The once-a-week trip to the local grocery store is quickly becoming a relic of the past. Consumers are now shopping at several different places to satisfy their changing tastes, including online grocers, which offer variety and convenience.
Worldwide, more than one-third of online shoppers expect to buy groceries over the Internet this year, some 34 percent compared to 21 percent in 2015, a recent AlphaWise survey from Morgan Stanley Research finds. And the U.S. could see the biggest adoption rate increase for e-commerce fresh groceries, growing to 26 percent this year, up from 8 percent in 2015. Morgan Stanley estimates the total U.S. online grocery market could grow significantly in 2016 by $26 billion to total more than $42 billion. The total size of the U.S. grocery market is estimated at $675 billion.
“Overall, this spike in anticipated online grocery spending speaks to a shift in the way that consumers think about shopping for food,” Brian Nowak, lead Internet analyst for Morgan Stanley, wrote when the study was released. And with about a 2 percent U.S. market share, Nowak said he sees room for online grocery sales to grow, especially for urban markets, nonperishable products, and “click and collect” items chosen online and picked up at local stores. Groceries account for 19 percent of consumer spending, by far the largest of the e-commerce categories surveyed by Morgan Stanley.
A.T. Kearney, a global strategy and management consulting firm, also found that online grocery shopping is reaching an inflection point after years of promise but limited growth. The company’s latest study shows more than one-third of primary grocery shoppers have bought groceries online in the past 12 months, up substantially from last year. And those buying are in the attractive market segments of urban dwellers, Millennials, and those earning more than $75,000 annually.
The consultancy also found that online grocery is one of the largest sources of growth for retailers and consumer product manufacturers. Sales are growing five to six times more than conventional channels and are expected to rise 15 to 18 percent over the next decade in terms of percentage of total grocery sales.
Tyson, for example, is reportedly considering collaborating with Amazon to introduce meal kits. And The New York Times is offering readers the ability to order the ingredients of recipes appearing in the newspaper. The latter is part of a growing trend of pre-measured, packaged food that consumers are ordering to have a personalized gourmet cooking experience.
While online grocers include both Internet-only shops like AmazonFresh and brick-and-mortar grocery store-affiliated websites like Peapod, the former capture 84 percent of all online grocery trips and 59 percent of all online grocery spending, according to a recent report by Brick Meets Click of Barrington, Ill. Those so-called “basket bandit” Internet-only sites include Amazon, Blue Apron, ThriveMarket.com, Drugstore.com, Chewy.com, and the online “stores” of mass and club retailers.
And even though AmazonFresh is available in limited markets, it has a 48 percent share of all online grocery trips. Since 2013, the percentage of shoppers that have bought groceries from Amazon in the past 30 days has increased 25 percent, the Brick Meets Click report finds.
“We also found an Amazon multiplier effect,” report author Bill Bishop said when the report was released. “As online grocery trips per month increase, so does Amazon’s share of trips. They are continually working on making buying easier, and supermarkets need to respond.”
AmazonFresh launched in Seattle in 2007. But in a recent column for The Motley Fool, writer Jeremy Bowman notes, “Some headlines refer to the program as a Trojan horse or say it will one day kill the grocery industry, but nine years after its launch, Amazon’s grip on the grocery business is tenuous at best. Amazon has just 0.8 percent of the total U.S. grocery sales.” And AmazonFresh said recently it will require $299 annual membership, higher than competitors, but meant to include costly distribution fees, according to Amazon.
According to the “U.S. Grocery Shopper Trends 2015” report from Food Marketing Institute, a trade association for food retailers in Arlington, Va., online grocery shoppers were most receptive to buying pet products at 35 percent. And while consumers are buying more fresh produce online, that category of food came in last in the survey at 5 percent. Receptivity to fresh prepared meals or salads was 8 percent.
A 2016 study from Willard Bishop Consulting LLC, a Chicago analytics and consulting company, called “The Future of Food Retailing” finds that e-commerce food and consumable sales are expected to grow at a strong pace of 23.1 percent annually from 2016 to 2020, compared to 0.4 percent for supermarkets. But traditional supermarkets still have the dominant share of food retailing, with $467.8 billion in sales in 2015, compared to e-commerce at $29.5 billion.
Amazon has been offering food and consumables at reasonable prices and the shopping experience is easy and quick, according to the report. But brick-and-mortar grocery retailers are entering the e-commerce space more and more, and many manufacturers like Smuckers, P&G, and Enfamil are bypassing retailers and going straight to consumers via their own e-commerce websites.
Brick Meets Click also says there is some good news for supermarkets because in markets where they have established, well-developed online grocery offerings, they can win a significant share of the online business.
Bricks vs. Clicks
Still, traditional supermarkets are expected to continue to dominate the overall food market. Nielsen’s April 2015 report, “The Future of Grocery,” which covers the market worldwide, notes that “clicks” won’t replace “bricks” anytime soon.
“Online shopping has a number of benefits, but physical stores also have strong key advantages over e-commerce—especially for fast-moving consumer goods,” the report notes. “Aside from the obvious in-store benefit of fulfilling immediate shopping needs without paying shipping fees, there are powerful sensory experiences—smelling freshly baked bread and seeing and feeling the vibrant color and texture of perfectly ripe strawberries—that are virtually impossible to replicate online.”
