Why US grocery e-commerce is an $18bn opportunity

Date : 08 September 2015

As Google Express gets set to start testing a fresh foods and groceries delivery service in the US, we look at some of the key initiatives shaping this important growth channel.

Adding fresh to help drive sales and profitability

In an interview with Bloomberg, Google Express’ General Manager, Brian Elliott, spoke about plans to offer customers a broader basket of goods than is currently available through its service, including fresh foods. The company currently partners with a range of retailers across selected US cities, including Costco, Whole Foods Market and Target to offer non-foods and dry goods. The test is expected to start in San Francisco and will help Google to drive up basket size, potentially supporting stronger returns from the service.

Amazon, Instacart, Postmates and Uber scaling up

The US grocery sector in the US continues to be of interest to disruptors such as Google. These companies have identified an opportunity to connect and lock-in shoppers, particularly through their search capabilities. Amazon is making significant progress with its suite of online grocery services including Amazon Fresh, Prime Now, Prime Pantry and Subscribe and Save. Instacart is also expanding its range of partners and cities, recently announcing a new initiative with HEB, building on the success of its program with Whole Foods Market. Uber is also reportedly set to move into this space through a retail partnership, while Postmates is partnering with 7-Eleven in the San Francisco area.

No shortage of new entrants seeking to disrupt

Beyond these more recognisable companies, the US retail sector continues to attract new entrants, particularly technology focused companies.  Given the scale of the market these companies believe there is a significant opportunity to make money through providing shoppers with more convenient solutions.

In Florida, Shipt is delivering products from Publix, while Deliv is partnering with a range of non-food retailers in selected US cities. Increasingly there is cross-over with the foodservice sector; Postmates is partnering with Starbucks for its delivery test, while DoorDash, an established restaurant delivery service, is working with 7-Eleven in New York, Los Angeles and Chicago.  Other companies have emerged with a category focus, such as  Drizly and DrinkFly which specialise in fast beer and spirits deliveries.

Established retailers pushing ahead

While grocery e-commerce has been relatively slow to develop in the US, the channel has seen a significantly increased level of activity this year from incumbent retailers. Walmart has extended its test to additional cities, while Kroger has also moved beyond its one store test in Cincinnati. Following Albertsons’ acquisition of Safeway, the latter’s expertise in the channel is now being applied to the wider group, while sector leaders such as Ahold's Peapod and Fresh Direct also continue to expand the reach of their offers. Consequently, over the next five years, we expect the channel in the US to increase from $6.8bn to $18.2bn, representing 1.4% of the total grocery market, making it an important growth opportunity for suppliers.

How does the US online grocery market compare to the rest of the world? View our insight deck, The world’s top ten online grocery markets, to see where it ranks and what is driving growth in other international markets.

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