The average American grocery store is 46,000 square feet. The average Millennial resents having to drive to said grocery store, park their car, walk 50 feet to claim a cart, traipse all 46,000 of those square feet to collect their groceries, pile them into the cart, stand in line at the register, walk 50 feet to their car, drive home, and carry them from the car to the kitchen. Do you blame them?
Enter online grocery shopping. With very little tech savvy, you can simply shift the real-world experience of grocery shopping at Safeway to the online version at Safeway.com. But doing this has its drawbacks. Not only are you limited to products sold at Safeway, you’re limited to a much smaller—and in some cases very different—selection (or assortment as it’s called in the industry). And then there’s technology. My most recent Safeway.com experience was not frustration-free.
Now there are third-party services that have solved these shortcomings. Instacart and Google Shopping Express (yes, that Google) have come in with not just brilliant ideas, but near-flawless technological execution. From the comfort of your couch, you can now go online to one portal, shop from multiple stores like Whole Foods, Costco, and Walgreen’s, and then sit back while someone from Instacart lugs those groceries from the store to your house to your kitchen.
Instacart’s business model is to charge a fee for each delivery. The fees can be as low as $2.99 and I’ve seen them as high as $9.99. In an effort to hook consumers, they offer a membership fee that includes free deliveries. Google Shopping Express is also trying to move consumers to a subscription model. For a $95 membership fee, you get unlimited deliveries for a year. For a frequent user like me (at least once per week), this works out to less than $2.00 per delivery, which I consider ridiculously affordable.
This new business model introduces completely new power players to the grocery space. I’ll bet there isn’t a supermarket executive in the world who 5 years ago predicted that one of his biggest competitors would be Google. Google!
Both Google Shopping Express and Instacart use a similar model. You visit their website and they do all the schlepping for you. The interesting thing is that these companies have built grocery delivery businesses without building warehouses. Why would they need one when there are a dozen or so existing 46,000 square foot options in every zip code? Meet the grocery store turned distribution warehouse.
In a fascinating shift, the consumer relationship is now slowly being hijacked away from the grocery retailer, whose primary role will soon be to serve as a distribution center from which Google or Instacart picks their inventory.
The consumer benefits of these services are clear. But what my company, Mattson, is watching is the interesting change in power. He who controls the relationship with the consumer controls the game. When a consumer stops visiting his local grocer and shifts his shopping to Instacart, he’s now sharing his credit card number, purchase pattern behavior, and eyeballs with Instacart. This represents a huge loss for bricks and mortar stores who charge food companies money for the space on their shelves, based on the fact that they are the ones with the consumers. With fewer consumers in their stores, they’ll be forced to lower the slotting fees—which are a significant source of revenue—they charge for a “slot” in their freezer or on their shelf. With almost no consumers in their stores, they’ll need to rethink everything. That is: if they still exist.
Today it may be hard to imagine a world in which we never visit a grocery store. But we were probably thinking this way about movie rentals 20 years ago while standing in a Blockbuster Video store.
When was the last time you did that?