Keeping Up with the Changing World of Online Food Sales

With the purchase of Whole Foods by Amazon, the world of online food sales has been changing rapidly.  There have been a number of entities trying to determine what will work best to meet consumer needs, including grocery stores, restaurants, delivery companies, and meal kit companies.  Food manufacturers must understand the needs of these channels be able to adapt to the channel requirements.

Online food sales have come in a number of different forms including restaurants and delivery services (ie Grubhub) delivering restaurant foods, new food companies making and shipping meal kits, and  traditional supermarkets providing online ordering with either delivery or quick pickup.

This week, Amazon announced that they were introducing food delivery into 10 new cities to have a total of 38 cities where delivery is being offered.

But Amazon is a small player in overall grocery market, with its Whole Foods accounting for only about 2.5% of the sales.  Despite all the news involving Amazon, Walmart has the largest market share in the grocery arena, increasing it's total of the US market to a massive 25% share.  And Walmart has been pushing its on-line ordering with store pickup.  Currently, Walmart is testing kiosks that are essentially vending machines for customer pickup that allows the customer to pickup food ordered online without having to interact with any store employee.  Other chains selling grocery such as Target and Kroger are also moving further into developing systems for online ordering / delivery systems.

While full-time meal delivery companies, such as Blue Apron and Plated, have had a tough go at it on their own, some have come to find that being married to a grocery store may provide salvation.  Even Walmart has partnered with the meal kit company Gobble to sell meal kits online.  Peapod, an online grocery delivery service and subsidiary of Ahold Delhaize is slated to roll out 40 new meal kits over the coming months.

Fully prepared meals have been more of a challenge for grocery store online sales, and while that segment has done well for in-store sales, delivering prepared meals is a bit more of a challenge with regards to packaging and temperature control.

For those selling food within this online environment, it is hard to know what is going to stick with the consumer and what isn't, so there will continue to be a lot of experimentation. But is important for companies who do not want to get lost in the shuffle, so they must continually evolve through testing concepts and adapting to customer needs.

And customer needs will continue to change as well in term of how they want to purchase food.  Certainly, guessing what the Millennials will do as they reach the point where they become primary purchasers has been difficult.  For this segment, growing up in the digital age means that they are more reliant on technology for doing what they want to do.  And while many older consumers will still want to pick out their own broccoli or cut of meat, others may begin to opt for convenience that comes with online ordering.

For the food manufacturer, ongoing change requires that they are willing to adapt to fit what delivery channel stores choose to use.  This may be in terms of packaging that will fit into a store delivery system or meal kit.   Product quality may become a bigger factor in that the consumer will not be choosing the product at the store, but rather, will be paying a premium for delivered items.  Because of this, they may have higher expectations for what shows up at their door.

Customer-direct food sales from processors or online distributors is another online component that has found its mark in certain areas.    "Direct product sales by the manufacturer in the online marketplace has become an important channel for some companies. Those companies selling products like wine, balsamic vinegar or high-end olive oil can take advantage of additional volume sold through making their products available to a much broader audience. These types of products, especially ones with brand recognition, are likely to provide the larger price markup needed to support the costs associated with protective packaging and ground shipment. Since these products are shelf-stable, there is normally minimal risk with the exception of product damage or breakage."

"Direct sales are not limited to shelf-stable products as there are a number of companies who have
carved out a niche in the sale of perishable goods, including those selling high-end cuts of meat or specialty meat products."

Online direct sales is not without its challenges.  Package integrity, temperature control, and product recovery due to lost product or complaints can be a challenge.

Online food sales and delivery will continue to evolve.  It is not a matter of whether it will gain in terms of sales, but how much.  And who will be best positioned to take advantage.

CNN tech
https://money.cnn.com/2018/08/28/technology/business/amazon-whole-foods-365-walmart-kroger-costco-grocery/index.html
Amazon-Whole Foods one year later: The grocery business will never be the same
by Nathaniel Meyersohn @CNNMoney
August 28, 2018: 3:33 PM ET

Whole Foods doesn't look much different since Amazon bought it a year ago. Salmon and avocados are a little cheaper. Shoppers are greeted by ads for Echos. Workers wear uniforms with the light blue Prime logo.
To find the big changes, look at the rest of the grocery business.
Incumbents like Walmart (WMT), Kroger (KR), Costco (COST), and Target (TGT) have taken aggressive steps, in store and online, to wall off Amazon (AMZN).
Each has expanded online delivery and in-store pickup, poured money into supply chains and technology improvements, and kept prices low, even in the face of higher costs, to prevent customer defections. 

"This has been a big wakeup call," said Bill Bishop, co-founder of the grocery retail consulting firm Brick Meets Click.

Despite Wall Street's initial concerns, shoppers have stayed loyal to legacy players, propelling them to their fastest sales growth in years and reassuring investors.

