Home Food Delivery: From Boom to Bust and Back to Boom

| August 6, 2014 | 0 Comments

With our increasingly busy daily lives, the advent of home grocery delivery may seem like a futuristic answer to the modern times we live in, but for those who are old enough, there once was a time when things like eggs, milk and even ice were delivered daily. Today, those kinds of items, along with thousands more, are available with just the click of your mouse. Here’s a look at how the landscape of home food delivery went from boom to bust and back to boom again.

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The Era of the Milk Man

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The decades following the turn of the last century were the domain of the milkman. An American icon, the milkman was a fixture of neighborhoods across the country, bringing not only milk, but also other perishable goods, such as eggs and bread, to families daily.

The main reason for home delivery in this era was a lack of home refrigeration, which meant that most households only kept enough perishable goods on hand for a day or two. The advent of affordable home refrigeration hit the milkman hard: between 1938 and 1975, U.S. households that had home delivery went from 55% to only 6.9%. On top of that, the refrigerator has become a major appliance in every household. Between 1950 and 2014, the average size of a refrigerator more than doubled, going from a scant 9 square feet to a much roomier 22 square feet.

With the dawn of affordable refrigeration for the home and the explosion of the automobile, the American public witnessed the rise of a modern shopping marvel: the grocery store.

The Rise of the Grocery Store

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The grocery store is an indelible part of the American landscape. In fact, there are 37,459 grocery stores in the U.S., employing 3.4 million Americans and feeding a marketplace worth a staggering $850 BILLION USD.

Though that’s a huge sum, the online grocery/home delivery market currently represents only 1% of that total. The fact of the matter is that groceries provide razor-thin margins — on average, only 1.5% of sales amount to actual profit — which means there’s little room for building online platforms and operating fleets of delivery trucks.

Despite the lack of revenue, major grocery chains have little choice but to enter the online marketplace. Even though it is well behind countries like South Korea and Great Britain in terms of adoption, the U.S. grocery market is expected to grow substantially in the next few years, expanding by roughly 16% by 2016.

Who Are the Major Players in the U.S. Grocery Delivery Market?

The initial ‘boom’ in the U.S. grocery delivery market came at the tail end of the dotcom bubble in the form of Webvan, which spent almost $1 billion building the company, only to have its business model prove unprofitable and eventually collapse.

The experience of Webvan functioned as a cautionary tale for many prospective companies looking to get into the market. Currently, the three major players of the online grocery delivery market command only a small percentage, with PeaPod at 8.8%, Safeway at 5.7% and FreshDirect at 3.2%.

While those stats may seem low, it’s important to note that the grocery industry is highly fragmented. The top 10 grocery chains in the U.S. COMBINED don’t even account for 50% of the total market.

However, the market is still in its infancy, with most players focusing on specific geographic regions where they deem their operations viable. Among some of the cities serviced are:

  • Walmart To Go: Denver, Colorado, and San Francisco, California (tentative testing in San Jose, California)
  • PeaPod: Chicago, Illinois; Indianapolis, Indiana; Madison and Milwaukee, Wisconsin; Hartford and New Haven, Connecticut; Boston, Massachusetts; Somerset, New Jersey; Long Island, Rhode Island; and New York City, New York.
  • FreshDirect: New York City region, including Long Island, Manhattan and the outer boroughs.
  • Amazon Fresh: Seattle, Washington, and Los Angeles, California. (Expected to launch in 14 to 40 other cities by 2014)

How Much Will It Cost?

Like all things featuring a level of added convenience, there are costs to be considered. If you’re fortunate enough to live in a region that supports online grocery shopping, it’s worth comparing the costs of various outfits thoroughly, since they contribute to the final bill. Here’s a breakdown of some of the major players and what their services will cost you:

  • Amazon Fresh: $299/year subscription. Free shipping for orders over $35 and next-day/same-day delivery options.
  • PeaPod: $6-10/order (depending on region)
  • Safeway: $12.95/order
  • FreshDirect: $5.99/order
  • Walmart To Go: $7/order

It’s also important to factor in something you wouldn’t normally associate with grocery shopping: tipping. Though some delivery men won’t accept tips — or are forbidden by their employers — many people feel that the service they provide is worth a few extra dollars at the door as a show of thanks.

Why Grocery Shop Online?

Aside from convenience, one major reason cited, surprisingly enough, is sticking to a budget. Online shopping interfaces provide a more rigid system where impulse buying is reduced.

In a recent study, researchers found that on average, shoppers made impulse purchases to the tune of 20% of their total bill on 60% of their trips to the grocery store.

The average U.S. family spends $6,447 on food every year, with 56% of that going to groceries and the rest to take-out/dine-in options.

Ultimately, it’s a new market for both consumers and operators alike. As more companies like Amazon — which already has fleets of trucks and warehouses across the country — expand their offerings, the home delivery market for groceries is likely to explode. By combining convenience, comparison shopping and increasingly lower costs, the prospect of having your groceries delivered is an appealing one in our busy modern times.

Category: Apartment Life

About Geneva McNamara: Geneva McNamara joined Trader Publishing company in August, 2004 after she received her degree from Old Dominion University in History and Political Science. She has worked within the Search Engine Marketing & Search Engine Optimization departments of several Dominion Enterprise divisions. In 2011, She became the Senior Organic Search Analyst for ForRent.com.

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