From the Archives: Can online grocery shopping deliver?
This article is from the August 1999 issue of Canadian Grocer. Please note that the information is out of date, but you might still find it interesting. We’ll be re-publishing select stories from our archives in the coming months in recognition of Canadian Grocer’s 140th anniversary. For today’s news, subscribe to our free daily newsletter and follow us on LinkedIn.
As the floodgates to Internet shopping burst open, many grocers are gearing up to ride the wave—or at least get their feet wet.
From Victoria to St. John’s, Canadians are logging on to the Internet to buy just about anything—including groceries. In 1998, the country’s online shoppers spent approximately $668 million, a 156% increase over the previous year, according to a study by the Retail Council of Canada and IBM Canada titled “Who will win Canada’s Internet shoppers?” By 2003, consumer online spending is predicted to reach $12.8 billion, representing 4.6% of total retail spending in Canada.
You know Internet shopping has come of age when even Cambridge Shopping Centres Ltd., the owner of a national chain of bricks-and-mortar malls, announces plans to build a network of virtual malls to boot.
From today: How AI is changing the way people shop
In the grocery industry, what began as a mere trickle with the launch of Winnipeg-based AM Foodfare’s online shopping service back in 1996, has swollen to, if not a flood, at least a stream. The PeachTree Network’s umbrella site, which houses AM Foodfare, now boasts grocers in seven Canadian cities with three more on tap (see “SiteSeeing,” page 85). The IGA Cybermarket in Quebec will celebrate its third birthday in September, while a handful of other services, including Grocery Gateway in the Toronto area and TeleGrocer in Ottawa, have also entered the fray.
As Anne Burnell, director of marketing at Montreal-based IC2C, an e-commerce solution provider that developed the IGA Cybermarket, puts it: “If only 10% of consumers choose to purchase half their grocery needs online within three years, that would pull 5%, or $23 billion, in retail sales from the bricks-and-mortar grocery universe.”
“We’ve heard all kinds of projections, from Bill Gates saying 35% of groceries [will be sold online] by the year 2003, down to more conservative figures of five to 10% by the year 2005,” says Mike Donald, Vancouver-based managing director of Concord National Inc. food brokers and a cofounder of HomeGrocer.com, an online shopping service based in Bellevue, Wash. “So somewhere in there, there’s going to be a whole lot of groceries sold over the Internet, whether through fulfillment operations like ours or through stores.”
Indeed, HomeGrocer.com, launched by Donald and two partners in March, 1998, has proven so successful in the Seattle area that giant book/music/video e-tailer Amazon.com recently bought a 35% stake in the company with a $42.5-million investment. The capital injection will allow HomeGrocer.com to accelerate a national rollout in the U.S., and eventually beyond. While Donald is no longer active in the operation, he remains as a shareholder.
Beware the hype
But despite early successes like HomeGrocer.com and others, it’s important to distinguish the hype from the reality of online shopping, says Bob MacKalski, marketing director for The PeachTree Network, Montreal. Although the PeachTree site alone has experienced 400% growth in Canada this year, he notes that the market is still “very small” and growing gradually. It’s also very demanding, and requires a major commitment on the part of grocers, he warns.
That doesn’t mean that independents and smaller grocers can’t ride the online wave. On the contrary, most of the participants on the PeachTree site are independents, many with a single outlet. “Online shopping is very serviceoriented, and it’s a niche market,” says MacKalski. “So it lends itself to those companies that compete on service right now, rather than on inventory turnover and price.”
From today: Food delivery apps redefining eating in Canada
A case in point is Stong’s Market Ltd., a single-store independent in Vancouver. According to general manager Cori Bonina, “all the results we have had [with online shopping] have been great. A lot of our customers say their time is so important. They appreciate anything we can do to save them time, so they can do the things they really enjoy.” Stong’s averages 15 to 20 online orders a week—and growing, says Bonina. Like most of the grocers on the PeachTree site, it already operated a phone/fax home-delivery service called “Stong’s Express,” so online shopping was a “natural progression,” says Bonina.