$800 billion grocery market at stake

Amazon's plunge into the $800 billion US grocery industry posed an existential threat to rivals.
Kroger is the nation's largest supermarket chain, and food and drink make up more than half of Walmart and Costco's sales. Groceries account for 20% of Target's revenue. 

Amazon's move escalated the fight for online groceries.
Although online ordering has been slow to take off in the United States, MoffettNathanson analysts estimate it will account for 18% of grocery sales by 2025, up from about 2% today.
Considering its disruptive history, many analysts believed Amazon would use Whole Foods to siphon off competitors' loyalists. 

But Whole Foods only represents around 2.5% of the US grocery market, and it caters to a smaller, wealthier segment of the population than Walmart or Kroger. The impact of the Amazon deal has proved overblown.
"The amount of industry share Amazon can take with the physical stores is limited," RBC analysts William Kirk and Mark Mahaney wrote in a research report earlier this month. "We believe grocery is ownable in the face of the Amazon fear."
Doubling down on stores

Amazon has the logistics experience, but legacy retailers have played to Americans' preference to buy meat and produce in physical stories. At the same time, those retailers have marshaled new digital tools. 

Costco has rolled out two-day home delivery for dry groceries, joined with Instacart on same-day delivery for fresh items, and partnered with startup Zest Labs to keep produce fresh as it travels through the supply chain. 

Costco is trying to perfect what works: Selling stuff at lower prices in stores than competitors.
"We price Whole Foods twice a week in many, many markets around the country, and we're kind of scratching our head," CFO Richard Galanti told analysts last year, a signal of the company's confidence that it can beat Whole Foods on prices. 

Walmart believes proximity to nearly every US household — 90% of the country lives within 10 miles of a store — gives it a significant advantage over Whole Foods.
Including Sam's Club, Walmart has around 4,360 stores in the United States, compared to approximately 470 Whole Foods locations.
More than 1,800 Walmarts now offer free grocery pickup, and the retailer plans to have it in as many as 2,220 stores by the end of this year. Whole Foods is just getting started. 

Analysts say click-and-collect is more convenient for Americans who drive and don't have time to wait at home for fresh groceries. 

At Walmart, digital sales jumped 40% last quarter from a year ago, and Morgan Stanley analyst Simeon Gutman estimated more than half of that growth came from grocery pickup. 

Walmart has also expanded its online grocery delivery options with transportation partners like Postmates and DoorDash, and aims to cover 40% of the US population by year's end.
Last quarter, Walmart's grocery sales grew at the fastest pace in nine years and took market share from competitors.

Looking for deals

Target and Kroger have pursued a different approach, tapping outside help to build technology and infrastructure. 

Last year, Target bought the grocery delivery startup Shipt, a $99-per-year membership platform, for $550 million to compete with Prime Now, Amazon's same-day delivery choice for household essentials. 

CEO Brian Cornell said earlier this year that Target was not a "full-service grocer," but that it has the floor space and product selection to be a "convenient alternative."
Last quarter, on its way to its fastest sales growth in more than a decade, Target reported that food and beverage sales accelerated and gained market share.
Kroger has also thrown money at digital players to compete in the changing grocery landscape.
In recent months, it increased its stake in British online supermarket Ocado for automated warehouses, took over meal kit company Home Chef, and partnered with tech startup Nuro for driverless delivery.
At the same time, Kroger has expanded its own pickup service, ClickList, and rolled out Ship, its own delivery service for dry foods, earlier this month.
Kroger now has 1,250 curbside pickup stores and offers delivery from 1,200 through partnerships with Instacart and other third parties.
Last quarter, Kroger impressed Wall Street with 66% sales growth online. Meat, seafood, and natural foods were some of its strongest categories. 

Whole Foods has not taken away Kroger customers either, CFO John Schlotman noted earlier in the year: "You don't see any damage to our business."

Amazon plays from behind

At Whole Foods, Amazon's imprint is growing. Price reductions have improved traffic, same-store sales have grown about 3% since the deal, and the grocer got a big lift from July's Prime Day sale, according to RBC. 

But instead of making drastic changes, Amazon has steadily attempted to use Whole Foods as a weapon to lock more Americans into the Prime ecosystem by offering member discounts and selling electronics in stores. 