Just as important for many consumers, the report says, is that they consider grocery shopping fun. Some 61 percent of global respondents to the Nielsen survey found going to a grocery story is an enjoyable and engaging experience. However, the report says it will be important for physical stores to infuse technology in the in-store experience to address service issues like long lines.
The Kroger Co. grocery chain and its Denver-based King Soopers division is one example of a store that has both an online presence with organics and natural foods and goods and technology in its brick-and-mortar stores. Kroger launched KingSoopers.com/LiveNaturally in 2015. Kroger says it is offering more than 36,000 natural and organic products to King Soopers customers in and around the Denver metro area, a test market before it expands the program. According to Kroger, all produce is free from more than 101 artificial ingredients and preservatives that many customers prefer to be left out of products.
“Increasingly, our customers are looking for more simple, convenient and relevant ways to shop, whether it’s in-store, on our website, or on their mobile devices,” Russ Dispense, King Soopers president, said in a statement when the e-commerce website was announced. It also has a click and collection option for customers to pick up products ordered online at local stores.
But Kroger is not just focusing on the Internet. It added QueVision technology to its stores in 2012. It is a technology platform that uses sensors and predictive analytics to give managers real-time data on how many customers are in the store and when cash register lines are becoming long.
Keeping Up Quality with Fast-Paced Technology
But how does food quality and safety fit into the speedy, multi-sourced online food market? According to Hilary Thesmar, PhD, RD, the regulatory requirements for food safety are the same as for traditional grocery store distribution.
“The regulatory requirements have to do with the type of facility, such as stores’ warehouses or distribution centers, where the food is housed prior to delivery,” as opposed to the distribution channel itself, says Dr. Thesmar, vice president for food safety programs at the Food Marketing Institute. “The regulatory requirements are the same in e-commerce [and purchasing at a grocery store] even though the supply chain may not be as visible. I haven’t seen any problems. There aren’t any visible differences.”
Paul Weitzel, vice president at Willard Bishop, agrees, “I do not see any difference in handling processes or procedures for e-commerce versus brick and mortar. Much of online grocery shopping is actually done inside a brick and mortar store. The product is bagged similarly and stored by temperature state until delivered to consumers at curbside or by a van.”
He says for home deliveries, trucks are multi-temperature (frozen, chilled, or ambient), or the food product is placed in insulated totes with either dry ice or gel packs. Most of the ratings on the totes keep products cold for at least 8 hours. “Since most deliveries are attended, there are no temperature issues,” he wrote in an email to Food Quality & Safety.
Dr. Thesmar also agrees that there is little difference in food safety requirements whether it’s a traditional or online grocery store.
“There shouldn’t be gaps in food safety if everything is done right,” in stores’ warehouses and distribution centers, she says. “Cold items should stay cold through transfers through multiple warehouses and stocking. Temperature controls should be maintained.”
She adds that with the hot competition among grocery sellers, there is a strong incentive to make sure temperature control is maintained. “Everyone is fighting for the consumer dollar,” she says. “No one will risk taking any chance of a loss of shelf life.” Packaging integrity, uniform pallets, and temperature indicators can help let store personnel know if something has been compromised.
Dr. Thesmar adds that the regulations and inspection processes are the same for brick-and-mortar and strictly online stores, as everything is relatable to the warehouse and distribution centers.
Under the Food Safety and Modernization Act (FSMA), the store is an extension of food code operations and the distribution center is an extension of the preventive control rules. Delivery trucks are not regulated, so delivery to consumers isn’t covered under FSMA regulations, she says.
Dr. Thesmar says one of the trends in food distribution, partly because of the speedy rate of commerce on the Internet, is warehouses popping up on demand so purchases don’t have to be moved that far.
“E-commerce is getting nearer to consumers,” she says. “And retailers want their customers to come back daily and weekly, so safety is important.”
Streamlining Packaging
The speedy world of e-commerce is also driving improvements down the supply chain. That includes the containers used to fulfill orders. IFCO Systems is one such large packager with customers like Walmart that want convenient, clean, and reusable containers.
“Standardization is key,” explains Paul Pederson, IFCO director of food safety in Tampa, Fla. “You want to maximize utilization and space and lower costs.”
The company is known for its reusable plastic containers (RPCs) in which vegetables, fruit, and other items are shipped. Its standard RPC is 60 x 40 centimeters and varies in height from 8 centimeters for a single-layer avocado tray up to 29 centimeters for bulk items like 40 pounds of broccoli or a head of lettuce.
Each time an RPC is used, it is sent to one of IFCO’s 60 wash facilities worldwide and goes through a cleaning process before it goes back to farmers to add produce and start the order fulfillment cycle anew. In March 2016 IFCO released SmartGuardian, an integrated software and hardware system to better monitor and control its sanitation process.
Pederson emphasized that packaging standardization enhances the benefits of automation for e-commerce order fulfillment, improving efficiency while still allowing for safety and quality in grocery retailing.
“The number one piece [in quality and safety] is the time and temperature control, as well as maintaining the integrity of the supply chain,” Pederson says. “Within e-commerce I can anticipate much safer delivery systems.”
He is including the more localized and personalized deliveries anticipated in the future that are expected to be smaller and can even be focused to one customer. Pederson expects smaller delivery trucks, such as car vans rather than today’s 53-foot van trailers, in the future. “And RPCs could come in smaller sizes, such as 30 centimeters x 20 centimeters, that are very personalized, which is where e-commerce shines,” he says. “The trend is for distribution networks to spread beyond distribution centers.”
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