It was big news last year when Amazon bought the grocery chain, Whole Foods. And the business model has been evolving. This year, Amazon started rolling out a grocery delivery service with the chain. And on Tuesday, delivery started in the Los Angeles area.
Take Two's A Martinez placed an order at 8:15 Tuesday morning using Amazon Prime, which promises free delivery within two hours for orders of $35 or more. It arrived at 9:55. His order — two avocados, two cartons of strawberries, two boxes of macaroni and cheese, fresh chicken, turkey slides and a dozen eggs — arrived in four brown paper bags, many of them with thermal packaging to keep the cold items cool.
Burt Flickinger is managing director of the retail consulting firm, Strategic Resource Group. He explained how the growing grocery delivery business is affecting Southern California.
Grocery delivery services are on the rise
They have gone from 5 percent of total shopping five years ago to in many metropolitan areas where it's as high as 12 to 20 percent, particularly in New York City. We expect it to get as high as 25 percent in Southern California by around 2022 or 2023.
More people are trusting grocery delivery
The shelf-stable products -- coffee, tea -- they get home delivery. Smart shoppers will either go to the store to find the freshest strawberries or baked goods or use a trusted provider. Postmates is a highly credentialed provider in So Cal. They will take pictures of produce and send it to you for approval.
Delivery comes at a premium, but grocers absorb much of the cost
Many retailers subsidize the order, so it tends to be between $5 and $10. It's great for the stores because in Southern California particularly, where the cost of living and taxes are high and traffic density is high, people have less disposable income and less disposable time, so the delivery services are very popular. What we found is some delivery services particularly for companies like Kroger and others tend to be very competitive and cost effective. We did the due diligence for the first buyer in Whole Foods and we found it very uncompetitive on price even after the Amazon price decline.
Why delivery is worth it for grocery stores
It gains new customers for the stores. A store can expand its existing sales base pre-delivery by a factor of 140% to 170% with delivery depending on neighborhood traffic density and number of people in the household working. Often that means less disposable time. Some people, it's preferable to have the groceries delivered to work and take them home from there.
Many grocery delivery jobs pay a living wage
In the eight-county region of Southern California, Postmates is advertising jobs this morning for up to $25 an hour or more because they let the person, unlike Uber, keep 100 percent of all tips. While Kroger, Albertsons, Vons and Costco are the highest-paid food retailers, not all food retailers pay well. All the delivery companies, with the possible exception of Uber, pay very well and provide very important new jobs that provide a living wage.