Grocery shopping is a time-consuming activity, especially in todays frantic world where time is of essence to most people. The rise of both partners in a household having stable jobs minimises the time available to do groceries even further. According to market research by US company Time Institute, the average customer spends 41 minutes in a store. Considering the 9 to 5 workday, that takes up almost 5% of your remaining day if you include the hours you spend sleeping. On top of that, sorting your food, preparing it, eating it, and cleaning up will amount to some 3 hours and 27 minutes according to the Organization for Economic Cooperation and Development. Wouldn’t it be very convenient if you could cut those hours by the time spent doing groceries?
This is what Internet retailers such as HelloFresh are offering. They provide an array of meal plans for individuals, partners, and families, and have weekly changing menus for a variety of food options. Of course they do not actually cook the meal or clean up for you, however they will eliminate your task of having to go out, buy food, and come back. As you would probably guess, this is offered for a premium price, but are consumers willing to spend this extra money for the convenience? And furthermore, is it sustainable to deliver fresh groceries?
If we look at the retail giant Amazon, we can apply the same to a slightly different concept – food delivery, not meal delivery. Its services are already in full operation in the United States and the United Kingdom. An expansion is also planned for Germany, Amazons biggest market in Europe. However, the business model has one major downside that newcomers could not cope with: it is barely a break-even operation. Giants such as Amazon can handle losing out or breaking even in a business model, especially when it comes with positive network effects. Shoppers that are Amazon Fresh customers automatically receive everything Amazon Prime users do as well. Thus they are very likely to contribute to other non-grocery item orders.
Newcomers that step right into the game, offering online groceries and meals only, have the disadvantages that they do not posses a network yet, nor can they leverage losses. This makes it very attractive for consumers to turn to Amazon for example instead of going to HelloFresh.
Nevertheless, this puts traditional grocers at risk because the in-store grocery shopping is increasingly being replaced by online orders. I believe soon enough we could come to a point where grocery stores do not sell non-perishable and non-food products anymore (to say the least), but merely fresh items such as meats, fruits, and vegetables (if it still remains profitable for them to do so), whilst online grocers will take care of the rest.
The grocery shopping industry is in the end still very inefficient when you look at all the points at which groceries can be traced back to. The documentary FoodInc from Netflix states that the average distance a meal travels before it ends in a grocery store in the US is something like 1,200 miles (if I remember correctly). Cutting out the traditional grocer could be a method to reduce that travel distance of food, or at the very least speed up the time it takes for an item to reach your kitchen at home.
While I do agree that the grocery market is headed towards more online ordering and less in-store buying, this does not mean that traditional grocers will lose out to these internet companies. HelloFresh markets towards a very specific niche market of people that do not have (or don’t choose to take) the time to think, buy, and make their every meal. These were probably the same people that go out to dinner or get take-out almost every night. Therefore I believe HelloFresh is less of a threat to grocers.
Amazon is a more interesting competitor, however it is going to face many challenges. Big grocery chains have already started offering online options for ordering and delivery. For example in the Netherlands, the Albert Heijn, Bas, C1000, Plus and a few others already offer this service. Same goes for Tesco and other grocers in the UK. These grocers already have many established suppliers, distribution centers, an established brand, and many loyal customers. This is going to be very hard for Amazon to compete with.
However I do see this development being a problem for smaller local grocers as you said. Already they have problems when it comes to competing with the prices and product choices that large chains offer. Now they’re also going to have to try to offer more convenience to their customers, which probably won’t be feasible. Maybe they’ll have to focus on another niche? Something like people that prefer fresh organic food at premium prices?
Thanks for the article, it is an interesting topic!
I think traditional groceries should cope with this problem in the following way. Don’t deliver food-boxes, but create space in the store itself to place ‘food-boxes’ as we know them from Hello Fresh for instance. And not one box, but a variety so customers can choose from different options or even get a few boxes for the coming days. Don’t forget that next to dinner people still need to go to do groceries for breakfast, lunch etc. Making the food boxes cheaper than Hello Fresh (no delivery costs etc.) could convince people buying it from the groceries when they are already shopping for their daily needs.
Thank you for your blog, this is indeed an interesting topic to think about with the use of Internet becoming more and more important for businesses in all industries! I do agree with Mark that HelloFresh does not target exactly the same customers as the traditional grocery stores do, but the traditional stores who have started to offer delivery services are a big threat to traditional stores who do not deliver (yet). To be able to compete, I believe grocery stores have to take a look at possibly adding this service to their existing business, before the mass market has switched to the use of delivery services.
But to beat the traditional grocery stores entirely, the delivery services would have to be able to deliver the groceries within a very short time period. These delivery services are very compelling to people who plan their groceries for the coming week, but many of us decide on what we want to buy at the moment that we want to have it. I believe it is very hard for delivery services to compete on this aspect, as it will take quite some time and investments to create grocery delivery services that can deliver within the hour.
It will be interesting to see whether the mass market will start using these services, or that people will stick to their habits and keep visiting the traditional grocery stores.