Consumers’ desire to “touch and feel” food and concern about prices and delivery charges are holding back shoppers from buying food online in the US, a study by a leading investment bank claims.
The online channel has not made the same inroads into the US packaged food sector as other FMCG industries in the country. The size of the US online grocery market also lags those in countries such as China and the UK.
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According to a survey by AllianceBernstein of 1,037 US consumers on their attitudes to buying packaged food online, the bank said around 40-50% had purchased cereal, cookies, snack bars, and/or canned soup online over the past 12 months, while less than 20% of respondents had bought meal kits or fresh prepared foods.
AllianceBernstein said the top reason preventing US consumers from shopping for food online was the “the ability to touch and feel food products”, especially fresh produce and meat. Higher prices and delivery charges were also off putting, while 15-20% of respondents said they found it difficult to navigate e-commerce platforms, to pay for online groceries, or to receive deliveries.
“This seems to suggest that there is still a role for brick and mortar retailers to play in the e-commerce era,” AllianceBernstein claimed. “In particular, retailers could look to expand their fresh and fresh prepared foods offerings in the perimeter of the store to attract more traffic into the store.”
Shopping in store was also favoured by some as it gives the ability to make last-minute purchases, read food product labels and make comparisons with other products. Some consumers also liked to source locally-produced food stuffs in-store, while others simply enjoyed the grocery shopping experience.
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By GlobalDataHowever, shopping for food online is gaining in prominence in the US and AllianceBernstein argued Big Food companies face the prospect of lower margins as they invest more in e-retailer relationships to compete for space.
Also, the growth of e-commerce means food manufacturers would have less control over the shipping process and any damages could then have a negative affect on customers perceptions about a brand, according to the accompanying report led by AllianceBernstein analyst Alexia Howard.
In terms of opportunities, Big Food companies “have deeper pockets to pay for sponsored listings and digital marketing to build up their presence online” to the detriment of smaller firms without such big resources.
But food producers that compete in “heavily processed” categories in the centre of store could face an uphill struggle as retailers allocate more shelf space to the perimeter of their outlets where fresh produce tends to be found.
“It may also prove challenging for Big Food companies to transform their portfolios more towards fresh and fresh prepared foods, as they require an overhaul of their existing supply chain and tend to carry much lower margins,” the report noted.
Other results found 44% of Millennials shopped for food products online that were delivered directly and 42% had shopped via click and collect. The survey identified Amazon and Walmart.com as the two major sites used followed by Costco.com, Target.com, and Kroger.com. Third-party sites such as FreshDirect and Instacart were less popular but favoured by consumers in densely populated cities in states such as California, New York, and Florida.
Alliance Bernstein noted: “To get ahead in the e-commerce era, many US food companies have started to, one, invest more in e-retailer relationships to compete for online shelf space and, two, leverage co-packers to produce club-sized variety packs for the online channel that can better justify the related shipping costs.
“While most CPG companies argue that the shift online has been margin neutral, we believe this is unlikely the case given the amount of investment required to list sponsored products or to participate in various programmes.”
