Smart shopping, smarter delivery

In most Western countries, the online food market is still in its infancy and a niche segment. One reason is that initial investments are high, with outlays required for infrastructure (mainly new or upgraded operations), software, and marketing, among other things, and potentially higher operating costs. The investments also come with higher risk because of market uncertainties. A well-balanced assortment is vital for sustainable growth as profitability, logistics requirements, and costs differ significantly across product categories (for example, canned food versus fresh food).

Pure online grocers find it difficult to enter the market on a broad scale, because of fierce price competition and start-up costs. They are more likely to operate as niche players in large metropolitan areas working with logistics and shopping partners (such as Amazon) to provide home delivery services. They primarily sell small assortments of premium fresh products geared to less price-sensitive shoppers.

Traditional grocery retailers will not enter until they have looked at the risks and rewards of being an online-food retail pioneer. Those struggling under competitive pressure are most likely to enter as part of a differentiation strategy, offering an online channel as an additional service. Any competitor that goes big into online retail will entice others to follow. Traditional grocers will need to decide between staying traditional and risk losing long-term market share, or investing now to gain an edge in a promising market.

Whether talking to a niche online grocer or a traditional grocer with an online presence, both understand the importance of providing customer-friendly delivery plans. Most online grocery shoppers prefer (and are willing to pay for) home delivery over pickup. But, they are neither willing to stay home all day to wait for their groceries, nor are their homes set up for grocery drop-off, especially fresh goods that require cooling.

In many ways, smart delivery solutions are the tipping point for online grocery success.