Future Shop

Recent reports note that Amazon.com is about to expand its online grocery business in a big way. The news is further fuel for the fire that has brick-and-mortar retailers scrambling to adapt and find their footing in the quickly expanding virtual marketplace.

After five years of experimenting with AmazonFresh in Seattle, the world’s largest online retailer will begin home deliveries of meat, dairy, fruit, vegetables and other fresh and frozen foods in Los Angeles and San Francisco later this year, according to widely published reports, with plans to move into 40 other urban areas by 2014.

Groceries, analysts note, have traditionally been a low-margin business. And with the notable exception of Peapod, delivery has been notoriously difficult to do profitably. But a mammoth merchandiser like Amazon is willing to sell groceries as a loss leader alongside more profitable goods like electronics, which gives it the potential to change the game.

The profit potential of bundling low-margin groceries with other more profitable goods is enticing enough that Google is also jumping into the fray. Using its home base, San Francisco, to test-market, Google Shopping Express is getting rave reviews for its same-day delivery of a range of goods through an online interface combining the inventories of big stores like Target, Toys R Us and Office Depot with small local shops such as Blue Bottle Coffee.

The consequences of these developments for retailers and manufacturers are staggering on multiple levels.

First, the numbers are healthy and expected to keep growing. Right now, online grocery is rising at an annual rate of 9.5 percent, notes market research firm IBISWorld. And in a recent forecast about online grocery shopping, market research firm Hartman Group noted that the consumer packaged goods component of the market alone is expected to increase from $12 billion in 2012 to $25 billion by 2014.

Next, consider what this means for traditional retailers whose customers are being lured by new convenience shopping options. How can they make the most of their inherent strengths while adapting to this brave new online world?

Retailing experts say brick-and-mortar grocers have some distinct advantages they should play up while simultaneously establishing and enhancing their own online presences and, where possible, offering new shopping services or conveniences. For example, sights, smells and touches are among the pleasures of in-person grocery shopping, and retailers should point to that in their advertising and in beautiful in-store displays that remind people why they like to be physically present while they choose their food.

“People want to touch the fruit and squeeze the bread,” said Jim Salak, director of the Retail Product Innovation Council. With its gorgeous produce-artistry and its European-feel displays for cheese, seafood, meat and bread, “Whole Foods has taken this experience and raised expectations to a whole new level,” Salak said. Online retailers have tried to incorporate the “feel factor” into point-and-click shopping by giving fresh food ratings – one to five radishes for quality, for example – but consumers are naturally suspicious of self-grading.

Retailers can also enhance the in-store experience through friendly personal service, offering samples and by enhancing offerings at their delis, including home-made or unique items not available elsewhere or online.

Private label offerings are another way for retailers to differentiate from the online shopping experience. “If a retailer has unique and well-liked private label products, then that is a strong reason for a shopper to go to their store instead of shopping Amazon, which won’t carry those products,” said Dave Fleming, retail marketing manager for Tetra Pak, U.S. and Canada.

But none of this implies that brick-and-mortar stores can maintain a bunker mentality and ignore the Web, and it may be easier than they think to tap into these developments. Depending on how delivery services such as Google Shopping Express play out, it’s possible that brick-and-mortar stores will be able to participate in online grocery delivery without developing their own delivery infrastructure. For instance, a service aimed at smaller stores and chains, MyWebGrocer, currently offers an online interface partnering with 130 grocery retailers across the U.S.

Many retailers are also experimenting with ‘click and pick-up’ services that will allow their customer to shop and pay online, then have their groceries sacked and waiting for them at a pre-determined time.

Even if brick and mortar retailers never offer point-and-click delivery, they can go a long way to retaining and building customer loyalty with a mix of online education, information, promotion and when demand is there, click and pick-up service, notes Fleming. “The face of retail shopping is changing and retailers should keep their fingers on the pulse of the purchase process.”

Even without a delivery option, the Internet offers tremendous marketing potential for retailers that are above-and-beyond what shoppers get in brick and mortar stores, notes Fleming. For example, it allows for a broader variety in size offerings; lets product labels carry expanded nutritional information and recipes; and creates a space to provide sustainability, traceability and environmental impact information. And for the ever-connected Millennials, it enables and increases social-media style shareablity. If consumers find a product or a hot deal they want to tell a friend about, broadcasting that information is just a click away. It also allows retailers to assess changes in how customers interact with the products they buy in real-time.

“Marketing online can be challenging at first, but there are real opportunities here to get consumers engaged with a product,” says Fleming. For example, with targeted promotions, new and innovative products may have an easier time getting noticed.

While home delivery of online groceries may not reach every city or poke into the most rural of areas anytime soon, the trend is here today and expanding tomorrow. Retailers and food and beverage manufacturers should move now to adapt and change if they want to ride the wave rather than have it crash down over them.

Editor's Note: The author is VP of marketing & product management for Tetra Pak Inc. U.S & Canada.