Groceries Go Online: Concentrated Products Accelerating the Shift
As weird as it sounds I actually love going to the grocery store. There’s some special about perusing the aisles, picking out produce for the week and shamelessly critiquing Trader Joes’s latest frozen innovations despite knowing I’d practically starve without them.
The advent of the modern grocery store, which emerged in the early 1900s, was the result of several technologies coming together in relatively short order: things like cars, refrigeration, canning. Today, grocery stores are an $800+ bn industry. It’s one of the least developed sectors in e-commerce, with penetration at just ~5% (pre-COVID), compared to books, video & music (55%), consumer electronics (43%) and apparel (29%).
Relative to other sectors, grocery has struggled to gain traction in e-commerce for several reasons:
- Unpredictable and last minute consumer needs
- Multi temperature nature of products (i.e. refrigerated, frozen, dry)
- Consumer preference for product selection (e.g. brand preference, produce ripeness)
- Low margins
While it’s obvious that certain products like fresh milk and frozen vegetables don’t make sense for e-commerce, there are several categories that are more conducive to a shift online.
One trend that has emerged is concentrated versions of products such as cleaning supplies, coffee and sports drinks. The non-concentrated counterparts all have one thing in common; they’re made up of >90% water, which is expensive to ship and has a significant carbon footprint.
In a world of challenged online grocery, concentrated products are forging a path forward to bring consumers convenience, value and sustainable products in a way that makes sense for the supply chain. PepsiCo validated the shift when it acquired SodaStream, the company that pioneered at-home carbonated beverages and concentrated syrup refills, for $3.2bn in 2018.
The trend extended even further into the meal prep space, with several brands offering spice and sauce kits by meal occasion. These products simplify the traditional meal kit by eliminating the need to deliver sub-scale portions of raw meat and vegetables while still simplifying the cooking experience for the consumer who just needs to add these fresh ingredients.
Concentrated products solve several friction points:
- Supply Chain Simplicity: Eliminates need to ship large amounts of water or refrigerated products with excessive packaging
- Sustainability: Reduces carbon footprint by minimizing shipping weight and single-use plastic
- Omnichannel Presence: While perfect for e-commerce, concentrated products are also suitable for retail, allowing for product discovery and subsequent replenishment online (or vice versa)
- Sound Unit Economics: Premium price points and concentrated nature make it easier and more economic to deliver through e-commerce
We’ll likely see this list expand meaningfully as new categories are tapped and new entrants emerge looking to capture a slice of the $800bn grocery aisle as it evolves online.
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