The online grocery shopping revolution hasn't unfolded exactly as it was imagined a decade ago, but its underlying promise still holds true.
The Web means business.
Web traffic has continued to flourish through broadband adoption, the growth of social-networking sites and a new push from mobile devices. As surfers have become more sophisticated, grocery stores have had to become savvier about their websites as a virtual home for their brands. Increasingly, they are using the Web to market to shoppers with more powerful tools providing savings, convenience, loyalty and, ultimately, an edge on the competition. And that leads to sales.
E-commerce, once considered to be the main platform for grocery store activity on the Web, has continued to grow but is only a small part of the story, observers said. Stores have learned to make online selling profitable, but in most cases by eschewing the delivery model of higher-margin commodities like books.
What's emerged as the major driver of traffic to grocery store sites are shoppers looking to the Web to simplify their in-store shopping experience and to decide where to shop and what to shop for based upon the prices and offerings they can find on the Web. That behavior is increasing, according to a study released by Chicago-based Information Resources Inc. earlier this year. It said that 60% of shopping decisions were made before arriving at the store at the beginning of 2008; by year-end it had increased to 75%.
“Consumers are using the Internet today to plan and research things that they buy in brick-and-mortar stores,” said Albin Andolshek, vice president of Grocery Shopping Network, a Minneapolis-based Web services provider for retailers and product manufacturers.
This change in behavior is also being pushed by an economic climate that has brought value to the top of mind of shoppers, sources added. This is supported by the increasing use of Internet coupons — an Experian Simmons study cited in a Willard Bishop white paper published earlier this year showed that online coupon usage had grown by 40% from 2005 to 2008, to 36 million U.S. homes.
An ailing newspaper business and growing audiences online are also attracting resources to the Web, sources said. Andolshek called the website “the most important advertising media within the confines of [the grocery] business.”
“Any retailer that touches the consumer needs to have their brand where the consumer is,” added Rich Tarrant, founder and chief executive officer of MyWebGrocer, the Colchester, Vt.-based Web services provider. “People today are in the digital space consuming and absorbing their information. So if you're selling to people, by definition you've got to be there.”
As with many issues facing supermarket retailers, Wal-Mart's posture can be a call to action. And that retailer's new commitment to the Internet — particularly as it relates to its goal to dominate value in many grocery categories — should get food retailers' attention.
“On a competitive level, the 800-pound gorilla is already in the space,” Andolshek said.
With few exceptions, users of grocery store websites don't surf there for fun. Visitors tend to be task-focused, with a specific goal of making a shopping list for an upcoming store visit. This has brought pressure on retailers to offer an intuitive shopping and browsing experience at their sites, while offering a wide variety of items to seek and the tools giving consumers the ability to make a shopping list and search for specials.
“If you're a typical grocery shopper putting 44 things in your basket you can't be Amazon, where you can search a little more casually because you're buying just one or two items,” Tarrant explained. “Instead it's, ‘I have to feed my family.’ So you've got to make the tools fast and easy, so they can accomplish the task they came to the site to do.”
Retailers whose sites are deeply developed — that include the ability to search the entire store, and that integrate options such as shopping online, access to discounts through the store flier, personalized specials and content like coupons and recipes — tend to outperform retailers who do not by wide margins, according to Bill Bishop, chairman of Willard Bishop, Barrington, Ill.
Likewise, shoppers who use grocery websites tend to be better customers. A 2007 study by the Grocery Shopping Network studied 1,000 households with similar weekly spending divided between 500 families who were registered grocery website users and 500 who were not. The former group showed significantly greater increases in weekly spending — 14.7% to 2.7%, according to GSN.
“Overall, some chains are doing well [through their Web efforts] and some aren't doing as well,” Andolshek said. “But the difference is from two times as well to 10 times as well.”
The difference, according to Andolshek, amounts to the ability for a site to engage shoppers by offering up the full breadth of its items, the integration of coupons and the ability to check for special sales beyond what's listed in the weekly circular.
“The circular represents 1%-2% of the sale items and you're only seeing 10% of the store,” he said.
