Online grocery sales surge 55% in two years on success of different strategies
Analyzing data from four of the biggest players in the grocery delivery industry collected between January and October 2016, 1010data Market Insights found the average basket size and order frequency of online food shoppers varied significantly depending in part on delivery fees.
For example, Amazon Fresh and Fresh Direct customers place orders every two weeks on average and do not pay a delivery fee per order compared to Peapod customers who pay between $7.95 and $9.95 per delivery, but wait about three weeks between orders, according to the research. According to Amazon, Prime members pay an additional monthly fee of $14.99 per month. According to Fresh Direct's website, consumers who subscribe to Delivery Pass have unlimited deliveries without delivery fees.
When this variance is compared to the basket size, the difference between the order frequency “makes sense,” according to the report.
Noting that Peapod customers spend about $147 per order, while Fresh Direct customers spend an average of $105, the report notes that “it’s possible the Peapod’s customers don’t order as frequently because they place bigger orders than their competitors’ customers."
It adds that this could be related to the delivery fee. Customers could be looking for a way to reduce the impact or frequency of the fee or justify it by ordering more.
While adding a delivery fee could spur consumers to spend more, it also adds a barrier to entry that could negatively impact market share.
Of the four category players analyzed in the report, Fresh Direct -- which does not charge a delivery fee -- dominates the market. It secured 47% of delivery sales from January 2016 to October 2016, compared to Peapod’s 23%, Instacart’s 21% and Amazon Fresh’s 9%.
One reason for its dominance could be that it “de-risks the whole process” of ordering groceries online by providing free delivery and quickly refunding consumers who are not satisfied with the quality, one researcher told FoodNavigator-USA.
However, she also added many factors beyond the delivery fee influence basket size and repeat purchases.
Instacart leads growth
While Fresh Direct captures the bulk of the market, it -- along with Peapod -- have the lowest year-over-year growth of the four retailers assessed in the report.
Instacart leads in growth, nearly doubling in size by the end of October. This likely is due to aggressive expansion into Phoenix, Tampa Bay and the Twin Cities, the report notes.
“Amazon Fresh also had healthy growth” of 43% year over year from October, the report found. It explains this could be due to recent changes to its subscription model, expansion to new cities and upcoming plans to open some brick and mortar stores.
Overall market is growing
Stepping back from the individual players, their growth is reflective of the industry as a whole.
Since 2014, industry sales have grown 55%, and will “only continue to climb,” 1010data Market Insights predicts.
This surge could be attributed to online retailers finding a way to deliver the convenience consumers want without compromising quality, according to the company.
“In the past, people have been hesitant to order food from online grocers because the quality was unknown, but these companies have really demonstrated that they can keep consistent quality,” the researcher said.
Add that to the convenience of shopping for groceries while riding the train to work, and the industry has a winning combination for future growth, she said.
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