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Kroger kicks its online grocery ordering service up a notch

March 7, 2017 11:00 AM
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The Kroger Co. says it added 420 locations to its online ordering service in 2016, bringing the total number of stores from which it fulfills online orders to more than 640. The retailer has 2,796 stores in 35 states in the U.S.

The grocery chain also is experimenting with delivery via ride-hailing service Uber, Kroger CEO Rodney McMullen said during Kroger’s recent conference call with analysts. “We're testing with Uber delivery in several locations with plans to expand in 2017 where our customers can order through [Kroger’s online ordering service] ClickList and choose to have their groceries delivered by a local Uber driver,” McMullen said, according to a Seeking Alpha transcript.

Kroger’s commitment to digital is part of a long-term strategy, McMullen said during the conference call with analysts discussing Kroger’s fourth quarter and fiscal 2016 financial results. Kroger is No. 83 in the Internet Retailer 2016 Top 500 Guide. “We could stop all of these [e-commerce] investments given the headwinds our industry is facing. That might make our results look better today, but we are playing for the long term,” he said.

The retailer, which does not break out online sales, reported total sales of $27.6 billion for fiscal Q4 ended Jan. 28, up 5.3% from $26.2 billion for the same quarter a year earlier. For fiscal 2016, sales were $115.3 billion, up 5% from $109.8 billion in fiscal 2015.

Kroger’s commitment to e-commerce comes as U.S. online grocery sales are accelerating and becoming increasingly mainstream.

Internet Retailer’s first-ever 2016 Online Food Report documents how the online sale of food is suddenly a booming market and puts to rest the notion that food retailing is the exclusive province of stores.

A report released March 1 by investment banking firm Cowen & Co. says Amazon.com Inc. (No. 1 in the Top 500) will likely become the ninth-largest largest U.S. grocery retailer this year and by 2021 will grow to be the nation's third-largest grocer, behind only Wal-Mart Stores Inc. (No. 4) and Kroger.

The market for online groceries—defined as food and beverage and other consumables–continues to grow at a rapid clip and is expected to be among the sectors driving overall e-commerce growth through 2022, Cowen & Co. finds

Online grocery sales in the United States likely will grow more than twice the rate of overall e-commerce in 2017—34%, versus 15.5%, respectively, according to the Cowen report. U.S. online grocery sales will surge to $177 billion in 2022 from $71 billion in 2017—a 20% compound annual growth rate (CAGR)— while Cowen projects overall U.S. e-commerce growth to experience a comparatively modest 12% CAGR.

Based on a consumer survey, Cowen estimates about 12% of U.S. grocery shoppers bought groceries online in 2016. Roughly 22% of respondents said they would likely buy groceries online in the future. Cowen says online sales are projected to account for 6% of grocery purchases in 2017, leaving plenty of room for retailers to gain market share.

Penetration of online grocery buying is highest among older millennials (ages 25-34). In Cowen’s survey, 20% of older millennials bought groceries online in 2016 and 29% said they would likely buy groceries online in the future. Other age groups for which online grocery purchasing reached a double-digit share last year were ages 18-24 (11%) and 35-44 (16%).

Just as online grocery shopping is expected to help fuel overall e-commerce growth, Amazon should drive gains in online grocery shopping, the Cowen report says. Amazon’s multiplatform approach to selling consumables, perishables and nonperishables has made big strides in terms of market penetration, Cowen says. For example, Prime Now—Amazon’s service that delivers household goods and other items within two hours—is available in 30 U.S markets, representing 54% of U.S. gross domestic product.  Amazon Prime, a $99-a-year membership program, includes free two-day-or-faster shipping, streaming video and music and other perks.

The number of Amazon’s U.S. grocery customers 36% year-over-year in early 2017, compared with 15% average growth for the same period in 2016, according to the Cowen survey.

In addition to Prime Now, Amazon sells groceries via Prime and its Amazon Fresh and Amazon Prime Pantry services. The e-commerce giant also is testing an Amazon Go concept store (currently open to Amazon employees in Seattle) and reportedly working on Amazon Grocery Pick-Up service in Seattle and the San Francisco area. AmazonFresh is a home grocery delivery service that serves select metropolitan areas. Prime Pantry allows Prime members in the 48 contiguous U.S. states to shop for non-perishable groceries and household products online. Boxes up to 45 pounds ship for a flat rate of $5.99.

 

 

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