Online grocery shopping is a relatively new innovation with regard to the way in which one purchases groceries. Some interesting concepts- designed to enhance the process of making grocery products available for consumption of the ever-changing consumer- have entered the food distribution industry channels. A telephone survey was conducted in the Boston trading area to determine the profile of online grocery consumers who are familiar with online grocery shopping.Agribusiness, Research and Development/Tech Change/Emerging Technologies,

Corbett, James J.

English

Research Papers in Economics

Is Online Grocery Shopping Increasing in Strength?
James J. Corbett
Online grocery shopping is a relatively new innovation with regard to the way in which one purchases
groceries.  Some interesting concepts-designed  to enhance the process of making grocery products
available for consumption of the ever-changing consumer-have entered the food distribution industry
channels. A telephone survey was conducted in the Boston trading area to determine the profile of online
grocery consumers who are familiar with online grocery shopping.
Introduction
Alternatives  to  traditional  grocery  shopping
have  been  developed  in  response  to  consumer
demands  for  time-saving  products  and  services.
Grocers  are  offering  some  meal  replacement
items,  ranging from packaged precut  salad greens
to comfort foods.  Online grocery shopping  is also
on the rise (Falkman,  1998).  As the retail industry
continues  to  swell  into  every  comer  of  cyber-
space,  some  online  consumers  are  finding  that
doing  their  weekly  grocery  shopping  is  quickly
becoming  synonymous  with the  pleasures  of or-
dering  books,  music  and  other  impulse-driven
merchandise (Corral,  1999).
When a customer walks into  a supermarket,
it is a fairly easy matter to scan a frequent-shopper
card to  offer  discounts  to  top  customers.  Online
grocery ventures,  whether they  are operated  by  a
brick-and-mortar  retailer  or  an  Interet-only
player,  are  searching  for  similar  ways  to  incite
loyalty  (Zimmemann,  1999).  While  having  gro-
ceries  delivered  to  your  home  is  not  something
new-after all,  it used to be the only  way to buy
milk-online  grocery  shopping  is  becoming  in-
creasingly  popular.  Most  online  grocery  services
are usually set up in  one of two ways.  First,  like
Peapod,  they can contract your local  supermarket
and  deliver whatever is  available from your local
supermarket.  Second, they can purchase  from dis-
tribution centers  and supply a variety  of products
from a central source (Silver,  1997).
Online Grocery Shopping
The beauty of online grocery  shopping  serv-
ices is that they allow the supermarket  to create  a
customer  database  featuring  highly  specific  in-
formation about each customer that uses the serv-
ice. The efficacy of all online marketing initiatives
can be immediately  ascertained  due to the unique
nature  of  the  technology.  It  has  been  well-
documented  that the  era  of mass  marketing  has
given  way  to  one-to-one  marketing.  Providing
individual  consumers  with  ads  and  promotional
offers  customized  to their  individual  preferences
is  the  optimal  way  to  market  (Dorgan,  1997).
Practiced  correctly,  one-to-one  marketing  can  in-
crease the value of your customer base. The idea
is simple:  one-to-one marketing means being able
to  change  your  behavior  toward  an  individual
customer  based  on  what  the  customer  tells  you
and  what  else  you  know  about  that  customer
(Peppers,  1999).
At $430 million in sales in  1999, online  gro-
cery  shopping  is still a drop  in the bucket of the
$450  billion  grocery  market-but  it  is  growing
fast.  Sales are expected to more than quintriple by
2001  to  $2,3  billion,  according  to  Gomez  Advi-
sors,  an  Internet  research  company  (Chatzky,
2000).  Other  Internet  analysts  predict that  online
grocery  sales  figures  could  reach  $11  billion by
2003  (Janoff,  1999).  According to Anderson Con-
sulting,  online grocery shopping will be a $60-85
billion-a-year business by 2005  (Anderson,  1999).
Although online grocery  shopping still constitutes
a small percentage  of the American total,  Ander-
son Consulting predicts that, within the next six to
10 years,  alternative  grocery  shopping will repre-
sent 8-12 percent of the consumer packaged-good
channel  and  15-20  million households will  do at
least some of their shopping via alternative  meth-
ods (Falkman,  1998).
The Boston Trading Area
The  Boston market  has four  online  grocery
ventures  that provide  shopping  services  for sub-
scribers in an effort to improve the quality of  their
time  away  from  work  and  to  afford  them  more
time to spend with their families.  Some  doubt the
success of such ventures,  believing that  shoppers
prefer to actually see what they are buying, but the
