Online grocery shopping: Boom or bust?

Online grocery shopping: Boom or bust?

Steven E.F. Brown

Safeway's home-delivery business is booming.  Based on this holiday season’s sales figures, online shopping is more popular than ever — even for groceries.As more people migrate to urban areas and double-income households become burdened by increasingly busy schedules, it’s no mystery why the perceived convenience of online shopping would be attractive to a growing number of people. But is it as good as it sounds?

Some market researchers seem to think so. At the rate it’s going, online grocery shopping is poised to grow at an annual rate of 9.5 percent — with the potential to become a $9.4 billion industry by 2017, according to market research firm IBISWorld.That’s not so hard believe, especially as Safeway — the industry leader in its category — is boasting more interest in its home delivery service, and mega players like Amazon and Wal-Mart have entered the game with plans to expand.

While online grocery shopping dates back to the first dot.com boom of the 1990’s, when HomeGrocer.com (later rebranded as Webvan) launched one of the first online-only supermarket businesses, stocking product at dedicated warehouse facilities that it borrowed a lot of money to build. Millions of dollars in wasted spending and very few sales later, the business failed when the boom went bust.

Pleasanton-based Safeway, which has been offering online delivery for the past decade, said it “learned a fair bit” from those early players and has better systems in place to boot.

“Most important lesson is there is that is tremendous logistical complexity in picking orders and getting those to customer in pretty diverse geography in a manner that allows you to be profitable,” said Safeway marketing director Mike Minasi.

Safeway has an easier time doing that because the products it sells online are picked and shipped to customers directly from the closest Safeway store.Online-only grocers, on the other hand, have to deal with all the incremental costs associated with not having established stores, such as trucks, drivers, warehouses and warehouse workers.While the concept seems simple enough, and the ease of at-home delivery is very intriguing, online grocery shopping still faces many of the same issues as online shopping in general in that consumers don’t really know what they’re getting.

How it worked for me

My experience with online grocery shopping, for one, was disappointing, to say the least.For starters, the delivery showed up several minutes after the one-hour window for delivery time that I chose. Not a huge deal — just an annoyance. Then, several items that I had chosen that were going to be part of my stir-fry dinner that night were out of stock, so I ate quesadillas instead. That also was annoying. But I could understand that, too, since the stuff was shipping from the store, and they can’t help if things get sold out before my order is in the system.

Here’s what really pissed me off: I specified ripe avocados, ready to eat (which is one of the features Safeway boasts about) on my order. That request went unheard, and I received two green avocados that were hard as a rock. I also had a substitution ready for my favorite corn tortillas listed, in case those were out of stock. And that substitution was substituted with yet another brand of whole-wheat flower tortillas that weren’t even close to my original order.

The tortillas did it. For all the conveniences it offers, the annoyances and inconveniences of online grocery shopping made it not for me. And I can only imagine that I’m not the only one.But I digress…

Despite these setbacks and some unhappy customers, Safeway said business has been steady and expects to continue growing its online clientele.The grocer offers home delivery in most of its markets, with the most profitable markets in highly dense urban areas, such as San Francisco, Baltimore and Washington, D.C.“We’re pleased with our performance and direction of the business,” Minasi said. “And customers are demonstrating that it’s important to them, so clearly there’s a viable business there.”