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Convenient delivery is (again) the Holy Grail for grocers

story by Kim Souza
ksouza@thecitywire.com

History is on a course to repeat itself no matter how technology changes the retail landscape. In the 1960s, calling in grocery orders for home delivery was common in American cities and towns across.

In more rural areas a shopper might go to town on Saturday, purchase their weekly goods and have those groceries delivered by the store operator. It was also common for milk and dairy to be delivered each week by the local milk man. This was done without a sophisticated supply chain and long before computer algorithms became commonplace in retail.

But today, retailers from Amazon to Wal-Mart and many others are in a moon race to give consumers convenient grocery delivery through numerous formats.

Amazon recently announced its Prime Pantry option which will allow consumers to shop for groceries online and have them shipped to their home for a flat rate of $5.99. The flat rate is good for up to 45 pounds of product. For access, users have to be Prime members which is a $99 annual subscription rate.

AMAZON, GOOGLE TESTS
Amazon said this service is good for bulky, stock-up items like large packs of paper towel or fridge packs of soda. With this venture Amazon appears to target the legion of 140 million Wal-Mart Supercenter shoppers a week. Prime Pantry plans to ship the products within one to four business days. This initiative comes on the heels of the Amazon Fresh test which is available in San Francisco and Seattle. 

Jason Long, CEO of Shift Marketing Group in St. Louis, said he has tinkered with Prime Pantry online since it was announced. 

“It’s smart and easy. I filled one box almost full with a bag of dog food, a 12 pack of toilet paper, 6 rolls of paper towels and a box of cereal. It looks to me like Prime Pantry is an attack on Club stores or anywhere consumers buy in bulk,” Long said.

He doesn’t see Prime Pantry making a huge dent in Club sales at this point given so much of Club grocery sales are around fresh and frozen products. He said Prime Pantry is a great alternative for center-store items – and at a $6 delivery charge not much more than gas to get back and forth to the store, not to mention the time saved and hassles avoided. Yes, it can take up to four days to get delivery but a little planning can solve that problem. That said, Long believes Prime Pantry is an obvious way for Prime subscribers to help justify the new $99 Prime charge.

There is ample competition in the San Francisco market with Google’s Shopping Express available in 88 zip codes throughout the Bay Area since September. Google allows consumers to shop online from 17 difference retailers, including Walgreens, Staples and Target, and then Google delivers the purchases within a three-to-four hour window. The cost is $4.99 for each store in the order.

The Google Shopping Express is more than just groceries, but according to the San Jose News, the most popular items ordered are grocery — mayonnaise, baby food, Nutella, candy and coffee. The most popular days for orders are Sunday and Monday. Other popular items include: Sriracha hot sauce, toothpaste, potting soil and soup.

Some believe this business model is flawed because neither the consumer nor the company wants to pay for the full cost of delivering low-margin products from big-box and drugstores, and a $5 fee doesn't come close to covering expenses.

"Google is subsidizing same-day delivery," according to Sucharita Mulpuru, an e-commerce expert at Forrester Research. In general, she said, “it's not cost-effective to deliver something like diapers. ... Store pickup is a better option in the U.S."

ONLINE PICK-UP
Grocery pick-up is also makes more sense to Long, who can see more grocers delving into this convenience option.

Wal-Mart has tested online grocery with pick-up in San Jose, Calif., and Denver in an initiative called Walmart to Go. But last week the retail giant told The City Wire it plans to build an online grocery fulfillment center with drive-in pick-up for more than 10,000 grocery items including meat, dairy and dry grocery. This is the retailer’s first test with this type of grocery fulfillment and unlike the other online grocery options it’s being offered in a town of 35,000 — Bentonville.

City planners approved the large scale development on Tuesday (May 6)granting Wal-Mart three waivers as requested to meet the city’s guidelines. The waivers involved parking stall depth, number of curb cuts and building material. Wal-Mart said the online grocery fulfillment service will be offered later this year in Northwest Arkansas.

Population density has been a key metric for retailers wanting to test online grocery. The recent Wal-Mart initiative is being tested in a small market, like hundreds of others where the retailer already enjoys strong brand recognition.

Long said for retailers, the cost structure of a drive-in and pick-up model is advantageous to home delivery, especially in less densely population areas.

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“For consumers, they still experience the trip to the grocery store, and the psychological satisfaction of providing for their family, without the hassle of going inside or worrying about delivery times, a stranger coming to their home, etc. Prime Pantry can’t offer this experience,” Long said.

San Antonio-based H-E-B, an aggressive grocery competitor of Wal-Mart in south and central Texas, announced its own plans to offer online sales this later this year. Bob McCullough, senior vice president of manufacturing for H-E-B, recently told the San Antonio Business Journal the online operation will be a world-class offering, but he gave no further details.

H-E-B operates 337 stores in Texas and Mexico and has sales of more than $18 billion, making it one of the nation’s largest grocery chains. It makes and processes food products at more than a dozen manufacturing facilities, including three dairy plants.

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