60 second update: online grocery in the US

Date : 29 August 2013

At IGD, we are keeping an eye on the online grocery channel around the world. Here, we take a closer look at the US market, including latest developments and innovative new retailers to watch.

Online grocery is becoming a major priority for US retailers

Although it is niche today, technology is empowering shoppers to transact anytime, anywhere, and a growing number of start-ups and traditional players are opening up new ways to purchase groceries. Recent developments have included Amazon extending its fresh grocery service to Los Angeles, and Ahold's Peapod collaborating with Harvest Moon Farms to deliver fresh food boxes.

We see three types of online retailers in the US:

  • Mass market - these retailers are focused on general merchandise, for example Walmart, whose online sales are mostly in this category, although it operates delivered grocery in San Francisco and San Jose
  • Food retailers - supermarkets going online, like Safeway which has one hour delivery options, free trial delivery etc
  • Specialist grocers - start-up companies like Freshdirect, which specialises in fresh food, delivered in the New York area, and has an iPhone app to allow for full grocery shopping

One US operator to watch... Instacart

Founded in 2012, Instacart is based in the San Francisco Bay area, from where it plans to expand to ten other cities. Shoppers choose from 70,000 SKUs from four retailers: Costco, Safeway, Trader Joe's and Whole Foods. Fulfilment software organises orders and communicates with the 200 personal shoppers that carry out the shop. Deliveries can be made in under one hour.

We think this model is unique in online grocery. The software is smart and aggregates orders to improve efficiency. A tip system motivates the personal shoppers, so quality of experience remains high. However, one challenge this business faces is its reliance on delivery charges for revenue. A major enabler of online grocery is free delivery, so the uptake of the 'prime' delivery service could make or break this start-up. 

For more information...

Download our latest insight presentation on global grocery eCommerce. In addition to the US, it includes European and Chinese market sizes and forecasts, as well as how different online grocery models are evolving in these regions.

You can also keep up to date with developments in the online and digital channel via our dedicated hub page.