potential success of Streamline and its competitorsJournal  of Food  Distribution  Research
Peapod,  Home Runs,  as well -as Shop Link,  over-
shadow these doubts (Lardner,  1998).
Also  entering  the  online  grocery  business
was  auctioneer  Priceline.com-the  Internet
company  that  first  made  its  market  in  E-
commerce  sectors,  such  as  airline  tickets,  by
enabling  web  surfers to  name their  own  prices
(Orgel,  1999).  Not to be  confused  with  home-
delivered online shopping,  Priceline.com  allows
customers  to  bid  on  grocery  prices  from  their
home  computer  but  requires  them  to  visit  the
retailer to collect the groceries.  The shopper can
place  bids  on  approximately  800  brand  name
goods  and  categories.  Then,  manufacturer  part-
ners  of Priceline.com  accept  or decline the bid
prices (The Griffin Report,  2000).
In  the  traditional  model  of  commerce,  a
seller  advertises  a unit of supply  in the market-
place at  a specified price,  and a buyer takes it or
leaves  it.  Priceline.com  turns that model  around.
According  to Jay Walker,  buyers are  allowed  to
advertise  a unit of demand to  a group of sellers.
The  sellers  can  then  decide  whether  to fill that
demand or not.  In effect,  this provides a mecha-
nism  for  collecting  and  forwarding  units  of de-
mand  to interested  sellers-a demand  collection
system (Walker,  1999).
Methodology
The  counties  of Essex,  Middlesex,  Suffolk,
Norfolk and Plymouth constitute the Boston trad-
ing  area.  This is  also  referred  to  as  the  Boston
Standard  Metropolitan  Statistical  Area  with  a
population of approximately  3,885,200  people.  A
target  sample  of individuals  who  currently  pur-
chase  groceries  online  was  identified  from  this
particular trading area.
There  were  75  individuals  who  were  inter-
viewed over the phone during September of 2000.
These  telephone  interviews  took  about  30  min-
utes,  and  each  survey  respondent  was  asked  20
questions.  Of  the  75  questionnaires  that  were
completed,  88 percent, or 66 questionnaires,  could
be deemed as useable for the study. This may be
considered a small sample; however,  we were tar-
geting  an  audience  who currently  utilized  online
grocery  shopping  as  an  alternative  to  the  tradi-
tional grocery shopping experience.
To obtain information concerning online gro-
cery  shopping  in  the  Boston trading  area,  each
survey respondent must purchase online from one
of-the  following:  Peapod,  Home Runs,  Shoplink,
Streamline, or Priceline companies.
Findings
The 66 online grocery shoppers who comprised
the  actual  sample had  a median  age of 34.5  years
and a median income of approximately  $50,000 per
year.  There were  17 males and 49 females, with  56
percent  married,  33  percent  single,  and  11  percent
divorced.  The  data show that  30 percent  of the re-
spondents were high school graduates while 54 per-
cent were college graduates.  The highest number of
respondents  came  from the counties  of Middlesex,
38  percent;  Essex,  27  percent;  and  Plymouth,  20
percent.  They were followed by Suffolk with 9 per-
cent and Norfolk with 6 percent.
Table 1 shows that 33  percent of the respon-
dents  use Peapod,  followed  by  25  percent using
Priceline,  20 percent  using Shoplink, and  11  per-
cent using Home Runs as well as Streamline.
Table 1. Frequencies (F), Percentages (%), and
Cumulative Percentages (Cum. %) of
the Online Grocery Shopping
Used  by Respondents.
Online Grocery  Cum.
Company Used  f  %  .%
Peapod  22  33  33
Home Runs  7  11  44
Shoplink  13  20  64
Streamline  7  11  75
Priceline  17  25  100
.....  . ........
Table  2  shows that  51 percent  of the respon-
dents  learned about online grocery  shopping  from
family  and  friends,  followed  by  advertisements
with 30 percent, and Internet browsing with  19 per-
cent.  The primary reasons for buying groceries on-
line were convenience, 37 percent; time savings, 29
percent;  easier/faster,  27 percent;  and hate grocery
shopping, 7 percent.  The respondents cited the fol-
lowing:  meats,  23  percent;  produce,  18  percent;
fruits,  17  percent;  dairy,  16  percent;  deli,  bakery,
health & beauty aids, 7 percent; and seafood, 5 per-
cent as grocery products not purchased online.
Table 3  shows that 30 percent of the respon-
dents have been shopping online for groceries less
than  six  months,  with  36  percent  shopping  be-
tween  six and  12  months.  The remaining  one to
two years and over two years  are 20 percent and
14 percent, respectively.  The day of the week that
the  respondents  shop, as  indicated  by  frequency
38  March 2001Is Online Grocery Shopping Increasing  in Strength?  39
Table 2.  Frequencies  (f), Percentages  (%), and Cumulative Percentages  (Cum. %) of Online
Grocery Shopping, Classified  by How Consumers Learn About It, Primary Reason
for Buying  Online, and Grocery Products Not Purchased Online.
Cum.
Classification  f  %  %
