowded stores and long checkout lines are high on the list of benefits, as is the ability to pop into the supermarket on the way home from work to pick up your groceries for the week in minutes.
The Future is Digital
While online grocery currently represents a tiny percentage of overall grocery spend, online channels drove a massive 90% of FMCG growth in the last year. Not only that but on average 80% of shoppers first learn about new products through retail websites and apps. Consumers are turning to the internet for product recommendations and reviews, and retailers need to grab the opportunity to turn these digital natives into online shoppers. Offering engaging content that keeps customers on the site for longer is one method supermarkets use to increase conversions. Trustworthy, shareable recipes with an 'Add Ingredients To Basket' button helps create a seamless shopping experience for consumers. Innovations like Ocado's Instant Shop, which creates a predicted shopping list through a process of machine learning, and the continued surge in the adoption of voice-enabled smart speakers which allow you to shop right from your kitchen mean that online grocery is on the increase. In fact, online grocery shopping could grow five-fold over the next decade, with American consumers spending upwards of $100 billion on food-at-home items by 2025, according to a Nielsen report. With Postmates entering the online grocery market, it seems that competition in the sector is heating up.