Online grocery shopping grows with supply and demand
Amazon's $13.7 billion acquisition of Whole Foods is expected to shake up the grocery industry, adding more competition and forcing traditional grocers to step up their game, experts say.
The e-commerce giant's surprise move comes at a time when online grocery shopping is starting to spike, offering another choice beyond the traditional way we shop.
Grocery shopping is considered one of the final players in the e-commerce game. While consumers have embraced shopping for everything from shoes to shampoo online, shopping for food items has largely remained the mainstay of brick and mortar stores. With annual U.S. grocery sales at $602 billion, according to industry experts, it's a market that's crucial to the future.
Online grocery shopping sales have grown about 11.3 percent between 2015 and 2016. The trend is expected to continue into a $100 billion industry by 2025, according to a sales and marketing agency report.
Frequency is also growing. Nine percent of adults said they ordered groceries online for pickup or delivery at least once a month, including 4 percent who do it at least weekly, according to a Gallup poll taken in July. These numbers are expected to continue to rise.
When consumers are online, canned and packaged foods; nonfood items like toilet paper and foil; health and beauty items; and general merchandise all items seeing increases in sales.
Not surprisingly, younger generations are driving the uptick. Millennials and Generation Z are more likely to shop online and lean toward natural, organic and healthy options.
And about 70 percent of frequent e-commerce grocery shoppers have children and 68 percent are in urban areas and have used Amazon Fresh and other services, reports show.
There are a multiple of reasons why clicking for groceries is catching on.
"Consumers find it easier, more convenient, and it allows them to use their smartphone as a grocery shopping tool in a similar way to how they're using it in other aspects of their lives," said Bill Bishop of Barrington-based Brick Meets Click, a grocery retail research firm. "The other reason online grocery will grow is that more retailers will be offering the service."
While Amazon Fresh, with operations in Wood Dale, plans its new strategy, online grocery shopping sites have been expanding nationwide, mostly on the East and West coasts, as well as in the Chicago suburban region. Major metro areas are a key strategic point for online retailers.
"(Online) grocers are looking for more densely populated areas because it's most efficient for retailers to serve," said Chris Donnelly, senior managing director at Accenture Strategy in Chicago. "The further away from the dense population, such as in DuPage or Will counties, there will be less focus for online retailers because it may be more expensive to do deliveries. It's simple supply and demand."
That supply and demand, coupled with advancing technology, has shifted the way people shop for groceries, said Colin Stewart, senior vice president at Jacksonville, Florida-based Acosta Inc., a sales and marketing agency in the consumer-packaged goods industry.
What online shopping will do to traditional grocery stores is somewhat uncertain.
Experts agree traditional stores won't close as a result of the emerging trend and that prepared and precooked foods will continue to serve as an economic driver here.
But stores will undergo a transformation and could become smaller, or they could change how they present merchandise on the shelves. While impulse buys, such as candy bars at the checkout lane, are popular at grocers, online stores may use flash coupons or other incentives to get consumers to buy more, Donnelly said.
"Stores may change their shopping experience by adding more technology with self-checkout or scanning the product right by the shelves and just pass by the traditional cash registers," he added.
Delivery fees are a part of shopping online and often considered a trade-off for saving time online. Delivery fees may be waived for larger orders. Fees for delivery of orders under $35 ranges from $5.95 or $7.95. Those who have a subscription or membership, costing $99 to $149, could get free delivery.
The fees don't seem to bother online fans. For them, the main benefit is the convenience.
"This takes a lot of the pressure off them since they can do it early in the morning or late at night, or maybe even from the office," Bishop said. "It's a benefit of time shifting versus time savings."