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Delivery costs holding back online grocery shopping growth
Consumer resistance to delivery fees is holding back online grocery growth in the U.S., according to new information released recently by global agency Fitch Ratings.
When online grocery shopping was first introduced, many of the reasons consumers gave for not participating surrounded choice, freshness, packing and product substitution.
Today, the concerns are not so much about the process of online grocery shopping, but the cost of getting them delivered.
Online grocery sales currently account for approximately 1% of the $631 billion U.S. grocery market. That makes this category one of the lowest penetrating and, says Fitch, even if online sales grow 10-15% annually compared with the estimated 3% annual total market growth, online would still only account for 2-3% of the overall U.S. grocery market in 10 years.
"Difficult economic factors that confront online grocers also contribute to slower growth. These include heavy upfront investments, logistical challenges associated with delivering perishable items, and the inherently low margins associated with selling food," says Fitch in a recent press announcement. "These factors will limit the number of new market entrants as well as the pace at which existing players expand."
While there are various reasons why a consumer might not choose to shop online, Fitch cites resistance to delivery fees, which can be in the region of $6 to $10 per order, as one of the barriers to online supermarket use.
Amazon's grocery delivery service, AmazonFresh, charges for delivery at costs of between $7.99 and $9.99 in the two U.S. cities currently covered (Seattle and L.A.). However, spend over $100 dollars on doorstep delivery and delivery is free. Customers can also participate in their customer recognition program, Big Radish, which can also limit or negate delivery fee costs.
Image via Shutterstock
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