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Industry News

Analysts question whether grocery chains can make home delivery pay

Home delivery is an expensive proposition for most grocery chains — one that they can ill afford, according to analysts.

Grocery chains are under great pressure to develop omni-channel options, especially with Amazon.com and Walmart making massive investments of their own, said experts attending the annual Supermarket News Financial Analysts Roundtable.

“We have no idea where we're going,” said Scott Mushkin, managing director of consumer research at Wolfe Research, as reported by Supermarket News. "It looks like it's going to be omni-channel. But it's so expensive for home delivery, and no one has solved it."

Andrew Wolf, managing director at Loop Capital Markets, concurs. “I've done a lot of work on the cost of home delivery, and I can tell you you're just cannibalizing your store base," Wolf said. "It’s awful. If you're getting new customers, it's not so bad. But it's not a great thing, because it's so expensive. I think that with the cost of home delivery, as it starts to grow, we're going to see how expensive it is for these retailers.”

“I've done a lot of work on the cost of home delivery, and I can tell you you're just cannibalizing your store base”

For global giants like Amazon and Walmart, the challenge is less daunting, analysts note, because of the capital they can deploy and the number of stores they operate. Amazon now provides home delivery in 53 U.S. cities, reports Supermarket News. “They have such a huge scale advantage on last-mile,” Wolf pointed out, “that, theoretically, adding some food, at least you already have some density of delivery — which is obviously the biggest economic factor in making money on delivery.”

By Edmund Mander

Director, Editor-In-Chief/SCT

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