Viewpoint: the decline and fall of Internet grocery retailers

Abstract

Considers reasons for failure among pure play Internet grocery retailers. Notes that two factors seem to be significant. First, they did not achieve anything like a competitive advantage over the traditional “bricks and mortar” food retailers on those dimensions that drive the consumer store/channel choice process. Second, they did not develop a business model that reaches profitability, perhaps ever. They apparently did not foresee that total operating costs per customer were substantially higher for Internet grocery retailing than for “bricks and mortar” grocery stores, and that this new channel would have to charge consumers substantially more to reach breakeven operating levels. In fact, many pure play Internet grocers tried to price competitively against traditional food retailers and as a result, did not even cover variable costs. Hence, the more they sold, the more they lost. Eventually, they ran out of cash and were unable to raise additional monies in the market. Finally, there is some evidence that Internet grocers dramatically overestimated the size of the market for grocery shopping from the home. In the final analysis, pure play Internet grocer retailers appeared sexy and were hot for a short period of time because of the romance of the Internet. In fact, they were nothing more than fancy grocery delivery companies – which have never made money in the mass market and probably never will.