"It's now evident that the Whole Foods purchase was just part of the larger mosaic that is Amazon's longer-term growth plan," Bishop said.
Meanwhile, Whole Foods trails rivals in the race to expand pickup and delivery. And although it could prove more competitive in urban areas, it still faces an uphill climb with middle-class suburban and rural shoppers.
For savvy operators like Walmart, Kroger, and Costco, it may prove easier to catch up in the online grocery race than it will be for Amazon to match their experience selling food in stores.
CNNMoney (New York)
First published August 28, 2018: 2:47 PM ET

Mushroom News - September 2018
FOOD MANUFACTURERS & THE FUTURE OF E-COMMERCE
Amazon’s purchase of Whole Foods was a clear indication of the continued push to online ordered
and home delivered foods. Retailers, food service providers and food manufacturers are determining
how best to navigate the waters of e-commerce involving food.
hile home delivered foods currently sit at about one percent of total food sales, the trend for future growth is positive, although estimates of where it could be in the next five years vary greatly.
From a technical perspective, food manufacturers must evaluate the impact of e-commerce
on sales and distribution of products. As with any new process, hazards must be evaluated and appropriate controls applied.

Online food ordering can come in various forms. Traditional forms of home delivered food
include food service items like pizza and Chinese foods. These providers have easily adapted to online ordering and get food to the consumer by either their own delivery systems, or partnering
with outside delivery services such as OrderUp or GrubHub.

Direct product sales by the manufacturer in the online marketplace has become an important
channel for some companies. Those companies selling products like wine, balsamic vinegar or
high-end olive oil can take advantage of additional volume sold through making their products
available to a much broader audience. These types of products, especially ones with brand
recognition, are likely to provide the larger price markup needed to support the costs associated
with protective packaging and ground shipment. Since these products are shelf-stable, there is
normally minimal risk with the exception of product damage or breakage.

Direct sales are not limited to shelf-stable products as there are a number of companies who have
carved out a niche in the sale of perishable goods, including those selling high-end cuts of meat or specialty meat products. Even Penn State ice cream is available for online purchase if one is willing to pay the price. Frozen ice cream is shipped with dry ice to ensure the product stays frozen
during next-day shipment. There are also many gourmet mushroom providers who have found their niche in the online marketplace.

For direct shipping of perishable products, the manufacturer faces more challenges compared to those selling shelfstable goods. The biggest challenge relates to maintaining temperature control. There is the need for styrofoam shippers for insulation, cool packs to maintain temperature and
pillows to prevent excessive abuse. Case labels with resistant print must be able to stand up to abuse to prevent delays due to illegible wording. Overnight shipping is a must to ensure timely delivery.

The manufacturer must realize that it is unlikely that the consumer will be willing to verify temperature of refrigerated product with a food thermometer upon receipt. Temperature
indicators placed in the shipper box will help consumers determine whether their product has been received at the right temperature. This added cost will eliminate subjective analysis by the consumer where the consumer rejects product because ‘it seemed too warm.’

Product rejection and return is another challenge. Reports of e-commerce having higher rates of return are common among companies using this channel. Customers paying a premium for product shipped overnight will likely demand the highest quality, and therefore, are more likely to
reject substandard product. Added to this is the possibility of damage during shipment, whether this be to the product or to the packaging. Another concern for rejection is the possibility of temperature abuse when deliveries are delayed or the shipment is misplaced. Misplaced shipments result
when the box is sent to the wrong delivery address or it is ‘lost’ in the shipping company’s supply chain. Companies must develop procedures for handling these issues. A well-defined process outlining how a company handles returns is critical, including whether the company
wants product returned or destroyed.

Companies must determine how they can quickly verify the location of a shipment. Advanced tracking systems available today will help. The e-commerce system must capture the proper information at consumer-entry interface to ensure proper delivery. This includes collecting delivery
times that will maximize the opportunities that the customer will be present at the time of delivery, site-specific delivery location information for the delivery driver and a contact phone number in the event someone is not present at time of delivery.

As part of the hazard analysis, product–specific issues must be determined and whether there is the need for any specific controls. As part of this hazard analysis of perishable products, the risk of product abuse must be taken into consideration. For fresh mushrooms, for example, is there a risk of low oxygen conditions within the shipping case where spore forming pathogens can become a concern?

Another emerging area in e-commerce food sales has been home delivered meals and meal kits. Companies like Blue Apron and Hello Fresh have been trying to give it a go despite some difficulties like the high costs of delivery and packaging, as well as maintaining consumer loyalty. How
this home delivered meal concept shakes out over time is yet to be seen. Perhaps there will be partnerships with grocers such as Blue Apron’s recent announcement with Costco or a
movement to complete meal planning as seen with companies like Weight Watchers.

The biggest challenge for manufacturers working with home delivered meal companies may be having flexibility in order to manage support for meal providers. Because the quantities shipped will be based on consumer demand for that day, just-in-time shipments from manufacturers may vary greatly from scheduling estimates. As with other types of e-commerce sales, there is the need for high  quality product, taking into consideration that the product will be handled, repacked, shipped and then handled by the consumer.

Consumers are paying a premium for these meals and will demand the highest quality product in terms of appearance and freshness. Food manufacturers must work with their meal delivery partners to ensure that product handling, preparation parameters and associated risks are
fully understood.
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