While the service isn’t exactly a magnet for consumers, it is attracting new customers—like Vancouver resident Sharolyn Wiebe. “I wasn’t shopping at Stong’s before they started the online service,” says the 24-year-old married accounting student and business owner. “I didn’t even know they existed. My husband and I were driving somewhere, and I was reading a magazine as we were driving. I saw this article [about the service] and I’m like, ‘Oh my God, I can do this online!’ Since then, I’ve told about half a dozen people about it and some of them I know have actually signed up.”
Wiebe, who has been using the service for about six months, says she buys “99%” of her groceries online. “If I’m going to do my grocery shopping one way, I hate having to run to a grocery store for something else.” In her opinion, the $10 delivery charge “is completely worth it. I’m totally willing to pay more to get the convenience. For me, it’s all about time.” Wiebe says she places an order of $100 to $150 “like clockwork” once a week.
Kevin Gamble, a 40-year-old single professional, tells a similar story. Gamble, who is general manager of Peguis Publishers in Winnipeg, found the AM Foodfare service through a search engine about a year ago. Although he didn’t previously shop at Foodfare—“there were no outlets in my area,” he explains—he now spends about $150 every two weeks for his online grocery purchases.
AM Foodfare general manager Bill Reid says Gamble’s experience is typical of many of the grocer’s online customers. “We have significant gaps in our store locations in certain areas of the city,” he notes. “Yet we still get a lot of Internet orders from those areas.”
Who goes there?
While Foodfare’s online customer base of “at least 1,000” spans a broad spectrum of demographic groups, they all have one thing in common, says Reid: they’re good credit risks. He has never had a cheque bounce—“there’s absolutely no fraud. You’re delivering to someone’s home, so you know where they are. It’s not like they can give a false address.”
MacKalski divides the PeachTree’s primary users into three main segments. “The largest one we group as a ‘busy individual.’ Of that market segment, 68% are female, often with smaller children. It’s not necessarily dual incomes with kids either. Often, particularly in the winter, there are a lot of stay-at-home moms or workingat-home moms who are shopping online.
“Another segment is individuals with mobility difficulties—people who are in a wheelchair, or who have broken a leg, or students who don’t have transportation. The third segment—there’s no polite way of putting this,” he chuckles—“is the nerds. They do it because it’s there!” An emerging segment, he adds, is seniors.
From today: The rise of top-up shopping
Busy families—”double-income or higher-income families with kids”—are the prime target of HomeGrocer.com, says Donald. “They’re usually the people who want the convenience and they don’t care if it costs more. Even though we don’t charge more [than traditional supermarkets], the perception is that you do. So you’re automatically perceived to be a luxury, in which case, you attract the higher-income families first.” HomeGrocer.com’s aim is to win the three largest of the average consumer’s 12 to 14 shops a month.
Cathy Buchanan, a business development manager for Rogers Media Inc. (which publishes Canadian Grocer), is one of those busy consumers for whom online shopping is a godsend. A mother of three young children, she buys about half her groceries—“all the major items”—through Grocery Gateway (a partnership with Longo Fruit Markets Inc.). Buchanan says she and her husband searched the Internet for online shopping about two months ago, and she has been hooked ever since, spending at least $300 every other week with the service. And like Wiebe, she spreads the word: “Everyone I’ve talked to about it, working moms like myself, all want to try it.” Although she estimates the prices are 5% to 6% higher than at the IGA store where she used to shop, they are comparable to the in-store prices at Longo’s, she says.
It was a mobility problem that drew Montreal-area resident Dirk Mittler to the IGA Cybermarket about a year ago. The single 35-year-old has a health problem that prevents him from working, and he does not own a car. He now spends between $40 and $60 per order on a weekly or biweekly basis with the service. He particularly likes the C.O.D. option, since he doesn’t have a credit card.
