Deloitte LLP recently conducted a study: "Digital Commerce in the Supermarket Aisle: Strategies for CPG Brands." Since CPG stands for consumer packaged goods, you would likely think that this article will be about companies such as Procter & Gamble, Unilever, and Kimberly-Clark, but that's not the case.
We're going to use data from this study to examine future trends that will impact Wal-Mart Stores (NYSE:WMT), Amazon.com (NASDAQ:AMZN), and Target (NYSE:TGT). All three of these companies sell food, but only two of them are aiming to stay ahead of the curve by figuring out how to deliver food to their customers while earning a profit. This isn't an easy feat, but without food delivery a company will fall behind its peers. Now let's take a look at what this study's results and what those results mean.
The most important takeaway
Despite the study being geared toward consumer packaged goods, it revealed something very interesting, which is that consumers are way ahead of industry executives in regard to e-commerce expectations. For example, consumers expect to increase their online consumer packaged goods purchases by 67% over the next year, whereas executives put this growth expectation at 35%. Consumers also expect to increase their consumer packaged goods purchases by 185% over the next three years, whereas executives put this expectation at 76%. This study was based on 2,040 consumers and 43 industry executives. Perhaps even more telling is that while 92% of executives agree that e-commerce is an important sales channel, only 43% of these executives feel as though their company is well prepared.
While the study focuses on consumer packaged goods, if consumers are going to increase their consumer packaged goods spending online, then they will likely increase their online spending on perishables, and food in general. According to Nielsen, seven of 10 grocery items purchased online are perishables. It should be noted that in 2012, a study of 22,000 grocery shoppers revealed that 28% of them purchased food online.
Over the past six months, 20% of consumers bought perishables online and 25% bought non-perishables online. Additionally, 18% bought non-alcoholic beverages online. These numbers indicate tremendous room for growth. While there will always be the brick-and-mortar shopper and there will always be the online shopper, the online shopper is growing much faster. That being the case, companies that sell food absolutely must cater to consumer demands and stay ahead of trends, which includes food delivery.
The question now becomes: which companies are best prepared for food delivery?
Setting up for food delivery
Amazon is ahead of its peers with AmazonFresh, which can now be found in Seattle, Los Angeles, and San Francisco. Wal-Mart offers Walmart To Go, which is available in Northern Virginia, Philadelphia, Minneapolis, and Denver, and it's being tested in San Jose and San Francisco.
AmazonFresh fees cover orders from $9.99 up to $49.99. Any order over $50 comes with free delivery. This fits the company's strategy of maintaining low margins in order to please consumers and build its customer base. At the moment, Wal-Mart To Go requires a minimum purchase of $45, and the delivery cost is $3-$10.
Unfortunately, Target doesn't offer any form of food delivery service. Though Target has been a long-term success story, it always seems to be one step behind industry trends. For instance, Target made a strategic move by recently adding its Simply Balanced brand. This put Target more on-trend with organic food offerings for today's health-conscious consumer, especially considering organic grocery sales are increasing twice as fast as traditional groceries. Target's groceries have thinner margins than other products sold, but selling more store brands should help, and the primary reason for the grocery section is to attract more consumers to Target stores, so it will be seen as a one-stop shopping destination.
All of this is positive for Target, but it has nothing in the words for food delivery. If that remains to be the case, then it will fall behind its peers and likely lose market share down the road.
The bottom line
Amazon and Wal-Mart continue to stay ahead of industry trends, which should pique the interest of investors. There will be bumps in the road, perhaps big bumps, and there's no proof that these delivery services will be profitable. However, given the historical track records of Amazon and Wal-Mart, I would bet on them eventually figuring it all out.