On Mar. 6, Jim Lukens discussed failed attempts at delivering groceries to consumers' homes. Today, Lukens looks at success in this service.
Although there are many shapes, sizes and varieties, there are two basic forms of on line grocery shopping providers:
- Grocery Store based providers
- Technology companies competing with Grocery stores
We will touch on both types.
There's a 100% chance that on line grocery shopping is a profitable business – to the software company providing the service, not necessarily the grocer.
Grocers provide the labor, the marketing expense, the customer service and the transportation to provide the home delivery if they care to do so. Many stores offer only the option for in-store pickup.
Most software providers handle the store's item database and handle the price synchronization and payment system. In exchange, they benefit from weekly and per transaction fees to the grocers. The more orders processed, the more made on transaction fees.
(Today) we're touching on examples of "grocer friendly" solutions, and......"grocer's nightmares" in terms of companies who are seeking to partner with CPG companies--- or to circumvent grocery stores.
There is a correlation between home shopping success and Grocer operational excellence. If you're a great grocer, you'd be a good candidate for the home shopping experience. You already know how to buy groceries right, how to carry the appropriate SKU's and how to merchandise to get the necessary margin mix with your average shopping basket and how to promote to your community.
WebVan and Simon Delivers quickly went out of business. In Simon Deliver's case, the remnants of the company were acquired by Coborn's who was perfectly suited to take over the SimonDelivers.com company. Coborn's are among the best run and most successful regional grocers in the country.
Coborn's has the volume, experience and operational expertise to make a home delivery business succeed. Give them a computer and delivery van and they can make it work.
You have grocery experience so why don't you jump into online ordering and home delivery? Can you make any money after you pay for the software, labor and delivery costs? Will you be making a software provider rich while you struggle to break even with the service?
Few have made money in grocery home delivery. Regional and national supermarket retailers have jumped into the arena and many have jumped back out of the arena with lighter checkbooks. It's not something to try-out for a couple of months. It takes a huge commitment, operational excellence, marketing savvy, technological genius or a partnership with someone that has all those qualities. Good luck!
You're probably familiar with many of the grocers who are involved in Home Delivery with online ordering. A short list of some of the more successful companies includes:
- Coborn's Delivers (upper Midwest)
- Safeway (West Coast)
- Hy-Vee (Midwest)
- Peapod (Midwest and East Coast)
- Publix Direct (Southeast)
- ShopRite (East coast)
There are many, many more on line businesses providing this service. Not a complete list but a good place to check out some competitors in your state.
Click for list of online grocers by state
Technology and Mass Marketers Circumventing Grocery Stores
Who should we worry about? Walmart On Line or Amazon Fresh? Which company is most likely to be the online home shopping provider that will be your "real" on line competition?
Both Walmart and Amazon should concern us as serious contenders who are out to fill our customer's pantries with home deliveries. Both companies have deep pockets but there's a third company that's likely to make waves.
"Who Needs Grocers --- They're just the 'Middle Man' in the home shopping chain"
Wait a minute..... that's us!
One of the focus areas for grocers over the past 30 years is to "cut out the middle man". There's been a mass consolidation in our industry. Fewer manufacturers. Fewer brokers. Fewer buyers. Fewer distribution centers. To cut costs most of the "middle men" are out business. Now technology companies view grocers as "middle men" who can be circumvented.
A new competitor, Alice.com has a business model based on the premise that supermarkets are "middle men". That's right. Grocers are the next set of "middle men" to be removed from the sales cycle of getting to consumers. At least in center store sales.
Alice.com may be your next competitor and they're only 3 years old. Last week we touched on WebVan and SimonDelivers both having 3 year life cycles. Alice.com is 3 years old now.
With our current economy, there has been a real shift to commoditization as buyers leverage market power over suppliers. We all realize that private label products have squeezed out national brand CPG's.
Bloggers seem to like alice.com a lot. Go on line, order stuff and it shows up at your doorstep in a neat box from Alice.com .
A special needs website has promoted the site since 2009 due to the website's ability to save valuable time for parents of special needs children:
Being able to sell national brand groceries on the web presents an opportunity for entrepreneurs to steal more center store sales from our stores. Their business model is to circumvent the grocer and work directly with the CPG's. to replenish pantries via the web.
Alice.com is a 3 year old startup company who is trying to provide the home essential items consumers need. They are able to add value by tracking home inventories so customers get reminders to replenish pantry inventories and receive coupons or deals on those items.
Their CEO stated, "Direct to consumer sales by manufacturers is a growing trend online, and the Alice.com platform is helping the CPG industry open up a direct channel to its mainstream consumer. It's a win-win that brings great value to the end consumer, and critical consumer relationships and insights to the manufacturer."
Maybe Alice.com won't impact your business at all. However, the concept of national brand CPG's working with technology companies to deliver groceries to your customers doorsteps is worth keeping an eye on.
