NEW YORK €" While considered a dot-com bust a decade ago, the online grocery business in the United States is maturing, with several players poised for growth, the Financial Times reports.
Walmart€™s recent foray into the sector demonstrates the viability of food delivery, which has intensified the competition on existing food delivery companies and bricks-and-mortar stores looking to enter the grocery delivery space.
FreshDirect in New York has methodically expanded since it entered the market nine years ago and now operates in New York, New Jersey and Connecticut.
"There are going to be lots of people focused on it and we expect competition," said Jason Ackerman, founder and chief executive of FreshDirect. "That€™s why we€™ve been so slow to roll out across the country because we have been so focused on how to get this model right."
One of the sector€™s oldest competitors, Peapod (launched in 1989), entered New York City earlier this year and now serves 11 states and Washington D.C.
"The consumer is arriving to the concept," said Mike Brennan, chief operating officer and head of marketing at Peapod. "In 2000, it might have been too early."
Walmart€™s online pilot follows a similar test by Amazon.com, which has been selling groceries in the Seattle area. Additionally, Kroger, Safeway and Whole Foods have all started offering delivery options.
Some analysts maintain that the delivery model can only work in highly populated areas where people rely less on cars. "If customers live close together, as they do in Manhattan, and don€™t own cars, the cost of delivering groceries the last mile or two that the direct-to-customer grocer charges is accepted," said John Deighton, a professor specializing in consumer behavior at Harvard Business School. He added that in the suburbs where parking is convenient, less than five percent of consumers would pay for delivery.
The National Grocers Association (NGA) estimates that online grocery shopping currently represents less than two percent of the U.S. food market, suggesting there is ample room for growth.
"Obviously there was a bit of a false start 10 years ago, when people thought the traditional grocery store was going to go away," said Peter Larkin, head of the NGA. "I think as technology has improved and access to broadband has improved, the future of online grocery is actually quite bright."