Americans have long loved the convenience of drive-through service for burgers and coffee and Kroger Co and Walmart Inc are tweaking that formula for groceries. The companies have invested heavily in online systems that allow customers to order ahead from their neighborhood store. Workers pick and pack the products, then run them out to shoppers in the parking lot, the grocery version of carry out pizza. For the retailers, the service is cheaper than delivery, because customers do the driving. For shoppers, it means skipping crowds and queues at their local market, and no worries about missing packages or melted ice cream if they are not at home to meet the delivery guy. Tony Sacco, who lives in the Los Angeles beach community of Playa Del Rey, is a regular user of the service at a nearby Ralphs supermarket, owned by Cincinnati-based Kroger. Each pickup costs $6.95, but the time-crunched married father of three says it is worth it.
"This is easy. Time is money," said Sacco, 47, as a worker loaded bags into his SUV on a recent morning. Retaining customers like Sacco is critical for traditional grocery retailers as they battle an array of upstarts bent on turning groceries into the next home-delivery juggernaut. New entrants such as meal-kit company Blue Apron and organic food seller Thrive Market are peeling off coveted slices of their business. Amazon, the nation's largest online retailer, has amassed an 18 percent share of the $12.6 billion U.S. online grocery market mainly through the sale of packaged goods such as pasta and diapers. It is the largest player in a sector that is expected to grow to $41.7 billion by 2022, according to market research firm Packaged Facts. But even mighty Amazon has struggled with the trickiest part of the trade: delivering fresh produce, meat, dairy and other perishables. Its AmazonFresh service started more than a decade ago, but has yet to make a major mark.
Amazon is making another run at it with its $13.7 billion purchase of upscale grocery chain Whole Foods earlier this year. Amazon has said little about its plans. But analysts expect it will use Whole Foods' 450 locations as distribution hubs for home delivery, opening a new front in its campaign to disrupt the $700-billion U.S. grocery industry. Old-line players are responding with some new moves of their own. Kroger and Walmart are experimenting with delivery. But they are wagering that pickup is the true sweet spot in the industry's online evolution. Both are rolling out the service in thousands of their stores.
"The way people are going to shop for groceries is going to be curbside, not delivery," said Jason Goldberg, a senior vice president at digital marketing firm SapientRazorfish. Amazon, too, is eyeing that channel. AmazonFresh has already tested pickup in Seattle and analysts expect Whole Foods to do the same.