Can online grocery startups take a bite out of a $1 trillion market?

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Canada’s grocery industry is stagnant, with 2012 sales growing a tiny 1.1 percent over 2011, and in that year sales rose a paltry one percent. That’s a big change of pace for grocers, who are used to annual growth rates averaging 3 percent or more. 2011-2012 represented the worst sales growth in more than a decade. Price remains the most impacting factor for stalled growth, along with non-traditional outlets like Costco and Walmart providing tough competition.

Still, the grocery market is massive — a $1 trillion industry, according to Forrester Research. Despite stalled growth, it has been among the least disrupted (so far) by e-commerce; according to a report from Business Insider, less than 1 percent of food and beverage sales happen online. What with the rapid transformation of the supermarket industry, opportunities for e-commerce growth are widening substantially. That one percent figure is predicted to soar very soon, but only if e-grocers can overcome their challenges.

Online groceries in the U.S. generated more than $15 billion in sales in 2013. A January 2014 report by retail consultancy Brick Meets Click states that almost 40 percent of e-grocery shoppers prefer Amazon Fresh over other online food retailers. Google is also getting in the e-grocer game with Google Express, making the service available to customers in Boston, Chicago and Washington, D.C..

Logistics and thin profit margins within the grocery industry present challenges to the digital grocery world. As International Business Times points out, “(o)nline grocers need to develop their own logistics infrastructure.” Exacerbating timely delivery is the perishability of products; optimizing distribution methods, with shorter distances between warehouse, customer, and loading/unloading times, and improved handling efficiency, are supremely important. As a report from Fortune in April 2014 states, “economies of scale are needed before profits can even be hoped for.”

Canadian e-grocer Grocery Gateway boasts 30,000 regular customers. Bought by Longo Brothers Fruit Markets in 2004, the company has cultivated a dedicated customer base in Canada. Its co-founder and general manager, Steve Tallevi, told Canadian Grocer in July 2013 that a growing segment of customers are young, urban, condo-dwelling professionals. A big challenge to the growth of the industry, as he sees it, is cost, noting the “expectation of cheap prices and cheap delivery permeates across the e-commerce field. The question then becomes: How do you drive value outside of price?”

Quality is also an ongoing concern for customers. RealFoodToronto.com offers an array of services and customer-friendly options. The company specializes in delivering organic, locally-sourced products to its customers and also provide options for special diets, including gluten-free, wheat-free, vegan, kosher, and halal.

Ocado, Britain’s first and only online-exclusive grocer, has stayed well ahead of its competitors in terms of capacity. Its founder, Tim Steiner, told Canadian Grocer in August 2013 he sees the next seismic movement in e-grocery shopping happening when online prices are lower than in stores. “As more customers move online this will fuel demand for more convenience stores. The end result is further cannibalization of the bigger supermarkets and hypermarkets,” he noted.

Do you think Canada and U.S. e-grocers can make their mark in 2015? Why, why not? Let us know in the Comments below

Flickr photo via Grocery Gateway

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