A Brief History of Online Grocery Shopping
For the modern, busy consumer the option to have your groceries delivered to your home without having to fight through traffic, find parking, traverse the aisles and deal with the long queues seems like a dream. In the late 90s, investors saw fast growing online grocery companies as the way of the future and invested hundreds of millions of dollars into two companies that were believed to be the leaders in this field: www.webvan.com and www.HomeGrocer.com.
Unfortunately, it all turned sour. HomeGrocer realised that its cash intensive business could not continue without further investment and sold to webvan for $1 billion in stock – significantly less than its initial IPO value.
Despite the acquisition, webvan still failed to live up to its investors’ hopes. After raising $800 million dollars from investments, and in what was to be one of the most famous busts of the dotcom era, the business filed for bankruptcy and shut down operations within three years.
Seeing the potential of online grocery shopping, internet giants including the likes of Amazon and Google have entered the US market with their respective grocery outlets, Amazon Fresh and Google Express, both of which are expected to expand to (or already have launched in) other countries.
More recently, www.instacart.com has started to gain significant attention from investors with a similar growth curve to webvan, but a much less capital-intensive business model. Instacart, like many of today’s most successful tech companies (think Airbnb and Uber), leverages the supply chains and networks of existing stores to source products. They then employ independent contractors with their own vehicles to deliver the goods. ShopWings has successfully adopted this model in Australia, and the well-fed team here at Croud Australia can vouch for their timely delivery!
Online Grocery Shopping in Australia
According to the IBIS World report, the online grocery industry is worth $12.4 billion, has grown by 24.1% in five years (2009-2014), and is expected to increase another 10% by the end of 2015.
According to an article published in the Sydney Morning Herald in August 2014, Woolworths reported that online shopping had been their fastest growing segment, having seen a 2.4 billion profit after creating the Australia’s first “dark” store, a complete grocery store dedicated solely to a team of personal shoppers who complete purchases for online shoppers.
Woollies is not alone, as many major supermarkets are offering a range of online shopping services, from “Click and Collect” to home delivery. Even online electronics retailer, Kogan, launched Kogan Pantry earlier this year, offering shoppers a range of non-perishable food and home items.
Woolworths reports that online grocery shopping trends have shown that this service is most popular with busy families and budget conscious shoppers who want to easily track how much they are spending on their groceries. However, the leading barriers for those who have yet to embrace online grocery shopping are the delivery costs and collection arrangements. Other consumer concerns include receiving the wrong items sub-par produce. If grocery retailers can overcome those objections and gain the trust of wary consumers, the potential for this market is exponential.
There are still major grocers who have yet to embrace online shopping, while companies like HelloFresh have taken a different approach by offering customers packages that include recipes and all necessary ingredients for a set number of meals each week. Aussie Farmers Direct, another favourite of the Croud team, allows clients to select from a number of boxes (e.g. fruit and veg, party packs, antipasto) as well as a variety of high-quality grocery products, delivered at regular intervals. In addition to the convenience and reliability of these services, customers get the added bonus of knowing that they are directly supporting local farmers and businesses.
The Paid Search Supermarket Sweep
With such huge profits up for grabs, it is not surprising to see competition for “Online Grocery Shopping” is competitive on search engines, with seven different companies bidding on that term alone.
Interestingly enough, we have been unable to find a single advertiser using Google Shopping ads (formerly called Product Listing Ads or PLAs).
The reason for the lacking presence on Google Shopping is likely related to consumer behavior: While consumers enjoy the convenience of doing their weekly grocery shopping online, the delivery time and costs are prohibitive, which make them unlikely to purchase a single or small number of grocery items online. While convenient for larger shops (especially when the delivery fee is waived), the value of online shopping is diminished when it comes to small purchases and food items that are intended to fill an immediate need.
The Future of Online Grocery Shopping
Over the past 12 months, food and grocery delivery companies have attracted significant attention from investors. More than $1 billion was invested in 2014, almost four times that of the year before. 2015 appears to be going the same way, with half a billion dollars invested in Q1 of 2015.
Despite the major investment dollars, the market is far from saturated. Roughly less than 1% food shopping is done online, meaning that companies who can capitalise on this opportunity are in a prime position for serious growth in the coming years.
For those who can determine and execute an effective way to target potential online grocery shoppers and minimise common concerns, the potential for profit is enormous. Whether you’re targeting families, millennials, businesses or professionals who aren’t afraid of a delivery fee but lack the time to grocery shop, companies looking to gain from this opportunity should waste no time determining their target audience and seeking out the most effective ways to reach them.
If you’re interested in paid search or want to boost your current PPC results, contact the team at Croud Australia.