How Consumers Learned  About Online Grocery  Shopping
Internet Browsing  14  19  19
Family and Friends  38  51  70
Advertisements  23  30  100
Primary  Reasonsfor  Buying Online
Hate Shopping  5  7  7
Time  22  29  36
Easier and Faster  20  27  53
Convenience  28  37  100
Grocery  Products  Not Purchased  Online
Produce  20  18  18
Fruit  19  17  35
Meats  24  23  58
Deli  8  7  65
Seafood  6  5  70
Dairy  17  16  86
Beauty  8  7  93
Bakery  8  7  100
Table 3.  Frequencies  (f), Percentages (%), and Cumulative Percentages (Cum. %) of Online
Grocery Shopping, Classified  by How Long Consumers Have Been Shopping Online,
Day of the Week They Shop Online, and Time of the Day They Shop Online.
Cum.
Classification  f  %  %
How Long Consumers Have Been Shopping Online
Less Than 6 Months  20  30  30
6-12 Months  24  36  66
1-2 Years  13  20  86
Day of  the Week  They Shop Online
Monday  6  9  9
Tuesday  8  12  21
Wednesday  4  6  27
Thursday  2  3  30
Friday  11  17  47
Saturday  9  14  61
Sunday  26  39  100
Time of the Day They Shop Online
Before 3:00 p.m.  17  26  26
After 3:00 p.m.  29  44  70
No Particular Time  20  30  100
. .. ..  .. . .~~~~~~~~~~~~~~~~,,  ,
Corbett, James J.Journal  of Food  Distribution  Research
of response,  were  Sunday,  39 percent;  Friday,  17
percent; Saturday,  14 percent; Tuesday,  12 percent;
Monday,  9  percent;  Wednesday,  6  percent;  and
Thursday,  3  percent.  The time that was most fre-
quently cited was after 3 p.m.  with 44 percent and
before 3 p.m. with 26 percent. However, 30 percent
indicated that there  was no particular  time of day
for major online grocery shopping.
Respondents  noted  that  yes  they  would  (65
percent)  or no they would  not (35  percent)  allow
substitution if a product that they had ordered were
out of stock.  A final  question was asked:  Will  on-
line  grocery  shopping increase  or decrease  during
the next  5  years?  The  overwhelming  answer  was
increase with 91  percent while only 9 percent indi-
cated a decrease in online grocery shopping.
Concluding Comments
There  can be little  doubt  that some form of
online  grocery  shopping  is  viable  in  the Boston
trading area in the future.  One can easily see how
there  are  several  different  strategies  being  em-
ployed at this  time.  However,  there does  not ap-
pear  to be  any  substantial  evidence  to  date  that
will  support the possessor of the best channel  of
an online  grocery shopping delivery  system  strat-
egy.  An  adjustment  phase  is  taking  place,
whereby the companies involved with online gro-
cery shopping  are investigating  opportunity  areas
for the  best business  model.  In  order to  be  suc-
cessful, the online grocery-shopping model should
be increasing  order  frequency  while  at the  same
time decreasing delivery costs.
The grocery business is noted for having high
costs as well as very low profits,  resulting in very
thin profit margins.  This does not appear to lend
itself to unlimited risk-taking  expenditures.  Based
on  some  historical  data,  a  "click  and  mortar"
strategy using a website and an old fashioned gro-
cery store might be the smartest way to proceed as
compared to the use of a free-standing,  centrally
located warehouse. This model should have lower
costs because it may use existing stores as well as
store space to fill the online grocery orders. Hope-
fully, this can be accomplished without  cannibal-
izing their existing stores.
A  business model  needs  to evolve  whereby
online  grocery  shopping  would  increase  in  the
Boston trading  area.  The key ingredient  could be
the  demographics,  which  comprise  the  highly
populated Boston trading  area.  As  an  aside,  the
same  could  also  hold true  for the  San  Francisco
Bay trading  area.  Some  more  money,  time,  and
effort needs to be invested in refining the existing
types  of  online  grocery  shopping  delivery  sys-
tems. Many implications  suggest  that young peo-
ple, both single and married,  are stressed for time
and  that  some  form of online  grocery  shopping
will  emerge  in the  Boston trading  area.  Yet,  in
order  to  succeed,  some  effective  strategy  model
needs to evolve in order to meet the challenge of
online grocery shopping.
One of the more important risk factors to on-
line  grocery  shopping  may  be  perceptions,  and
this may be difficult to overcome.  There are those
who  are betting  that the dollars  now being  spent
on this concept will pay very big dividends  in the
future.  Other players in the grocery  business  sub-
scribe  to  the philosophy  that  it is  better  to  be  a
slow  second  than  a  fast  first.  However,  a  best
model  solution for online grocery  shopping could
benefit its  designer  as much or more than the in-
troduction  of Tide  detergent  to  the  marketplace
benefited its designers.
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IS ONLINE GROCERY SHOPPING INCREASING IN STRENGTH?

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