Published on: January 9, 2012
On Friday, we had a story about how Publix had decided to pull out of the e-grocery business for the second time in a decade; in this case, it was after a three store test that in my commentary I suggested might not have been insufficient.
My headline read:For Second Time, Publix Gets Out Of The Online Shopping Business
One MNB user responded:I suspect I speak for everyone when I say we would much rather have seen the headline read:
Publix Quits 3 Store Site-to-Store Test of Online Shopping Business
Publix, Not A Smart As Once Thought, Backs Out of Online Shopping Pilot
Or even better:
Proof That Smart Companies Do Dumb Things: Publix Gets Out Of Online Shopping Business; Replaces Cash Registers with Abacuses and Clay Tablets
I have to admit that this email was laugh-out-loud funny. You can have a job writing headlines for MNB anytime...
Another MNB user wrote:Spoke to a Publix associate and heard that payment of the groceries was a major issues. I was surprised to hear that you couldn’t pay for groceries on-line. In fact, given Publix did not want clerks handling money, many customers I believe many customers had to go inside and pay. Certainly makes this a less appealing offer on many fronts.
MNB user Robert Hemphill wrote:Online shopping is likely to be part of every grocery retailer's future, but it might not be as pervasive as some would suggest. There's a number of factors that retailers have to address, including: which model - delivery, pickup, or shipping, and whether a warehouse is needed, and whether stores will be the primary source. If stores, which will participate. With the pickup model, a store remodel is needed for the storage and refrigeration of orders, and extra labor is needed, with training and QA. As with any low margin business, high traffic is necessary to gain economies of scale.
The costs of setting up and maintaining the software, web features and email is significant, and there's a high amount of data updates needed so that the many thousands of products and prices are as up-to-date as possible.
As retailers have realized, they will need to invest a significant amount of capital and ongoing expenses to keep this going. Since in the near term it is reasonable to expect that less than 1% of a store's sales will be done via full online shopping, a retailer needs to weigh the costs of maintaining full online shopping for their stores against other investments. For example, a very advanced web, email and mobile initiative for the 99% who shop in the store is much less expensive, and will likely drive more sales and profits than online shopping for years to come.
So the better question might be - what digital initiatives will have the greatest impact on the most customers? For example, the majority of supermarkets today don't have a strong mobile offering, and only a few have an advanced, full-featured app or mobile website, integrated with their other digital initiatives.It should be noted that Robert Hemphill is CEO of Webstop, which is a longtime MNB sponsor as well as our web provider.
MNB user Jarrett Paschel wrote:Regarding your observations on Publix’s second withdrawal from the online grocery business (online order, curbside pickup), you suggest that at some point in the future “Publix will find its market share being nibbled away at by someone in the online grocery business.”
From my perspective and experience, it is not at all clear that online will ever be a competitive threat in the food business—even online order, curbside pickup.
Quick recap: It seems like a no brainer, home run proposition. Almost all attempts have failed (other than in non-generalizable instances like Manhattan). But just because everybody has failed doesn’t mean that nobody will ever succeed!
Usually the explanation for failure has to do with logistics, scalability and operational costs. That is certainly the explanation Bezos has given for why Amazon Fresh hasn’t (and will never) be rolled out nationally (trust me on the latter).
But what gets overlooked is the consumer side…The fact that there is something very slippery when it comes to trying to integrate online food ordering into the household on a long term basis. I’ve interviewed many consumers, spoken with a lot of friends, and even myself use Amazon Fresh occasionally and the problem is that food needs change almost hourly, so even if you utilize these services you still find yourself at the store several time per week picking up incidentals. Likewise, it is very hard to think about food preparations and needs while staring at a computer screen. I once watched a consumer walk by the Chef Boyardee canned meatballs and say “Oh, I’ve been meaning to make some meatballs..I should get some beef…” It’s not obvious—and often subconscious—but you just start to lose out on some of the fun about cooking and eating when you are not in those spaces.
So the bottom line is that while a huge swath of consumer get excited about the proposition and try it out, most drop out through attrition during the first six months or so. Not because of a problem with the website or the service, but because it just doesn’t jive with how they operate. And the alleged “convenience” quickly becomes inconvenient. So what operators are finding is that there are a small number of loyalists (often new moms and the elderly) and a group which oscillates in number as shoppers come and go. But there is never enough growth to sustain the proposition.
In the spirit of optimism, I hope that someone does indeed solve the consumer challenge. And to that end, I think that’s where these discussions should focus.
Another MNB user wrote:Perhaps, just Perhaps, maybe, just maybe..an occasional online business is just a no go such as the curbside service program. Perhaps, Publix could not make money without charging more than the public would pay in their view. The Edsel did not destroy the automobile business. Getting out of a losing proposition quickly will save profit. You presume that the online business has profitability within its strategic area. I doubt it. Of course there is a market for online grocers and any purchases online will takeaway purchases from everyone else including other online providers but that does not mean the "takeaway" should be protected at a loss. Many grocers have tried online service and moved away from it as profit could not be made. I think occasionally you have blind faith in all things online.
Not blind faith. But, I concede, considerable faith.
In part, this is because I fundamentally believe that the next generation of consumers - our kids, who buy everything else online - has little or no allegiance to the traditional shopping experience. They’ll want what is convenient for them, and they will look to shop in ways that suit their lifestyles. To think that this significant shift in consumer behavior will not affect the food business, and that somehow traditional supermarkets will avoid the fate that has befallen companies like Blockbuster and Borders, strikes me as absurd.
And, I believe we are seeing the beginnings of this shift now.
I’m not sure it is fair to suggest that almost nobody is making money in the online grocery business. I’ve talked to a lot of retailers offering this service as part of their portfolio of services (and this is precisely how it should be positioned, IMHO), and a number say that they are doing considerable incremental business - in some cases, it is like having an additional store, without most of the costs associated with an actual unit. One common thread seems to be that the pickup model becomes profitable faster than a delivery model. In addition, the successful ones are the retailers that have made a commitment to it, not just a half-hearted attempt without adequate marketing support.
I’m also not sure I agree with you that Amazon Fresh will never be rolled out nationally. Maybe not soon. But that doesn’t mean the company will stop working on the operational and economic issues. Never
does not seem to be a word in the Amazon vocabulary.
One additional thing. A core reason that Amazon is so successful is that it understands that it needs to invest in strategies and tactics that may not have a short-term payout, but will position the company in a positive, compelling, relevant and differentiated way over the long haul. I have a powerful belief (though not a blind one) that this is what all retailers need to do.
Go back to our very first story this morning, our “Eye-Opener.”
It was just five years ago today that the iPhone was introduced.
What will the world look like five years from now? To what extent will consumers be behaving differently, with new tools and expanded capabilities at their fingertips?
Nobody knows the answer to these questions. Not for sure.
But to assume that this march into the future will somehow detour around the food industry is to ignore the realities of what has happened culturally, technologically and demographically over the past five, ten, fifteen years.