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Moody's: US online grocers unlikely to usurp brick-and-mortar stores anytime soon

Global Credit Research - 01 Nov 2013

New York, November 01, 2013 -- US online grocers pose little threat to brick-and-mortar stores, Moody's Investors Service says in a new report. Online grocery retailers accounted for just a slither of overall grocery sales last year, and in the longer term are unlikely to gain much traction.

"Despite gaining in popular appeal, online grocery sales accounted for only 0.5% of the $973 billion spent on groceries in the US last year," says Vice President -- Senior Analyst, Mickey Chadha in "Growth in Online Grocery Shopping Poses Little Threat to Brick and Mortar Grocers." "And we do not see online sales growing to more than 1% to 1.5% of total grocery sales in the next five years."

Consumers will resist higher costs, among other drawbacks, Chadha says. Despite the convenience, wider access to broadband Internet, the proliferation of mobile devices and customization of consumer preferences, most of the growth in online grocery sales will be limited to certain densely populated metropolitan areas, where income levels are more conducive to higher-priced online purchases.

"Higher costs, among other constraints, make online grocery shopping more appealing to affluent consumers," Chadha says. "Online grocery shoppers skew toward households with annual income of $100K or more and for most people, home delivery of fresh foods is too expensive."

And high investment expenses will deter potential new entrants to the online grocery market. Upfront investment costs include leasing or buying delivery trucks suited to transporting perishable items and fresh food, and building distribution centers to reduce delivery times.

"The logistical challenges associated with delivering perishables and fresh food at a reasonable profit and at a cost that is attractive to price-sensitive and skittish consumers is a major barrier for both aspiring entrants and existing food retailers."

Among existing players, FreshDirect and Peapod are the best positioned in terms of building market share, Moody's says. And those that have growth potential include Amazon.com, as it adds more groceries to its offerings through Amazon Fresh. Walmart, The Kroger Co. and Safeway also have room to grow as they expand beyond their current tests of grocery delivery.

Moody's research subscribers can access this report at https://www.moodys.com/research/US-Retail-Industry-Growth-in-Online-Grocery-Shopping-Poses-Little--PBC_159575.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Manoj Chadha
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Janice Ann Hofferber
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: US online grocers unlikely to usurp brick-and-mortar stores anytime soon
No Related Data.

 

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