How Badly Do Consumers Really Want Grocery Delivery?

Pets.com is often presented as emblematic of the excesses of the dot-com era, but there was an even bigger flop from the time: Webvan.

Even for the time, Webvan’s rise and fall was swift: The company went from being a $1.2 billion company with 4,500 employees to declaring bankruptcy and liquidating its assets, all in less than three years.

Dreamed up by Louis Borders of Borders Books fame, Webvan sought to do for groceries what Amazon did for books – cut out the brick-and-mortar middle man. Like Amazon, it strove to be more than that though: “You won’t hear us talking about the Internet grocery business,” CEO George Shaheen told USA Today in 1999. “It’s not our endgame.” (Amazon, by the way, bought the Webvan name a few years ago and resurrected it.)

Webvan bet big, which is why its flameout was of nuclear proportions. Yet some 17 years later, it’s worth asking whether the company’s idea for grocery home delivery was really on target. Shaheen certainly thinks so. Last year, the now-retired exec told The Wall Street Journal that “This is a service that somebody will figure out. No one really wants to go get in their car, drive to the store and go grocery shopping; this could save real time for people.”

Not everyone agrees. HSBC Retail Analyst David McCarthy surprised many this week when he declared that, “We remain unconvinced of long-term viability of home deliveries for grocery.” McCarthy noted that fast-growing European chains Aldi and Lidl aren’t even online.

McCarthy’s assessment comes as news surfaced that Instacart, the $2 billion startup that offers same-day shipping from Costco and Whole Foods, among others, is cutting the fees it pays couriers as it tries to rein in costs.

Rather than merely facing growing pains, Instacart is bumping up against the realities of the economy. There are two countervailing trends that are working against the idea of grocery delivery: frugality, and shopping-as-entertainment.

Frugality
Delivery fees for groceries can add as much as $20 to your order, if you include the tip. That may be fine for some high rollers, but as anyone who keeps a household budget will tell you, food prices keep rising every year even though fuel prices have fallen through the floor.

The price to feed a family of four a healthy diet on a moderate budget rose 38% from 2003 to 2013 according to the USDA and the inflation continues. During that time period, Costco’s stock roughly tripled.

Instacart may provide Costco delivery, but for many, the extra cost will undermine the decision to shop at Costco in the first place. Costco, Aldi, and Lidl continue to thrive because many shoppers are aiming to contain what has become a bigger chunk of their monthly budget.

Shopping-as-Entertainment
 As anyone can tell you, shopping at Costco can be fun — especially if there are multiple free samples. Likewise, Trader Joe’s makes an effort to make shopping as enjoyable as possible, with friendly sales staff and a range of offbeat snacks.

Wegmans, meanwhile, presents itself as a foodie theme park of sorts, with mini cheese shops and bakeries within its huge stores that evoke city streets of old. Like other grocers, Wegmans is experimenting with curbside pickup, but only at two outlets at this point.

Other supermarkets, including H-E-B offer programs like Cooking Connection featuring in-store chefs. Another chain, Giant Eagle, offers wine tastings.

Offering fun in-store experiences isn’t merely a desperate tactic to woo shoppers back to stores. Research has shown that shopping lights up the pleasure center in our brains and can be a joyful experience. Savvy retailers know this and take pains to add free samples, artful lighting and pleasant music to the experience.

Limited Audience for Grocery Delivery?
Since well-heeled shoppers enjoy such escapism as well, grocery delivery is likely to have a limited audience of very busy families with a decent amount of disposable income.

There are plenty of those types of families in the Bay Area, but not so much in the rest of the country, which is why online grocery shopping isn’t likely to sweep the nation. Like Pets.com, this is another case of Silicon Valley myopia — a more persistent one.