June 11, 2013

Consumers' desire for local, organic food drives online grocery business

By James R. Hood
ConsumerAffairs.com

— Just a few years ago, consumers who were fervent about eating locally-grown and organic foods had to head out to the nearest Whole Foods or farmers market.

Now all it takes is a few swipes of the mouse at an online grocer like Door to Door Organics, Relay Foods or AmazonFresh, which last week confirmed it was beginning to roll out its online shopping product beyond its home base of Seattle, opening operations in Los Angeles.

"Quick, easy and affordable doesn't have to mean highly processed," said Cambria Vaccaro, vice president of marketing for Colorado-based Door to Door Organics. "Every family can start making good food choices -- easily. In fact, 90 percent of the people who shop with us, say they eat more fruits and veggies, 88 percent say they’re doing a better job of supporting local, 88 percent say they feel healthier and 83 percent say it’s more convenient that other shopping options."

The boom in online grocery shopping has gone largely unnoticed by most consumers. That changes quickly, however, as entrepreneurial vendors spring up in new markets and word-of-mouth promotion attracts new shoppers.

In interviews with ConsumerAffairs, Vaccaro said her company has grown more than 800 percent in the last four years and expects to exceed that growth rate as it opens new markets and more fully develops existing ones while RelayFoods president and co-founder Arnie Katz is equally bullish about his firm's prospects.

"Our view is that in a decade over 25 to 50 percent of grocery purchases will be done online," Katz said. "The future doesn’t happen, doesn't happen, doesn't happen ... then it happens all at once. We are approaching that day. We think it will happen within the next two years."

Both agree that online grocers aren't expecting to completely eliminate traditional brick-and-mortar stores, although even shoppers who continue to travel to physical stores are increasingly using technology to improve the process. A new study from KSC Kreate finds that more than half (52 percent) of grocery shoppers visit a store's web or mobile site prior to shopping; in addition one-third are using mobile devices while in-store. It's not a stretch to say those shoppers are one click away from moving the entire experience online.

Business models vary

"What we continue to see are varying business models -- everything from natural and organic to conventional, door to door delivery, centralized pick-up, bulk shopping and prepared meals," she said. "Door to Door isn’t trying to completely replace or eliminate traditional grocery shopping. We focus on helping people feed their families good food and becoming the place where a family begins their routine, weekly shop -- much more like your virtual neighborhood grocery or an online Trader Joe's."

There is as yet no standard model. Some online grocers, like Door to Door Organics, deal primarily with organic and locally-grown foods while others, like Relay, also offer canned goods, cereal and other packaged products. Door to Door, as its name implies, delivers directly to homes. Relay uses mostly pick-up locations, parking a truck in a heavily-traveled area where consumers can pick up their order on the way home. Home delivery is available for a $20 monthly fee.

Peapod, supermarket giant Ahold's service, eschews the emphasis on local and organic products and gears itself more to convenience, offering everything a shopper would find at the local Giant or Stop & Shop. AmazonFresh offers a full range of products but emphasizes organic and locally-grown foods. 

This kind of experimentation is good, Vaccaro and Katz agree.

"With only around 2 percent of a $600 billion food-at-home market happening online, competition is a good thing for expanding market awareness and driving innovation in quality, service, price and service expectations. Awareness and demand is great for us all," Vaccaro said.

For now, customers are primarily younger time-pressured families struggling to deal with work, commuting, childcare and serving fresh, healthful food.

A recent study by FGI Research found that more than half of digital shoppers were either young urban professionals and early tech adopters or what market researchers call "passionate planners," shoppers who put a lot of effort into planning their grocery purchases. Vaccaro says 95 percent of Door to Door's customers are women 25-45.

"They're the people who are the CEO of the home," she said. "It's a source of guilt for some -- that they're so busy they barely have time to get anything done and still have time to prepare and serve good food."

Jostling for position

For the moment, competition in the online grocery business is actually rather slight, as companies stay within their chosen market boundaries. But that situation is bound to change as the more successful start-ups seek new markets to counquer and as Amazon and other large players get serious about protecting and expanding their turf.

At the moment, Door to Door has operations in Colorado, Kansas City, Chicago, Michigan and the Greater New York area, including New Jersey, Pennsylvania and Delaware, Vaccaro said.

Relay operates in Charlottesville and Richmond, Va. and in the Northern Virginia/Washington D.C. area, with plans to expand to Charlotte, N.C., Florida and the Midwest, according to Katz.

AmazonFresh so far serves only Seattle and Los Angeles but if things go well in Southern California, it is expected to quickly expand into other West Coast markets.

Peapod operates in the Northeast and Mid-Atlantic regions as well as Chicago and is thought to be by far the largest online grocer at the moment. It reports filling 23 million orders last year. Door to Door and Relay, both privately-held venture-backed firms, don't reveal their sales or revenue figures.

Last to budge

Ironically, the slowest to adapt to online grocery shopping may turn out to be the men who are generally early adopters of technology. Most of us have perfected a shopping methodology that consists of roaming the supermarket aisles and grabbing whatever looks edible, then hauling it home like the triumphal hunter-gatherers we see ourselves as.

Shopping online takes more planning than we're accustomed to devoting to something as seemingly simple as food, as I discovered when I tried to conduct a couple of sample online shopping trips. I quickly gave up and said, "I'll just go to the store and find something."

But, like most things, it probably gets better with practice.

Story provided by ConsumerAffairs.