Wednesday, April 18, 2012

Wait, you buy your groceries online? What is this, 1999?!

Where did all these online grocery stores come from?

If you’re like most of us, you assumed online grocery shopping got squelched in the bursting of the original dot-com bubble.

Think again; shopping for groceries and other household items via the web is making a HUGE comeback.

What changed in the last 10- to 15-odd years that makes the e-tailing of peanut butter and dryer sheets sustainable?

Time; the natural progression of life.

Shopping for necessities in personal health and hygiene is a less-than-glamorous task – universal to adults everywhere.

While our parents had years of practice doing so in traditional brick and mortar storefronts, we can right our own way.

And, as the first generation to grow up with computers and more specifically, the internet in the classroom, we are all too quick to delegate tasks to the web in the name of efficiency.

Online grocery shopping was always a good idea; it just needed to bide time while tech-savvy consumers entered into the real world.

(Sophistication around intuitive website UI and additional scalability around logistics didn’t hurt either).

Routine can be a powerful barrier to exit, even in online retailing.

While we believe the moniker, “competition is just a click away,” we feel it applies more rigorously to one-time/event-specific purchases. These are unique situations where one has no previous “in-store” experience to compound their store-selection process.

When it comes to shopping for routine groupings of undifferentiated necessities, traditional rules of loyalty via routine apply. Be it physical aisle ways or virtual site navigation, one has a tendency to shop and stay with “store” layouts they are familiar with.

And so, differentiation remains crucial.

Getting a Lay of the Land…

The industry remains spotty and fragmented; regional players in the East and Midwest and a few outfits boasting complete, national coverage. 

For the sake of a simple comparison and light industry overview, we’re narrowing our review to just two key players, one regional and one national.

With its roots in Chicago and the surrounding area, Peapod has recently increased its foot print through partnerships in Philadelphia, Boston, DC, NYC and greater New England.

Their website is simple, but unpolished:

Highlights: Of all the reviewed sites, Peapod offers one of the widest arrays of brand choices and product sizes.

With this promotional spot, front and center - it’s clear they see cultivation of early adopters as crucial in winning at e-tailing groceries.

Bonus features:
Mobile app including browsing, ability to save and reuse lists. “Browse by aisle” familiar functionality.

Shortcomings: Website UI - Product images are small with varying quality. Navigation is a little clunky and feels about 5 years behind the times.

With coverage across the entire United States, is powered by online retail juggernaut, and it shows:

Highlights: Definitely the most beautiful site design of all the major players, boasts bright, hi-res product photos and an intuitive, ultra-simple UI for browsing by product or category. No doubt thanks to momma Amazon’s expertise in logistics and well-established network of distribution centers, lures first-timers in with “free shipping” promos that activate at a lower price point than competing alternatives.

Bonus Features: Intuitive mobile app, list-saving functionality, top navigation gives access to 5 sister sites/departments (Infant, Pets, Toys, and Housewares) all with the convenience of 1 shopping cart.

Shortcomings: Speaking groceries, Soap only offers consumer-packaged goods (CPGs)  - no fresh produce – fruits and vegetables, meats and cheeses. Less choices in terms of product size, flavors and access to established brands.

Cart-to-Cart Comparison:

As a down and dirty test of pricing, we selected 4 items at random: 2 grocery, 2 household. Let’s see how they measure up – against each other and alongside brick and mortar alternatives:

Key Takeaways:

Peapod’s pricing is competitive?! We were surprised. Summing all items together, the $2.30 premium over Target is a bit much, but only a dime more than Jewel-Osco?  Impressive; proof Peapod has applied competitive pricing tables to combat local traditional retailers.

Soap is higher priced with less variety. A bit of a surprise as well. We expected the cutting-edge web interface to come at a slight premium, but at $1.16 more than both Peapod and Jewel and a full $2.31 over Target, it’s not a viable candidate for our grocery budget. (And bear in mind, that disparity in cost just covers 3 of the 6 items!) could only compete on half the products – driving home the fact that their selection – brands and size/flavor variety alike – remains quite limited.

While wins for “in-store” experience and market reach, delivers a more complete line of products at a better price.
To establish market dominance, should: 
  • Focus on steady growth via partnership – identify attractive, downtown/urban areas where consumers are tech-enabled and more open to the concept of buying groceries online.

  • Increase Promotional Efforts based on Price – consumers already get the “convenience” side of the equation – time to erode the perception it comes at a HUGE premium. Devise taglines and identify legitimate product price comparisons against traditional stores.
There’s something to be said for shopping in a physical store, meandering aisle after aisle, you are more likely to stumble upon new categories you might not otherwise seek out on your own.

But, in a pinch, it’s good to know online grocers have evolved and stand ready to deliver on the promise of the World Wide Web!


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