Online grocery business heats up but does anyone care?

The news that Amazon is about to spring its online grocery service, AmazonFresh, on a waiting world may not have sent consumers dashing to their keyboards to order a quart of milk but it certainly got the attention of supermarkets and big box retailers.

Costco and Walmart both said they'll be watching how the AmazonFresh roll-out progresses but claimed to find little consumer interest in online grocery shopping. But Relay Foods, a small, Virginia-based online grocery service said Amazon's rising tide would lift all boats.

"We're in the forefront of a movement that has not even really begun," said Arnie Kats, Relay Foods president and co-founder. "Relay has been fighting in the online grocery space for over five years now, is already using technology to change the way people eat for the better, improving local economies by linking people to local food, and building a model company." 

Whether Relay Foods is the next Netflix that destroys Blockbuster remains to be seen and is something we'll explore next week. 

Costco, Walmart and Target, on the other hand, have a much bigger stake in the game, at least for now. Amazon has already taken a big bite out of the apparel and general merchandise market. If it can awaken consumer demand for online groceries and grab a big piece of the market, it could be a headache for the big box stores.

A skeptic

But Jeff Brotman, Costco's co-founder and chairman, said in a Bloomberg article that he's skeptical home grocery delivery can ever be profitable, but he said Amazon doesn't really have to make it work perfectly in the short term: "He can spend a billion dollars experimenting and putting televisions on a truck and delivering them the same day with apples and oranges. That's a research and development experiment that competitors and normal online businesses can't do."Â 

Walmart, the largest grocer in the United States, is also taking a wait-and-see attitude about AmazonFresh, although it is conducting its own online grocery delivery service in a test market in California. Perhaps surprisingly, Walmart's Asda subsidiary is the seconed-largest grocery delivery business in the United Kingdom and also delivers groceries to customers in China.

But other than its test in San Francisco and San Jose, Walmart is "not  making any announcements about other markets for grocery delivery in the U.S. right now," Neil Ashe, the president and chief executive officer of Walmart Global eCommerce, told reporters on Thursday, a day before the company's annual shareholder meeting, Reuters reported.

He said the test in San Jose and San Francisco has proven that the company "can serve a market effectively from our existing supercenters ... we'll have to wait and see whether the customer wants it," he said, according to the Reuters report.

Does anyone care?

And that, of course, is the $64 billion question: do consumers want to routinely order their groceries online?  

Those who are already in the space, like Relay Foods and Peapod, say it's clear that consumers want the convenience of online ordering and home delivery. 

Peapod, founded way back in 1989, is now wholly-owned by Royal Ahold, the worldwide grocery giant that owns Stop & Shop and Giant supermarkets on the East Coast. Its finance aren't known but Peapod is generally regarded as a successful strategic asset for Ahold, giving its supermarkets a leg up on the Safeways and Harris Teeters of the world. 

Rick Tarrant, CEO of MyWebGrocer, a company that manages digital connections for retailers, says it's more a question of availability than lack of demand that is holding back online grocery shopping.

"The issue is not consumer demand," Tarrant told Marketing Daily. "We know through the success of businesses like drugstore.com and diapers.com that people want to shop this way. It's about access. Unless you live in a market with ShopRite, Ahold's Peapod or Fresh Direct, you just don't have access to online groceries."Â 

Tarrant's company and FGI Research recently surveyed 30,000 consumers and found five distinct kinds of digital shoppers:

• New Digital Shoppers (35%) - Younger urban professionals and early tech adopters, they prefer shopping for groceries in stores but are open to online ordering.
• Traditional (24%) - An older group, 63% of them Baby Boomers. They may look at specials online but are less interested in shopping online.
• Passionate Planners (17%) - They earn the least and live the farthest from stores. They research prices online and are more likely to use a mobile phone to help when shopping.
• Affluent Shoppers (12%)  - A combination of young professionals and urban retirees. They're not particularly budget conscious and prefer online ordering options.
• Reluctant Shoppers (12%) - They dislike shopping and wish they didn't have to do it.   

More competition coming

Tarrant says he expects to see more competition and innovation as companies size each other up and consumers become more aware of the advantages of shopping online. 

Peapod has put together some interesting applications aimed at commuters. In the Philadelphia area, it has installed large menus at commuter rail stations, allowing customers to use their smartphones to scan barcodes of the items they want, which are then delivered to their homes later in the day.

In London, Tesco operates a similar service at Gatwick Airport. Consumers can scan the items they want and have them delivered on the date they return from their trip. In South Korea, Tesco operates at commuter rail stations, much as Peapod does in Phialdelphia. 

Relay has set up a series of pick-up stations throughout its service areas. It parks its trucks near major schools, offices and transit points and customers stop by and pick up their orders on the way home.