We’re still in the early days of e-commerce grocery, but the segment is growing rapidly, according to a panel at NAIOP’s CRE.Insights: The Last Mile in Seattle this week. While only about 2 percent of the roughly $800 billion market has shifted online, according to RBC Capital Markets and Bloomberg, a Unata survey of 1,000 U.S. consumers showed that 36 percent of shoppers say they plan to order groceries online in 2018. That’s up from 22 percent in 2017 – a growth rate of 64 percent.
With one out of 10 consumers shopping online regularly, there’s immense potential for e-grocery to grow and, in turn, demand for the space needed to house this unique service.
Mergers and acquisitions are helping break the barriers to entry. Walmart is partnering with Parcel and Deliv; Kroger works with Boxed; and Target works with Shipt. Grocery deliverer instacart is working with Albertsons, Costco, Wegmans and Aldi, among others.
The challenges for online grocers are obvious: shoppers traditionally like to touch and eye produce before buying, so trusting another to do the job is less appealing. Buyers want to be able to communicate with the “pickers” to express preferences, and grocers must balance inventories based on the demands of online orders with in-house shoppers.
Case in point: Whole Foods’ order-to-shelf (OTS) was implemented across its stores early last year. This tightly controlled system was designed to streamline and track product purchases, displays, storage and sales. Under OTS, employees largely bypass stock rooms and carry products directly from delivery trucks to store shelves. It was meant to help Whole Foods cut costs, better manage inventory, reduce waste and clear out storage, but its strict procedures are leading to storewide stocking issues and, according to several employees, angry responses from customers are crushing morale.
Fulfillment and distribution requirements are essential in managing retailers’ e-grocery experience. Robotics is just one way fulfillment centers are becoming more efficient. CommonSense Robotics hopes to help by creating fulfillment centers that use robots to cut down on labor and costs. This could lead to faster, cheaper delivery for customers, and more options for grocery shopping.
Prologis says logistics is at the center of a seismic shift. The warehouse used just to be for storage, so being in a remote location was acceptable. Today that’s changed completely. Products go from international or domestic manufacturing facilities straight to regional distribution centers that are near-in to consumers. From there, they either go to brick and mortar stores or directly to consumers via the last mile. The theme: closer is better.
Kathryn Hamilton is Vice President for Marketing and Communications at NAIOP Corporate.