As big chains rush to deliver groceries faster and to more consumers, Moody’s predicts grocery stores may overspend on the service and shoppers may be willing to “subsidize,” but only to a point
By NACS Online
It’s unclear how much consumers are willing to “subsidize” the convenience of same-day grocery delivery and just how strong demand for the benefit actually is, according to a new report from investment firm Moody’s.
Despite the rapid growth of grocery delivery, Moody’s thinks brick-and-mortar stores remain at an advantage since they can satisfy spontaneous and same-day needs in most markets, according to Fooddive.
In today’s competitive market, Moody’s lead analyst, Charlie O’Shea, believes that many retailers will “likely overspend” on delivery initiatives. The report notes that Target’s TriBeCa, New York, store charges $7 for same-day deliveries. But New York delivery charges don’t reflect the U.S. as a whole, and similar fees may be hard to swallow in other parts of the country.
A recent report from Lux Research shows that consumers are willing to pay 11% more on average for each added layer of convenience in foodservice, including grocery delivery and restaurant takeout. The challenge is projecting a return on investment in an industry with razor-thin margins. At this point, adoption of online grocery shopping is moving slower than other consumer categories, according to NPD Group.
Of course, consumer behaviors and expectations are changing rapidly, with the online grocery industry projected to reach $100 billion by 2025. At that time, it’s expected that 70% of consumers will shop online. According to eMarketer, the $700 billion food and beverage category currently sees less than 3% of sales occurring online. Same-day delivery will accelerate the channel shift, “bringing tens of billions of dollars online,” said Andrew Lipsman, eMarketer analyst.
Despite the caution expressed in the Moody’s report, 64% of consumers say they’re interested in same-day grocery delivery, and 19% say they’ve already used the service.