- Grocers may need to raise prices for products sold online or charge higher fees for fulfillment in order to profit off e-commerce, according to consulting firm Brick Meets Click.
- Walmart recently experimented with raising prices on select items online, including food products like Kraft macaroni and cheese. Hy-Vee, meanwhile, revised its fee structure for grocery deliveries in the Des Moines market.
- Brick Meets Click estimates that 24% of consumers are buying groceries online every month, and predicts that percentage will steadily increase. Grocers need to offer online shopping in order to retain shoppers, but “they can’t afford to subsidize it,” the firm notes.
In the wake of Amazon’s Whole Foods acquisition, and as major players like Walmart and Kroger ramp up their e-commerce offerings, online shopping has become a must-have for supermarkets of all sizes. Trouble is, nobody is profiting from the venture because picking, packing and fulfilling orders all add in costs that are hard to regain.
There are a few ways retailers can earn higher returns — none of which are particularly easy or popular to implement. Raising prices, as Walmart recently did, and as Costco has done in the past, presents one option. For Walmart, the move has the added benefit of reinforcing online as a convenience service and pushing customers into stores, where the company would rather serve them anyway. Keeping store pickup free further reinforces that positioning for the mega-retailer.
Some of the savings have been significant: The Wall Street Journal found a twin-pack of Betty Crocker Hamburger Helper cost $3.30 online but just $2.50 in stores. Of course, most retailers don’t have the same investment abilities and price advantages as Walmart. But according to Brick Meets Click, Walmart’s trial could “provide cover for others to do something similar.”
Raising fees for home delivery and pickup offer another option that could produce returns, but this could also be a tough sell for customers. This fall, Hy-Vee changed its fee structure in Des Moines to better account for delivery time and order size. The grocer originally charged a flat fee of $4.95 for all delivery orders under $100 — and no charge for orders over that amount — but under the new system it charges up to $12.95 for one-hour delivery of orders under $100, and nothing for orders over $100 delivered within a four-hour window.
In addition to more money, a company spokesperson told the Des Moines Register that the new system offers more flexibility. It also allows the company to offer free store pickup on orders over $50.
Grocers’ ability to raise prices and fees largely depends on how loyal their customers are to their online services. Walmart has built up a sizable customer base for its delivery and store-pickup program, while Hy-Vee’s Aisles Online program has been around since 2015. Other companies, including the scores that have recently tacked on services through Instacart and Shipt, may not be able to raise their prices much further without shoppers defecting.
According to Brick Meets Click, there are two other ways grocers can increase their margins online: build bigger baskets and reduce costs. The first option is something every grocer that offers e-commerce is trying to do. And thanks to software programs that offer tools like list builders, personal recommendations and special promotions, they’re able to do just that.
Retailers will continue to explore these and other options as the demand for online shopping grows. The key is finding what customers are willing to pay, and then continuously updating and adding value to the service.