{"id":21910,"date":"2017-11-13T19:23:30","date_gmt":"2017-11-14T00:23:30","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/grocery-the-final-frontier-for-e-commerce\/"},"modified":"2017-11-13T19:23:30","modified_gmt":"2017-11-14T00:23:30","slug":"grocery-the-next-online-frontier","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/grocery-the-next-online-frontier\/","title":{"rendered":"Grocery: the next online frontier"},"content":{"rendered":"

Amazon\u2019s acquisition of Whole Foods in June 2017 shook the supermarket industry on fears that the newly merged company would quickly take share from traditional supermarkets and has forced grocers to boost their online delivery options. How incumbents, such as Kroger, respond to Amazon\u2019s ambitious plans will determine who survives in a rapidly changing landscape.<\/p>\n

US grocery industry poised for online growth<\/em><\/h4>\n

Online grocery sales were $20.5 billion in 2016, approximately 4.3% of total US food & beverage sales. A 2017 report by the Food Marketing Institute and Nielsen suggests that the online grocery channel could grow to $100 billion, or 20% share by 2025, representing a 20% CAGR and a significantly faster growth rate than offline grocery and overall US e-commerce [1]. Growth so far has been fueled by tech-savvy millennials who are more accustomed to online shopping and the proliferation of online services such as Amazon Fresh, Fresh Direct and Instacart offering convenience and quality.<\/p>\n

Consumers are also spending more time on digital platforms and it is increasingly important for retailers to find ways to engage with their shoppers on these platforms. Indeed, the same report found that roughly 3 in 5 grocery shoppers look for sales or coupons on their mobile devices before entering a store and >50% use mobile apps to shop at the store [2].<\/p>\n

At the end of 2016, Kroger was the second largest US grocer behind Walmart with a 7.2% market share, 2,796 supermarkets and 784 convenience stores [3], [4]. With online taking share from brick & mortar and shoppers becoming more digitally savvy, Kroger needs to reconfigure its strategy to ensure that it maintains its position in the industry.<\/p>\n

Kroger\u2019s response<\/em><\/h4>\n

Kroger offers two click-and-collect services; Express Lane, which it acquired in 2014 alongside its acquisition of Harris Teeter, a Southern grocery chain, and ClickList, which it launched in select markets in 2014. For a $4.95 fee per order, ClickList allows customers to buy groceries online, then pay and collect their goods at a pick-up window at an appointed time without having to leave their car. The service was offered in 637 supermarkets at the end of 2016 [5]. Kroger is also experimenting with home delivery in partnership with 3rd<\/sup> parties, such as Uber [6]. In 2014, Kroger also acquired Vitacost.com, an online retailer of health and wellness products with 40,000 items across 2,500 brands [7]. While Kroger does not breakout its online sales, digital revenues were +126% YoY in Q2 2017, driven predominantly by ClickList [8].<\/p>\n

Kroger is also using its customer analytics arm, 84.51\u00b0, to improve the customer experience through personalized recommendations on ClickList as well as targeted and curated digital coupons and content (e.g., recipes, videos). Kroger found a 33% increase in \u2018add to cart\u2019 among top search results on ClickList once search capabilities were personalized [9].<\/p>\n

What\u2019s next?<\/em><\/h4>\n

Kroger\u2019s near-term future investments should focus on more effectively using its physical asset base. The two main areas of investment should be:<\/p>\n