But not all consumers are enthusiastic about home-delivery services. Richard Peters, director of marketing development at Rogers Media Inc., tried a Toronto-area phone-in home-delivery service (not an online service) for about six months before calling it quits. While he was impressed with the speed of service and satisfied with the prices, he became frustrated with the frequent substitutions—with no advance warning—for products ordered. Each time, he would have to arrange for the substitute product to be returned, and “it became more of an inconvenience than we were willing to tolerate.”
Some online grocers have overcome that hurdle by asking customers in advance if they will accept substitutions and, if so, under what conditions.
Big spenders
While Internet grocery shopping may be only a drop in the bucket at this point, it compares favourably with the average size of phone-in/fax-in orders. Bonina notes that, while online orders account for just 30% of shopping-service orders at Stong’s, they represent “about half, if not more” of the total dollars. Whereas the average phone-in or fax-in order is approximately $60, the average online order is about double, she says.
It’s a similar story at AM Foodfare. Reid says the average online order is $90 to $100, a significant increase from the $83.50 recorded previously. He, too, suggests the online orders are “probably significantly larger” than the phone-in orders, likely because of the greater tendency to impulse buying online. According to MacKalski, the average online order at the PeachTree site is $104, while the comparable figure at the IGA Cybermarket is $96, says Alain Dumas, project manager for Sobeys Quebec. He adds that the Cybermarket is logging around 200 orders per week—“probably about 1,500 regular customers who come once a month.” Of the 240 stores in the banner, 144 are offering online shopping.
Consumers are spending those dollars on just about any kind of grocery item, but MacKalski says the biggest-selling product online is milk, with bananas running second. He also cites “the big stuff,” like bulky bags of flour.
Reid confirms that dairy products are a popular online purchase, as well as snack foods, soft drinks, juices, bakery products, and, to his surprise, produce. “When we first opened, we were kind of unsure as to how the produce would go,” he says, “but when [staff] are shopping the order for the customer, they shop it as if they were consuming it, or as if their mother was consuming it.”
According to Donald, many consumers use produce as a kind of “test case” for the service. “Everybody expected produce to be something that people wouldn’t buy [online]. We’ve been very surprised to find out that the reverse is true. People will deliberately order produce just to test the system. If the produce arrives and it’s not what they want, they will leave your service and never come back. But if the produce is good, then you’ve potentially got a good customer. We find that, with a fulfillment centre, our produce is better than any grocery store can offer, because it’s kept chilled throughout the entire channel. It’s never displayed under bright lights in warm rooms, and it’s never handled by other customers.”
The next wave
While several grocers have plunged headlong into online shopping, many others have just dipped their toes into cyberspace by establishing a website.
But those who have made the commitment are now fine-tuning their services. The IGA Cybermarket, for example, will launch its third-generation site in September. Up until recently, says Dumas, the service has been in test mode. “But now, we’re going to begin to do some marketing,” he explains. “We’re building for the future. We know we have customers now who want to do their shopping [online]. It’s not a huge amount of customers, but I think there are enough shoppers there to make sure we can be profitable in the short term. After that, we just want to make sure we are the site for grocery online in the eyes of the customers.”
From today: Skip SVP on the delivery app's growing retail network
Predicting that online shopping will “definitely grow in the future,” Reid says Foodfare is working to enhance its offering. “We’re always adding products and trying to upgrade our system. One of the things we’re looking at is coupons over the Internet. We’ve managed to tie our site into a TV program—a cooking show that we sponsor— and we tie a lot of recipes into the website now. So we’re trying to enhance it at all times and add value.”
While online shopping isn’t for everyone—and never will be—Donald believes grocers must consider the option. “In an industry where margins are tight and the fight for market share is still raging, there’s not much time to think about something like this. That’s why the traditional grocers are really slow at getting around to doing this right. But I think one day they will wake up and realize they’re going to have to do this.”
As consumer Sharolyn Wiebe puts it: “As far as I’m concerned, having a website and not having it interactive where you can actually buy stuff or have some reason for going back is kind of pointless.”
