Online Shopping: Changing the Logistics of Groceries

A decade and a half ago, Webvan tried their hand at same-day grocery delivery. The business failed miserably, declaring bankruptcy in 2001. The losses were huge, and no one capable of trying a grocery delivery model wanted anything to do with the idea. Grocers referred to the disaster as a viable reason to stay far away from grocery delivery in general.

“Last mile” food delivery is risky and the thin margins in the retail grocery world do not accommodate risk. Albertson’s abandoned their grocery delivery service in 2009. Clearly, the only company to push this idea forward is Amazon.

Amazon Fresh trucks pave the way for grocery delivery
Amazon has successfully disrupted nearly every retail category by offering free two-day shipping and low prices as part of its Prime Membership program. CEO Jeff Bezo’s dream is near-instant delivery of every item for sale on the Amazon website. Current trials of the AmazonFresh program in Seattle, Los Angeles, and San Francisco have been successful, and rumor has it that 10-20 cities may enjoy similar services from Amazon in the near future.

The company charges $299 per year for free delivery (plus all of the other Amazon Prime benefits) and there’s no effort on their part to compete on price where groceries are concerned, so consumers aren’t flocking to the AmazonFresh delivery service to save money. Although after a major expansion, prices may fall, the company has its eye on people who are willing to pay for convenience.

Relay Foods in Charlottesville is winning at the grocery delivery game
Zach Buckner, founder and CEO of Relay Foods in Charlottesville, Virginia doesn’t see AmazonFresh as a threat to his successful grocery delivery business that serves several mid-Atlantic cities. Last year, this growing business got a boost from a round of venture financing that totaled $8.25 million. Offering a wide selection of grocery items, including local foods, Relay is the “Whole Foods of the Internet.”

Instacart offers personal shopping that may bridge the divide
New to the New York City area, Instacart is a personal grocery shopping service that pays full price for groceries and then has the shoppers deliver them to the customers by bicycle. The personal shoppers fill the orders for customers in exchange for a fee over and above the cost of the goods.

With $11 million in venture financing behind them, Instacart’s biggest backer is Sequoia Capital. They also invested in, and lost, a lot of money on Webvan fifteen years ago. Without formal agreements with grocers, Instacart may encounter obstacles. Trader Joe’s in the Bay Area has already banned the personal shoppers from their stores, not wanting to be held accountable, even informally for damaged products that suffer in transit.

Trader Joe’s and Walmart experiment with their own grocery delivery models

Online grocery shoppers spent $15 billion last year, and powerful companies like Trader Joe’s and Walmart are anxious to get in on the action. With paper thin margins, the businesses that depend on grocery sales for their health and well-being can’t take chances in the shaky world of grocery delivery. It will take big companies like Walmart and Trader Joe’s, who can handle the ups and downs of this innovative space, to really change grocery shopping habits. Perishable goods are difficult to work with in stores, as customers are demanding when it comes to quality. Delivering lettuce? That’s dangerous business—better make sure your cold chain strategy is in order!

Do you think Amazon’s on point logistics will disrupt the grocery delivery business? Share your thoughts by commenting below, or on our Facebook or twitter pages.





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