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Back To The Future: Online Grocery 5 Years Later

Written by TABS Analytics | November, 07 2016

So it appears that TABS is five years late in noting that online grocery is failing.

About a month ago, we made that declaration during our Food and Beverage Study webinar. That statement has been met with much resistance throughout the industry.

But it’s something that’s been said since at least 2011, when Forbes/Investopedia ran this article citing 10 reasons why online grocery is failing.

That old Forbes/Investopedia article gets into the reasons for online grocery’s failure, but we won’t get into the “why’s.” We just know that what we’re seeing is not a sustainable model, and never has been.

While other industries -- such as clothing, electronics and cosmetics -- are seeing a shift in purchasing toward online channels, that purchasing shift hasn’t been happening in grocery. As it stands now, people are still loyal to the brick and mortar retailers.

“The major stumbling block [to online grocery] is [retailers’] failure to understand that weakness in online grocery is a demand problem, not a supply issue,” TABS CEO Kurt Jetta said to Retail Leader recently. “No amount of drones, curbside pickup expansion, Uber alliances and new warehouses can fix the fundamental issue that consumers currently don’t like to shop online for grocery.”

There isn’t much argument across the board that online grocery shopping is about 1-2 percent of the market. But what others won’t say is that an industry that has a 15 percent loyalty rate surely isn’t a glowing success. With new online grocery companies popping up on a regular basis, Peapod having been around for over a decade and the Google search “[Food retailer] invest online grocery” turning up more and more search results each week, you’d think there would be something more to show for it.

But all we’re seeing is the same thing: more and more online purchasing options being available to a small percentage of shoppers. If the “Give it more time since it’s so young” argument were true, shouldn’t there be higher loyalty? It’d be much more promising if we were seeing more repeat purchasing, even if the overall penetration weren’t that great. That would at least show that people who are buying online do so regularly.

Five years later, and the fact remains that online grocery hasn't taken off, and by our estimation, won't anytime soon.