Why online grocery shopping failed

Recently I was asked to to speak about grocery shopping on the net and why it failed. The speach should last no longer than 15 minutes, and didn't allow too much research if I should make som gain out of it but when I had started to dig into the facts I just couldn't stop.

In research reports there are tons of insight on why people don't buy their food on the net. Too expensive having it delivered, too hard to arrange the deliveries, lack of broadband connection, hard to file complaints etc.

The only variable people seem to have overlooked is: Is grocery shopping on the net doing a job the user wants to have get done? And, more importantly, what job is that?

Delivery. That's what everybody says. And if you ask them: "would you like to have your groceries delivered to your door instead of going to the supermarket and buy them yourself?", what answer do you think you might expect?

But, if you instead ask: "what would improve your grocery shopping" the answer probably would be different. Just look at these facts:

- 33 per cent of the Swedes buy grocery more than 4 times a week
- In avarage 70 per cent of the decisions on what to buy are made inside the store
- In avarage 90 per cent of the decisions on what brand they will buy are made inside the store

My conclusion is the most important job someone can do for people who wants to improve their shopping is to "help them make them good decisions".

The supermarkets are pretty good at that. That's why we are going there, because the store helps us to make decision. The web shops fail in doing this, especially the grocery web shops. But they could, if they would be organized and designed to do a job people WANT to have get done and not a job they SAY they want to have get done.

Customers aren't especially good at telling us marketers about their needs. Because they can't even tell them selves.

So, shouldn't we listen to our customers? Well, no. Because customers in general are experts in incremental innovation, that is, improvements of what already excists. This is of course a contriction to my opinion that users are innovators. But it is a difference between a customer base and innovative customers. For a start-up this means you have to be very analytical and couragous:

Or as Cynicalman puts it: When you are in a position where you need clients more than they need you, your ship is sinking…fast! You must never confuse “the customer is #1″ with “the customer is always right”, because that way lies madness.

Comments

[Hans]

Buying suits online is another great idea. What was the USP in that?

http://hem.bredband.net/b100441/dressmart/001030.html

[Hans Eric Melin]

Yeah, that was really something. I haven't digged that deep to find any.

But never say never. Look at www.net-a-porter.com . They run a profitable business that can deliver a red carpet dress within the hour in London. They do a great job for those who are busy, lazy or remote.

However, no suits available;-)

[Billdalsbonden]

I am sure you gave a great speech to an excited audience (no irony!). Now, with all due respect, I have an alternative wish for a speech which I would rather listen to: "What's the secret sauce for profitable internet grocery shops?"

I assume online grocery shopping can be labeled a failure looking at for example market share won in relation to VC money spent. But I am not so much into failures. I am more interested in successes. Do the $$$-making online grocery stores exist? Why? How?

There are quite a few online grocery shops out there - that is regular grocery shops with a web extension. And since I doubt the grocery shop industry is full of philantropists or fools, my guess is most of these web businesses are profitable. Even if the online stores sell to a small segment in the market and have a tiny size relative to the regular store, I am sure there are significant differences between individual stores and valuable lessons to be taught and learned how to profitably grow online grocery shopping business. And where there is growth there is hope...

As a first case study for hungry researchers I'd like to nominate a grocery store from my old home town http://www.parkhallen.se/

If I can make it there I'll make it anywhere, it's up to you Ö-re-b-roooo!

[Hans Eric Melin]

There sure are successful grocery shops on the net. Although not that many.

In the US the most interesting company is Peapod, owned by Dutch food giant Ahold (you, see a connection to Parkhallen :-)). They have shown a positive growth this year with numbers in the black, but I suspect the margins aren't that mindblowing.

Safeway and Albertson are expanding although I am sceptic about their ability to generate direct profit. But they are important in the overall competition on the grocery market.

Also in the UK Sainsbury and Tesco run stores that probably are more important to add competetive advantages than to directly generate new money.

In Sweden your example Parkhallen live side by side with some 4-5 stores in the whole country. "We are doing it for our last fans" is a rather common answer if you ask them about their aims.

My point is that any of the companies above has given the customers what the really want. So, "What's the secret sauce for profitable internet grocery shops?"

Do a job people want to have get done: Make it easier for us to shop, because that's what frustrates us - not the transports.

Use the web to communicate "what do you like to eat tonight?" instead of "here's a list of food". Use artificial intelligence to understand what the user really wants. Use Amazon-features such as: "last time you shopped pasta with broccoli, have you tried it with asparagus?"

You also can use the web to sell "long tail articles". Food for allergics, ecological food, luxury food, ethnic food etc. Food that is too expensive to store for an individual super market or where the product range is too limited.

Last, but not least. I really believe more in new entrants than in the old giants. In Sweden you are not only distribute the groceries to your home yourself. Now you are also doing the cashiers job when you scan the products. They have no incentives to start doing that job themselves. But a new entrant could sell a 70 per cent base product range and do it locally. Learn from school kids who knock on your door and sell bagles. They know the art of building distribution density. Togehter with a good web site and an efficient warehouse I am sure you will make $$$$$$$$$$.