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Moody's Sees Slow Growth for Online Groceries

NEW YORK — Moody's Investors Service here said Friday online grocers in the U.S. pose little threat to brick-and-mortar stores, accounting for only 0.5% of the $973 billion spent on groceries last year and unlikely to gain much traction in the next few years.

Online sales are not likely to grow to more than 1% to 1.5% of total grocery sales over the next five years, Moody's said. 


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Among existing players, it said FreshDirect and Peapod are the best positioned to build market share, while has growth potential as it adds more groceries to its offerings and Wal-Mart, Kroger Co. and Safeway also have room to grow.

Despite the convenience, wider access to broadband Internet, the proliferation of mobile devices and customization of consumer preferences, most online growth will be limited to certain densely populated metropolitan areas where income levels are more conducive to higher-priced online purchases, Moody's noted. 

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"Online grocery shoppers skew toward households with annual income of $100,000 or more. For most people, home delivery of fresh foods is too expensive," it explained.

In addition, Moody's said high investment expenses — including leasing or buying delivery trucks for perishables and fresh food and building distribution centers — will deter potential new entrants to the online grocery market. "The logistical challenges associated with delivering perishables and fresh food at a reasonable profit and at a cost that is attractive to price-sensitive and skittish consumers is a major barrier for both aspiring entrants and existing food retailers," Moody's said.

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