The online grocery industry has come a long way since Webvan’s failed attempt in the business, but there is still a long way to go. Online sales currently account for 3.3% of total grocery spending in the U.S., Businessweek reported, and logistics is a complex issue that online grocers must continue to work out in increasingly innovative ways in order to stand out and be successful.
For Relay Foods, an online grocer that started bringing conventional, organic and local products to residents in Charlottesville, Va., in 2009 and now operates in the Washington, D.C., area, one of the big challenges in the industry is that online grocers have to function both as a logistics companies and a high-tech companies, said Caesar Layton, Relay’s senior vice president of business development. He said the company is always working to make the user experience the best it can be for customers, presenting products in a productive way and perfecting customer service for consumers who don’t have a lot of patience for delays or technical difficulties.
Massachusetts-based online grocer CitySprout answers the challenge of logistics through its business model that is much more like a marketplace for local food, according to Jesse Mayhew, the company’s chief of operations. CitySprout does not have fulfillment centers, vehicles or pre-purchased inventory, and instead connects merchants directly with consumers.
“[O]ur marketplace provides the least friction, the highest scalability and the greatest benefits for both consumers and merchants alike,” Mayhew said.
CitySprout’s food producer partners use the tools provided by the company to market their products to customers in certain locations, and producers deliver their products directly to the customers. Because CitySprout’s inventory is dependent on the merchants, the products it offers are always changing and often seasonal, which Mayhew said appeals to consumers who have made a commitment to eating seasonally and locally, even if that means they have to be flexible about what they buy.
Logistics and technology are not the only challenges unique to the online grocery business.
“One of the major challenges of online grocery from a consumer standpoint is trust,” Layton said.
He said that Relay works on building trust through its transparency. The retailer give customers as much information as they want about the products it offers. Relay also takes into account what consumers want and considers what is popular in the market when considering its product offerings. For example, Relay recently started offering pre-chopped vegetables in response to customer demand, Layton said. The retailer currently employs a zero-food-waste policy, has a closed-loop recycling system and offers products that are non-GMO certified, local within 140 miles and seafood that is soon-to-be Monterey Bay certified.
“We want to make sure customers are getting the absolute best food out there,” he said.
However, compared to traditional grocers, the online grocery business is actually simpler and more efficient, Layton said, especially for the consumers who get a better shopping experience out of the deal. And in the wake of Webvan, online grocers had to learn from the mistakes the company had made, finding ways to succeed and getting creative with business models to create a sustainable industry, Mayhew added. For Relay, that meant integrating pick-up spots into their delivery strategy, while CitySprout went the route of a marketplace.
“The online grocery space has to be a thought leader,” Layton said, adding that companies must always be creating and adapting in the evolving industry.
But overcoming the challenges in the online grocery is worth the work, as more customers become interested in the service.
“If you can overcome the problems that have historically plagued online grocers, the consumer interest and demand is absolutely there,” Mayhew said.