By Katharine Carlon
Iowa grocers are jumping on the online ordering and delivery bandwagon in a big way, reflecting the new reality of instant e-commerce gratification.
With consumers increasingly ordering everything from lunch to clothing and expecting to see it hit their doorsteps within hours or even minutes, chains like Hy-Vee, Aldi and Walmart are rolling out same-day delivery in markets across the state.
“The grocery industry has deployed a tremendous amount of resources to e-commerce and it’s definitely a top trend we’re watching,” said Michelle Hurd, president of the Iowa Grocery Industry Association, adding that while online sales still account for less than 3 percent of total food retailer sales, “it’s a generational trend and it’s growing every year. People are investing in it for a reason.”
Since late summer, Iowa’s largest grocers have launched or significantly beefed up their online delivery options. According to Ms. Hurd, 63 percent of food retailers now offer online sales.
In August, West Des Moines-based Hy-Vee partnered with national online delivery services Shipt and Instacart to offer same-day grocery delivery to customers in Iowa City, Cedar Rapids and other markets, supplementing its own Aisles Online delivery service.
Fareway, which already has an online meat market shipping product to 48 states, announced in September it was preparing to test online delivery and was considering adding a fulfillment center to accommodate online ordering. That same month, Aldi said it would also partner with Instacart to offer home grocery delivery from all 1,600 of its U.S. stores by Thanksgiving.
Walmart is building its own national delivery service and already serving Des Moines and its suburbs, while Uber is considering grocery delivery through its Uber Eats platform.
Stephanie Pierotti, store director for Lucky’s Market in Iowa City, which launched same-day home delivery in partnership with Shipt in mid-November, said the grocery landscape is changing, and customers are expecting increasingly faster, more convenient service.
“The business has started to skew from people cooking for themselves to buying less meat and produce and more deli and premade food,” said Ms. Pierotti, who formerly worked for Whole Foods Market. Whole Foods was purchased by Amazon last year to position the e-commerce behemoth for the grocery delivery market, setting off a national frenzy of retailers leaping into the business to stay ahead of the curve.
“The convenience perspective is something that’s getting bigger every year,” she added. “Consumers are shopping more and more online, and the ability to offer online shopping, or an app, is really important to the business going forward.”
Tina Potthoff, vice president of communications for Hy-Vee, said customer ease and accessibility are the reasons it got into the home delivery business with its own Aisles Online service in 2015 – and why it added supplementary delivery options via Shipt and Instacart this summer.
“Hy-Vee offers same-day delivery, however it fills up quickly due to its popularity – causing our customers to then depend on the availability of other delivery times,” Ms. Potthoff said. “Partnering with Shipt and Instacart allows even more of our customers to experience same-day service for their Hy-Vee groceries.”
Services like Shipt employ their own team of shoppers to select and deliver groceries, often communicating with customers via text message to clarify brands, weights and other questions, Ms. Pierotti said. By contrast, Hy-Vee’s proprietary Aisles Online program employs store personnel to choose and deliver groceries or set them aside for pick-up while offering the same benefits of in-store shopping, including weekly specials, coupons and Fuel Saver + Perks discounts.
Hy-Vee has created a designated store in West Des Moines to serve as a fulfillment center for e-grocery sales, and announced plans in late 2017 to build fulfillment centers in Omaha, Kansas City and the Twin Cities in coming years.
Ms. Potthoff declined to share what percentage of Hy-Vee’s sales come from online orders, commenting only that “our experience has been that the majority of customers in the grocery industry still shop at brick-and-mortar stores.” Ms. Hurd said industry figures show 68 percent of online shoppers do so in addition to shopping in-store, suggesting the grocery business isn’t yet on the brink of the radical disruption other large retailers have experienced.
“Shoppers still have that need to see the items, so brick and mortar is always going to play a role,” she said. “It’s a growing market, but it isn’t one-size-fits-all. In Iowa, especially in rural markets, it’s not what customers demand even though in urban areas, it’s booming.”
According to national figures, the most commonly ordered online items include packaged foods, at 14 percent of online sales. “General merchandise” and cleaning supplies make up 10 percent each. Paper products account for 9 percent, with fresh food/fruits and vegetables also coming in at 9 percent.
“Convenience is the main reason people shop online,” Ms. Hurd said. “But the need to see items and their freshness are the biggest barriers to more widespread adoption.”
But that may be slowly changing. Mobile grocery apps are among the nation’s fastest-growing, according to digital marketing and consumer behavior specialist eMarketer, which predicted 18 million U.S. adults would use a grocery app at least once a month this year. That’s a nearly 50 percent jump over last year – and a taste of what’s to come. The firm projects the number of adult grocery smartphone app users will hit 25.2 million in 2020, 27.9 million in 2021 and 30.4 million in 2022.
“Shoppers are becoming more comfortable with ordering online in general, and grocery is a part of that,” eMarketer Senior Analyst Patricia Orsini said of the study, adding that stepped-up online grocery efforts are being driven by Amazon’s acquisition of Whole Foods and by Walmart’s national push to expand online grocery delivery to 100 cities by year’s end.
Venture capital firms are placing big bets on online food and delivery services, investing $3.5 billion in 2018, a 300 percent increase over last year, according to the Wall Street Journal.
Market leader Instacart, which has increased the number of grocery retailers on its platform by 50 percent in a year, raised nearly $1 billion on its own. Now worth $7.6 billion, the company is expected to go public soon.
Though it’s playing catch-up, Shipt is undergoing an expansion that will see it reach 30 million new households and 30 new markets by year’s end.
The two companies, which both charge additional delivery fees, are app-based services that pick, pack and deliver groceries from partner stores, often within a few hours of a customer’s order.
In the Corridor, Shipt delivers items from Hy-Vee, Target and, depending on zip code, from Lucky’s Market in Iowa City.
Instacart delivers from Hy-Vee, Aldi, Petco, Natural Grocers and CVS in select Iowa City and Cedar Rapids zip codes, as well as from Sam’s Club in Cedar Rapids and Costco in the Iowa City area.
Ms. Pierotti said the recent resurgence of Domino’s Pizza, which long played second-fiddle to Pizza Hut, illustrates the power of digital marketing. With an eye toward creating an “e-commerce company that happens to sell pizza,” Domino’s revamped its entire corporate structure to focus on digital sales and advertising. As of right now, pizza can be ordered from the company’s app, Slack, Facebook Messenger, via Twitter, on Google Assistant and Alexa, and on smart TVs.
“It’s a different market, but it shows what’s possible,” she said. “The other half of that is making sure you have as many options available as possible because customers want to be able to order [all] the items they see in the store.”