Grocery ecommerce: the long tail, the last mile, and the future

August 19, 2014; 00:16 am by Bill Bishop

PJ Stafford’s wide range of experience make him a great source for thinking about how grocery ecommerce might achieve the level needed to transform the grocery marketplace. 

Back in 1993, after he saw his first demonstration of the internet on a high-speed T-1 line, he started a company called the Internet Factory along with his wife. They were soon creating websites for GM and Chrysler. “We had few competitors in Detroit in those early days of the commercial web,” he says.  He stayed with ecommerce over the years, and focused on market segments being transformed by the Internet, like financial services and media/entertainment. His drop ship ecommerce company was acquired by UNFI in 2012.

Today, PJ is Co-President of Honest Green, the ecommerce division of UNFI (United Natural Foods, Inc.) He is focused entirely on grocery ecommerce, and he’s building ecommerce bridges/systems that enable independent natural retailers and supermarkets to serve the “Long Tail” needs of their customers – in other words, to offer their shoppers a wider array of natural products than store shelves can accommodate.

Here, he talks with us about why he is convinced that grocery is ready to move into the mainstream of ecommerce, and what retailers need to do to take full advantage of this opportunity. See what he has to say.

What does Honest Green do?

Honest Green plays an important strategic role within UNFI. We help the leading distributor of natural and organic products in the US to capitalize on the growing role of ecommerce as a distinct channel in natural products, and we help our retail partners (independent natural retailers and supermarkets) with the difficult transition to becoming effective multichannel retailers.

We provide a blind drop ship capability to our retail partners so they can offer tens of thousands of incremental products online which they do not necessarily stock in their brick-and-mortar storefronts. (Malcolm Gladwell calls this the “Long Tail.”)  Currently, we ship via UPS/USPS direct to the consumer’s home. Soon, we’ll launch the capability to deliver individually packed consumer orders direct to the store in some Northeast markets, piggy-backing on the retailer’s regular UNFI truck delivery. This way, we can support both “click and collect” and home delivery models.

What’s your vision for what will happen at the intersection of grocery ecommerce and mobile, meal planning, social media and delivery options?

MOBILE

Say goodbye to the handwritten grocery list.  Say hello to the “reorder” option on your mobile app.  More and more consumers are adding to their mobile app shopping cart throughout the week, and then clicking “buy” once or twice a week for pickup at store or for home delivery.

MENU PLANNING AND SOCIAL MEDIA

Online grocery shopping will help families plan meals by breaking great-sounding meals into component ingredients and adding those ingredients to the cart based on the number of people being served.  Niche services that do this (and deliver the ingredients to home) are already getting a lot of venture capital and traction, but their cost per meal is still too expensive to go mainstream. Examples of cooking subscription services include Hello Fresh, Blue Apron and Plated. 

Grocers need to lead the way in this area to reduce costs and integrate this meal planning capability into the family food shopping experience. Integrating social media with this function is a natural, since people get so much enjoyment from trading recipes and meal ideas via Facebook and other platforms.  Popcart just launched an interesting approach with Fresh Direct and social recipe network Foodily that enables customers to use a browser bookmarklet to highlight the ingredients in the recipe and have them automatically added to their Fresh Direct shopping cart.

THE LAST MILE/DELIVERY

Click and collect vs. home delivery in van vs drop ship direct to home – I think all three will play a role in the evolution of online grocery shopping, depending on customer densities. Drop ship direct to store or direct to home (via UPS/FedEx/USPS) opens up a hundred thousand grocery SKUs the store has no plan to stock on the shelves, and it enables them to serve the Long Tail needs of their consumers.  Drop ship is playing an important role with major retailers outside of grocery, and I think it has a great future in non-perishable grocery as well.

How is the natural products industry unique relative to grocery ecommerce? 

In the natural products world, many hot products and trends come out of shows like EXPO East and EXPO West. It’s important to offer these products to consumers quickly, but category review cycles for grocery chains can take 9 months or more. Deciding to put the product online quickly and drop ship, means a retailer can meet the needs of their customers even if they don’t want to take a chance on (or don’t have the shelf space for) stocking the product in-store.

Offering Long Tail items keeps your customers from initiating online relationships with other grocery providers and online retailers and frees the grocer from being limited to what’s stocked in the local store.  Innovative distributors are starting to play a role by making items in large distribution centers available as “eaches” to retailers. This is especially important in natural and organic, since a conventional grocery store may allocate only 5% of its shelf space for the category. Their customer may want to go deeper than that, and choose from among 5 brands of gluten-free pasta, for example, instead of just one.

Kroger’s acquisition of Vitacost is certainly an endorsement of the Long Tail/direct to-home-via-UPS strategy. It enables them to offer category coverage far in excess of what they carry in any given store.

As an executive who didn’t grow up in the food business, are there things that grocers are doing in the area of ecommerce that surprise you?

There are several things, and they actually focus on what grocers are NOT doing and the long-term impacts this will have.

1. Not building for the long term or investing enough in technology

I am not a big fan of building one’s grocery ecommerce strategy around the Google Shopping Express/Instacart model, though I see why it is tempting in the short term. In this model, the consumer buys from Google Shopping Express or Instacart, who then goes to the store to pick the items from the shelves. I am told that Google charges the store a percentage in the single digits, and according to a New York Times study, Instacart marks up everything 20% or more above retail (plus a delivery fee) to cover its costs.

Google’s method can eat up an important part of the profit margin in a low-margin business, and Instacart’s method makes your groceries appear expensive online; plus, what’s to stop Instacart from swapping out its preferred partner stores once they have a critical mass hooked on their app and product suggestion engine? Don’t get me started on who owns the consumer data and how valuable that data is to growing the shopping basket.

Grocers need to invest in web, iPhone and Android technology. It’s not easy to come up with a great website and related mobile apps, but that’s what is needed as consumers shift billions in grocery sales by voting to spend their dollars with retailers that are responding to their lifestyle needs.

2. Not moving with enough sense of urgency

Studies may show that just 2 to 6% of total grocery sales happen online, but they also show that 11% of consumers are already buying some groceries online.[i] These two numbers are going to grow closer together in coming years –  and I think the 11% number is going to grow quickly.

Also, I had a chance to read the 2013 Brick Meets Click survey of 22,000 online grocery shoppers from seven retail banners in 2013, and shoppers said they buy groceries online for the following key reasons:

• 61%:  Helps me buy product that I like but can’t always find in the store
• 50%: Save me time by not having to walk the entire store
• 46%: Helps me spend less as I will buy fewer unplanned items

I believe most consumers would like to stay with their local grocer for online orders if they are happy with the in-store experience. Technology, coupled with some grocery distribution logistics, can make it easier for customers to do so – and prevent them from having to move to a “new” online grocer for the orders for which they don’t want to make an in-store visit.

3. Not fully appreciating competitive pressure from Amazon and other competitors

Grocery is one of the fastest growing categories at Amazon, and it’s made up of several distinct parts:

• Amazon Fresh (in specific markets) via home delivery in an Amazon truck
• Amazon.com via UPS
• Amazon Marketplace sellers via UPS
• Quidsi (Soap.com, Vine.com, Diapers.com, to name a few of the banners) via UPS
• Amazon Prime Pantry (everyday essentials) via UPS, 45 lbs. maximum in a fixed-size large box for $5.99 flat rate shipping.

All those items being delivered by UPS were (not that long ago) being sold in person by the local grocer or drug store. Grocery retailers need to take this, and other online competitors, very seriously.