Good News for Amazon -- Consumers Ordering More and More Groceries Online

NEW YORK (TheStreet) -- One of the last frontiers of e-commerce is groceries, but as consumers get more and more comfortable ordering their produce online, the category is evolving into a huge opportunity for companies such as Amazon (AMZN), Instacart, FreshDirect and even traditional grocers.

As nearly every other category digitized into the world of e-commerce, the main barrier with groceries, and especially produce, has been consumer concern over the quality of the products. Customers want to see the fruit and make sure it's ripe and fresh. However, as the experience of ordering groceries online has improved, consumers have started to become more willing to trust an online service.

In a recent survey commissioned by organic food delivery service Door to Door Organics, 54% of consumers said their online grocery shopping had increased over the past year. On average, they ordered 29% more in online groceries than they had the previous year.

"There's a lot more availability and innovation in the category right now where people are making it easier and more compelling, with better food and better information, so the product and service is getting a lot better," said Door to Door Organics CEO Chad Arnold.

Grocery delivery services certainly aren't new -- Door to Door has been around since 1997, FreshDirect started in 2002 and Peapod began all the way back in 1989. But as the experience has improved on those services and as newer services like Instacart and Amazon Fresh have entered the arena, the category is finally taking off online. Traditional grocers have also been adding digital services such as "click and collect," in which consumers order products online and pick them up in-store.

"If you go back to the '90s when you had the likes of Webvan talking about selling groceries online, at that time there weren't a lot of capabilities we have today, [such as] the mobile device acting as a shopping list, high-speed Internet, ubiquitous WiFi," said Gartner analyst Gene Alvarez. "The convergence of a lot of trends as well as consumers getting more comfortable with other categories brings the world of groceries online."

While online groceries sales are starting to take off, the market is certainly still in the early stages with lots of room for growth.


Less than 10% of all groceries are ordered online, according to Forrester Research. And only 11% of consumers order groceries online to pick up in store, according to a recent study by Deloitte. But the Deloitte study also found that another 38% were interested in using the service, showing that there is an audience waiting to be taken advantage of.

"It's still an emerging trend," Alvarez said. "It tends to be in the upper end of the shopper market in terms of income bracket and those looking more for convenience rather than discounts."

Now the question is who will be able to best capitalize on this emerging market. There are traditional grocers like Wegmans that are trying to digitize their own operations, incumbent online services like FreshDirect, technology companies like Amazon and Google (GOOG) that are trying to get in on the action, plus some newer start-ups like Postmates and Instacart. It is an overflowing market.

For now, these companies will be able to continue competing against each other in different regions and with slightly different value propositions, according to Alvarez, but there may be some eventual consolidation in the space.

"The winner's going to be the one with the best customer experience regardless of whether they're a pure play or brick-and-mortar," he said.

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