By Heather Haddon and Sarah Nassauer
The new push by Wal-Mart Stores Inc., Kroger Co. and other food
retailers into the online grocery business is about to face even
tougher competition from Amazon.com Inc.
Amazon is planning to build brick-and-mortar convenience stores
that offer fresh foods for sale and give customers the option to
purchase shelf-stable goods for later delivery, people familiar
with the matter said. The company also plans to open sites that
offer curbside pickup, these people said.
The new Amazon stores will compete with grocery stores on their
own turf, and come as traditional retailers, including Wal-Mart,
are rapidly expanding their online grocery services, particularly
curbside delivery services known as "click and collect," aimed at
attracting busy grocery shoppers in the Midwest.
Supermarkets battered by a rough patch in food retail are hoping
curbside delivery will help them not only keep market share as more
shoppers turn to e-commerce, but also coax shoppers into their
stores to buy additional items when they collect orders. Other
retailers are offering one-hour delivery and eye-catching apps to
attract millennials and shoppers looking for convenience.
Online sales remain a fraction of total supermarket sales. Among
traditional food and beverage stores, e-commerce accounted for $1
billion in sales in 2014, or 0.16% of the $670 billion market,
according to U.S. Commerce Department figures.
But big e-commerce vendors, such as Amazon Fresh and other
online mass merchants, racked up more than $6.3 billion in food and
beverage sales in 2014, up 20% from 2013, the federal figures
show.
"A lot of transactions are moving to mobile. Demographics are
changing," Randy Burt, a partner at the A.T. Kearney consulting
firm, says of the online grocery business. "All these things are
combining to create more demand. That's what's different."
While e-commerce's share of the total grocery industry is
expected to remain in single digits for some time, its growth is
expected to far outstrip that of traditional supermarkets, analysts
say. Food and alcohol sales online are expected to grow 34% in the
next five years, compared with 3% in actual stores, according to
research this year by the Kantar Retail consultancy.
Part of Amazon's move and its subsequent expansion into the
field was made possible by the reluctance of some big companies to
invest heavily in notoriously profit-starved grocery-delivery
services. Online ordering with home delivery is the most expensive
type of sale for grocery companies, followed by
click-and-collect.
But brick-and-mortar grocers are now having some success by
offering a wider array of shopping formats for different customers.
Technological improvements and warehouse investments, meanwhile,
are making deliveries of produce fresher and more tailored, such as
the ability to select bananas according to their degree of
ripeness.
Online grocery services also have greatly expanded away from
cities -- and into curbside-pickup services, which allow shoppers
to order groceries online and then pick them up at the curb in the
stores' parking lots.
Wal-Mart, the nation's largest food retailer, has quickly added
pickup service to stores over the past year and will offer it in
more than 1,000 of its roughly 4,600 U.S. stores by the end of next
year. The system is particularly popular with busy parents who
don't want to take children out of car seats or don't have time to
wander cavernous stores, store executives say.
Wal-Mart gravitated to the model, in part, by watching how hard
it was to make money with grocery delivery at its U.K. chain
Asda.
Wal-Mart executives say they have started keeping more inventory
on the shelves rather than in historically overflowing backrooms to
give workers more space for fulfilling online orders. At an
investor meeting last week, Wal-Mart executives said the retailer
would open only around half as many supercenters next year as it
did last fiscal year, and will shift spending to increase
e-commerce sales, including online grocery.
Kroger, too, is expanding the number of stores where it offers
click-and-collect service, which it calls ClickList. The service
began at about a dozen stores last year. Kroger, the U.S.'s largest
supermarket chain, now offers it at more than 200 locations and
plans to expand.
"It's all about that busy parent who is trying to squeeze in
what they are getting for groceries and lunches in between
squeezing in everything else," says Diana Sheehan, director of
retail insights for the consulting firm Kantar.
Amazon's new grocery stores, dubbed internally Project Como, are
also meant to capture busy families who want to swing by the store
to quickly pick up their grocery orders on the way home from
work.
California and Washington still lead the way in total spending
on online grocery, but states such as Texas and Florida are
starting to catch up, according to a snapshot of online
transactions by Adobe Digital Price Index. Some of the biggest
jumps in year-over-year growth in sales came in Kentucky, Indiana,
Tennessee and other parts of the Midwest, a comparison of
transactions in July 2015 and 2016 shows.
Still, some analysts think the online grocery business remains
overhyped and overvalued. "This is a very crowded space," says
Nicholas Fereday, a food analyst with the Dutch lender Rabobank.
"It's not enough to have a cool app."
Write to Heather Haddon at heather.haddon@wsj.com and Sarah
Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
October 12, 2016 09:45 ET (13:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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