Some retailer websites powered by GSN — Giant of Carlisle, Pa., for example — allow shoppers who sign in using their loyalty card to make shopping lists online, search for specials and manufacturer coupons, gain access to recipes and receive personalized offers based upon their purchase history from Giant.
Sources said that other ways to attract traffic to the Web — such as blogs and other content — are useful to the extent that they can also help the consumer complete the tasks they came to the site to accomplish. Some of the most popular grocery websites have attracted devoted shoppers who are active in discussions on-site. Whole Foods averaged approximately 4,300 unique visitors per store in August, based on figures from the compare.com  website. That's about four times the typical food retailer's monthly traffic.
“At the end of the day, consumers are looking for sales, and I don't think that's going to change,” Andolshek said. “If the blog contains information about how to find sale items or more effectively shop the store, then I would say it's effective.”
“The trick is to have a compelling story to tell,” said Ken Boyer, a professor at the Fisher College of Business at Ohio State University, who has studied online grocers. “I could see Rachael Ray being connected to a major grocery store, and people tuning in to read what she has to say. If it's done right, I think it could lead to an increase in selling.”
Retailers instead have been taking their brand to the places where people are engaged online. MyWebGrocer, on behalf of ShopRite, introduced a “widget” to display items from the retailer's weekly circular, and deployed it on several “mommy blogs” in ShopRite's New Jersey territory. He plans to bring the widget next to the social networking site Facebook.
“It got a huge amount of traction,” said Tarrant. “It's about getting the brand to where the people are.”
Tarrant said he also plans to have an iPhone application ready soon that would allow ShopRite customers to create a shopping list and search for specials from their mobile phone.
“It's a pretty advanced view, but ShopRite has been very proactive in the digital space and they realize there are a lot of people doing things on their mobile devices in the tri-state area,” Tarrant said. “They said, ‘Let's get our brand out in front of our customers, lock in the loyalty, add the convenience and pick up more customers.’”
Competitors from Webvan to Wal-Mart
Supermarkets can't be blamed for approaching the Web with some trepidation. A decade ago, they were devoting millions to various methods of exploring e-commerce, sparked in part by well-funded — but ultimately doomed — start-ups like Webvan and HomerGrocer. Those companies led a wave of e-commerce based on on-demand ordering and delivery that eventually collapsed under the strain of high labor costs and lower-than-expected demand.
Only a few pioneers from that era remain — Peopod.com  is one, although only after a sale to food retailer Ahold. Offering ordering for store pickup — which sources said often provides incremental sales because of the convenience factor — has on the other hand been successful and profitable.
“I was studying the delivery option and I'll be frank — it's a non-starter. It does not work,” said Boyer of Ohio State. “But I think stores have had some success with a kind of halo effect from offering items for sale and pickup at the store. [Outdoor retailer] REI offered kayaks online. You'd come to the store and pick it up and find you also needed a paddle, a helmet and a life vest. I think the same principle is applicable to groceries.”
Tarrant, who is quick to note he advocated that grocery stores use existing infrastructure to support e-commerce since the company's founding, said store-based e-commerce continues to grow for his clients and “is a very profitable business to be in.” He also sees it poised for further growth as a generation of children who grew up using the Internet in school have now begun to have families of their own and become grocery shoppers.
Grocers today need some handholding as they consider the shift in resources toward Web marketing, sources said. They also want to see a return on that investment.
And playing the part of Webvan today — at least in the sense of a well-funded threat — is Wal-Mart. The Bentonville, Ark.-based retailer has moved to expand its Web presence to replicate its retailing muscle in the brick-and-mortar world. Sources said they believe the recent renovation of its grocery website — providing detailed information on each SKU, including space for user reviews — is a prelude to extending its policy of store-pickup shopping to the grocery category. Coupled with its determination to dominate on price, Wal-Mart is shaping up to be a very formidable foe in the virtual world.
“One thing we've picked up on is Wal-Mart has made products available to comment on and put reviews against, and I think they're doing that for a reason,” Tarrant said. “It's not just for their customers, but that they're trying to absorb search-engine space, so when you search for those items it will lead you to Wal-Mart. Why would they do that? It looks like they're setting the table for ordering and store pickup. If they do that, they're going to do it big and do it well.”