What are they doing right:
- Organizing the shopping experience- very nice user interface
- You can manage and organize your life - simple
- Coupons are automatically applied to orders
- No delivery charge. Orders over $100 get a 5% discount
- Shop by "room" (e.g. kitchen, bathroom) vs. department
- Forget fresh products - center store only
- Pricing is targeted to be competitive with conventional stores but you definitely pay for the convenience
- They push pantry replenishment with automatic reordering but if you need something quick - alice.com isn't a solution.
How about AmazonFresh.com?
Customers buying from Amazon Fresh can have orders delivered at a pre-set time . They can also arrange deliveries before 6 a..m with their Pre-Dawn Delivery Service or during the day as a Doorstep Delivery. Totes with frozen gel packs or dry ice are used to keep orders cool for up to 6 hours. Customers can order by midnight and receive pre-dawn delivery. Beer and wine need to have an attended delivery with ID.
How are grocers protecting business with new home delivery competitors?
Many have resorted to store pickup. There are several technology providers who have developed "plug in" style systems to allow supermarkets to receive online orders. To assist in productivity, some of the better providers have batching processes that allow for store employees to pick multiple orders in aisles vs. walking the entire store for each order.
Although not as convenient as "home" delivery, the shopping service is appealing to a limited number of shoppers who prefer online ordering and store pickup.
How about Fresh Direct?
FreshDirect, one of the most successful home delivery providers has a 300,000 square foot distribution center in Long Island City. They have 2,000 employees and have made over 6 million deliveries. Economy of scale is helpful.
As of 2009 they reported having over 500,000 customers with total sales over $300 million.
Hometown Grocers: Great Features from a Grocer Designed System
Grocer and Technologist Work Together to Build Shopping Solution
I first met grocer Jim Tersteeg in 1988 at his store in Redwood Falls, Minnesota. Jim had a great idea- perhaps before it's time. Why not design a computer program to enable a grocer to accept home shopping orders over the telephone.
That's right, the touchtone telephone.
Keep in mind that the internet really didn't become popular and widely used until the mid to late 1990's and Jim wanted to design a system that would allow consumers to use touch-tone phones to order foods for home delivery. Everyone has a phone so build a system to drive sales in Redwood Falls, Minnesota.
Jim partnered with Judd Kirklin, a brilliant IT professional with a grocery background. Actually Judd and I worked for the same company, Holiday Companies/Fairway Foods in Minneapolis. Judd's background in technology was focused on grocery store technology systems.
By 1993 Judd refined a once primitive phone based home ordering system for food and helped launch "Hometown Grocers".
Companies like Hy-Vee saw the home delivery model from Hometown Grocers (HG) and with further enhancements HG has a "Best of Breed" program that reinforces the idea that it takes a grocer to build in the necessities to make a home shopping system work for grocers.
What I like about this platform that I haven't found in any home shopping system:
- Graphic intense web site plus a second site for visually impaired customers who use special software to navigate the web.
- You can order from Smartphones, iPods or web enabled devices.
- There's still 30% of your shoppers uncomfortable with internet technology. They can phone in to operators for orders or use touch tone phones.
- Customers can use a key-fob scanner to order in their kitchen (fridge, pantry or electronically clip coupons).
- Retailers can select up to 10 orders at one time from aisles. Labor is typically 15 minutes per order. No wasted labor picking orders, putting them into a cart, taking them to the front end or backroom, taking them out of the cart, scanning them, bagging them and putting them back into the cart. A real labor savor.
- No baggers or checkers are needed to checkout orders through POS.
- They're PCI compliant - credit, debit, gift cards, checks and can process EBT or Food Stamps without pin numbers.
Apparently their business model works well. Where most contenders in this space have weekly fees to grocers plus transaction fees, HG has a weekly flat fee with no percentage or transaction fees draining margins.
Hy-Vee and other HG customers can charge their own Service Fees for the service but it's refreshing to see a system that doesn't tack on percentage transaction fees to grocers.
HyVee charges $5 for store pickup and $10 for home delivery.
Want a T-Bone 1.5" thick? How about 2" or 1" - why not?
How about green, slightly green or yellow bananas-- why not?
The Colby Jack from Deli - Thick or thin slice - why not?
The HG guys seem to nail all the important details for in-store selection productivity, price synchronization, payment systems and integrating coupon offers. The key-fob pantry ordering device is a great touch as well.
Odd's and Ends in Food Centric Home Shopping
A few of the new competitors are:
Click here to view website DineWise and HomeBistro home delivery, prepared meals
eHomeDelivery.com - Multi Level Style Marketing For Grocery Home Delivery
Here's the scenario. A startup company enlists consumers to recruit other consumers to buy groceries from a company who pays for the opportunity to buy online groceries.
Think of this as the "Avon" of grocery home delivery. Start selling groceries on line and then convince your friends and neighbors to work for you selling as well. The more they sell the more you make......hmmm.
Started by a grocery veteran (5 years experience) who is depending heavily on friends inviting friends to buy groceries online.