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TABS CEO Questions the Long-Term Viability of Online Grocery

Written by TABS Analytics | September, 16 2016

Yesterday, noted CPG Industry blogger, Kevin Coupe of Morning News Beat picked up the TABS Analytics Food and Beverage Study webinar and provided some commentary. We’re grateful for Mr. Coupe’s contributions to CPG, and are happy that he was willing to engage with the TABS Analytics findings.

 

Mr. Coupe disagreed with the TABS analysis, presented by TABS CEO and founder Dr. Kurt Jetta, that online grocery is underperforming. “I think it is absurd to suggest that there is no path to success for e-grocery and that it is a failing concept,” Mr. Coupe said.

Thus far this is a typical response to the TABS analysis within the 2016 study. Already, we’ve gotten a few responses wondering why we think it’s failing, with others saying it’s foolish to say so at the present time. What’s worth noting about everything we’ve heard thus far is that none of the rebuttals to our study have included any data to back up the claim that online grocery isn’t failing in its current state. Current projections, like those from Morgan Stanley and IRI suggest that the e-commerce channel within grocery can expect a dramatic, exponential boom in purchasing and sales despite its currently low share. Indeed, Morgan Stanley estimates market share at just 2.0% and penetration at 29%. Our estimates are 1.6% and 31%, respectively, so we are in very close agreement on the current state of affairs. What’s odd then is that despite its low share and penetration, those who project rapid growth present the argument similar to that articulated by Mr. Coupe: “It would be foolish to suggest that the trends that have changed virtually every retail category will fail when applied to grocery.”

 

But we at TABS wonder, why?

 

Why does online have to completely “disrupt” grocery just like it has other sectors? TABS studies have shown that that the online channel performs very well in the Baby, Vitamin and Premium Cosmetics categories where the purchase frequency is low, items per transaction is relatively low and the item cost is high. But the dynamics for grocery are just the opposite: purchase frequency is high, units per transaction is high and cost per unit is low. Online Grocery has been around just as long as those other categories, which are succeeding, while grocery is failing. A loyalty rate of 15% to the format, while the brick and mortar norm is 75%, is a recipe for inevitable demise.

 

We’ve corroborated our findings with external data to back us up and there are other industry analysts who agree with our assessment. Mr. Coupe says he knows of a lot of retailers that are doing well, but we’d ask him to name a few and give numbers since we, ourselves, haven’t heard of any yet. To the contrary, what we’re seeing is Target shutting down curbside, Wal-Mart not releasing online figures except to say that they are slowing down, and there is general recognition that Peapod has been online for two decades and has yet to gain any major market share traction and profitability.

 

It’s not an inevitability that online grocery will fail. But if nothing changes with the current dynamics, the declining penetration (31% in 2016 vs. 34% in 2015) and the extremely low repeat rates make the demise of online grocery a mathematical certainty.

 

It’s not like we want online grocery to fail. But as it stands, there are no facts to suggest that a massive boom from this channel can be expected any time soon, or ever, really. We’d welcome further discussions on this important topic.