The 4 P’s to Winning Online Grocery

The 4 P’s to Winning Online Grocery

Bain & Company released a report last week finding that consumer adoption continues to rise, and incumbent grocers have a window of opportunity to capture this growing segment. We’ve identified P’s that will continue to accelerate online grocery in the US.


US Population with Reach of online grocery offering, using a 15 mile radius
source: Basketful Research, January 2019

Must be present (local) to win. Shoppers want options, and even the smaller grocery stores are signing up with partners to offer an online option. Our research shows rapid growth in the past year, and retailers fulfilling promises to expand online grocery options to more of the US. Look for our forthcoming June 2019 update to see how fast these footprints have grown (hint: the top 6 can already reach 92% of the US population).

Some weaknesses in the maps above: First, Shipt reach is well beyond Target and expanding rapidly. Second, we don’t show Amazon Prime Now reach. We’ve speculated for a year that Amazon Fresh will become a customer of Amazon Prime Now.

Watch evolving store formats and distribution methods for clues, and particularly watch how online retailers handle online grocery in different population densities, climates, and demographics.


One of the top reasons people give for not doing online shopping is that they don’t trust their outsourced shopper to pick out the best perishables. In FMI’s 2018 study “freshness of perishables” was the most important quality of an online food retailer. Some differentiators are obvious (don’t give me moldy raspberries), but others are more subtle, like understanding personal preferences.

We got moldy raspberries in our order a few months ago. If I was not committed to monitoring and improving online grocery, I don’t think I could have convinced my wife to include any perishables in the next order.

When I challenged an employee at a major grocery platform about how well they know grocery shoppers’ produce preferences, they said “there’s a text box where you can leave a notes for your shopper.” That’s a good step forward, but no one wants to leave a special note on each piece of produce they buy, every time they buy it.

source: wikimedia

Some retailers will fail in online grocery and claim the margins just aren’t there to support it. The reality may be that they never figured out how to pick out raspberries.


I placed an online grocery order on Super Bowl Sunday. That might be the worst possible time to purchase groceries in the entire year, but hang with me. After reviewing and transferring from our digital grocery list to products in my cart, then reviewing all the “recently purchased” items list, I ended up with 45 items in my cart including specific items from a recipe website I use. I had to sub out some brands I like for other they had in stock along the way.

But then my shopper started texting me “Item X is out of stock, would you like a (different size/brand)”? No problem. But then this happened a total of 9 times! That’s 20% of my order and some of the items I wanted for a recipe. So now I’m making another list by deciphering what they said they had but didn’t actually have, which I need to now find at a different store.

precisely disappointing
source: wikimedia

To be fair, this process of micro-disappointments is one that we’ve come to accept each time we enter the supermarket. But years of online sales have trained us to expect fidelity between the digital shelf and physical availability. When was the last time you ordered something online to be later told they don’t have it? Was it a reputable online retailer? Would you ever buy there again?

Managing digital and physical inventory on store shelves is an impossible problem because in-store shoppers keep putting things in their cart without decrementing your inventory. This is why I find solutions like Amazon Go and Ocado’s robotic warehouse even more interesting.

With Amazon Go, if you know when an item is off the shelf you also know to send a restock signal to the backroom. If you know it’s in the backroom, you can probably still show it available to online shoppers. With an efficient robotic warehouse, you could revolutionize your store format. The center store largely moves to the backroom. Shoppers select packaged items they need from a screen (or subs, or promos, etc.) and those items are quickly packed and delivered to the front checkout at the beginning of your checkout process while the cashier manually rings up all your perishables and high consideration goods. Precision inventory fidelity requires new store formats and smarter technology.


Visit the reviews of popular online grocery apps and you’ll see confusion and frustration around pricing. To recoup costs of picking and delivery, most platforms charge service fees or a markup product prices. Here’s how the platforms stack up, in no particular order:

There have been a lot of different models around pricing, but it seems very likely this will get simpler over time. Minimum order is typically $35. Tips are always optional. Here is a list of the number of fee types:

  • Walmart – delivery fee
  • Kroger – delivery fee, pickup fee
  • Peapod – optional membership, delivery fee, pickup fee, possible fuel surcharge
  • Amazon Fresh – required Prime membership, required Fresh membership
  • Amazon Prime Now – required Prime membership, possible delivery fee
  • Shipt – prices marked up, required membership
  • Instacart – prices marked up, optional membership, delivery fee, pickup fee, service fee

The simplest model is Walmart’s and the most complicated is (arguably) Instacart’s. The membership model middleground is likely to win in the long term (value of membership will be a battleground). In the short term some retailers are trading an early loss to acquire first time online grocery shoppers and higher value carts.


  • Footprints of online grocers continue to grow with over 90% of the US population now able to order groceries online.
  • Perfectly picking perishables is profitable.
  • Inventory fidelity must continue to improve (in my digital cart is a guarantee of availability).
  • Online grocery platforms should eliminate confusing fee structures, amp up membership programs.

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