Internet sales impact on grocery anchored retail centers.
#Internet impact background
Internet spending is growing rapidly and has been gradually influencing commercial real estate for approximately two decades. Books stores and office supply stores were the first retail categories to be negatively impacted in the 1990’s. Over the past five years, consumer electronics, department stores (especially men’s clothing), and jewelry stores have been under pressure from online counterparts. Categories that have so far had little impact include grocery stores and warehouse clubs. 

#Annual average online sales growth,  2010-2015^1
* Men’s clothing +17.4%
* **Groceries +16.7%**
* Shoes +13.6%
* Health, vitamins, supplements +13.4%
* Computers and tablets +11.4%
* Cosmetics +10.9%
* Beer, wine &amp; liquor +10.8%
* Art +10.5%
* Jewelry +8.9%
* Auto parts +8.1%
* Pet supplies +7.1%
* Flowers + 3.0%
* Gift shop items and cards +1.8%
* Eyeglasses and contact lenses +1.3%
* Cameras and camcorders +0.9%

#Impact of Online Grocery Ordering
Online grocery ordering is currently a $13 billion market and accounts for 2.1% of all U.S. grocery purchases.^2 As online grocery ordering continues to expand, the demand for grocery retail real estate may be more durable than categories like bookstores, consumer electronics stores and department stores. There is a variety of reasons for this, including:

1. Compared to book and electronic merchandise, inventory costs are only slightly higher in a grocery store versus regional warehouses. 
2. Shipping cold and frozen goods is cost prohibitive for regional warehouses.
3. Customers may value same day delivery for groceries more than items like books and electronics.
4. Online grocery sales often do not have a sales-tax advantage.

There are ten national supermarket chains, and nine of them offer online shopping (the only exception is Trader Joe’s, which has multiple third-party delivery services).^3 Regional chains had been slower to adopt online ordering, but that appears to have shifted in recent years; 16 of the largest 20 regional grocery stores now have an online ordering option.^4

With the above comments in mind, grocery stores are not immune to online competitors. There has been a seemingly endless supply of tech-startups over the past two years attempting to enter and disrupt the space. Door to Door Organics operates in 32 cities, and has rapid expansion plans (they are entirely warehouse based). Instacart received a $220 million venture-capital infusion in 2015; the company is planning to have nationwide coverage in 2016. Online grocery companies who have been around for many years, such as Peapod who has fulfilled over $30 million in orders, also have aggressive expansion plans. 

The largest potential player in the mix, Amazon.com, has been offering a high-end $299 per year grocery program in test markets since 2007. Since 2013, the service expanded to Los Angeles, San Francisco, San Diego, NYC, and Seattle. In addition, in May 2015, Amazon collaborated with grocery stores in Manhattan and offers one-hour delivery service to customers. The company plans to expand this program to Atlanta, Austin, Baltimore, Brooklyn, Dallas, and Miami.


Footnotes:  
^1
IBIS World, E-commerce Disruptors, February 2015. 

^2
IBIS World estimates online grocery spending will expand to $23 billion by 2020.

^3
10 National supermarket chains: Albertsons LLC , Aldi, Delhaize Group, Kmart Super Center, Kroger, Safeway Inc., SuperTarget, SuperValu Inc., Trader Joe’s, Walmart Supercenters.

^4
Regional chains with online ordering: A&amp;P Supermarkets, BJ’s Wholesale Club, Fairway Market, Giant Eagle, H-E-B, Hy-vee, Ingles, Lowes Foods, Meijer, Price Chopper, Publix, Stew Leonard’s, Stop &amp; Shop, Wegmans, Winco Foods, Winn-Dixie. 
Regional chains without online ordering: DeMoulas’ Market Basket, Piggly Wiggly, ShopRite.
[{"id": "crtbitu", "text": "This is part of a paper my group put together (that I attempted to format in a reddit-friendly manner) - if anyone has any feedback/criticism/questions I'd appreciate it.", "replies": [{"id": "crtd2zh", "text": "Is there any data available about online order with pickup that is available from the major chains? Harris Teeter (now part of Kroger) offers this and it's pretty popular, especially at the higher end stores. Although I haven't searched financials to see what kind of numbers are available.  \n\nI would be more apt to pick up my groceries at my local store than have them delivered. You have to be home for delivery (cold items), what about issues with alcohol sales.  \n\nI think this is going to come down to having a certain density or wealth concentration to be successful. Probably guarded information of the players in the biz. ", "replies": [{"id": "crtmrqm", "text": "Some of the large chains are publicly traded and give indicators of online sales volume in SEC filings, but none of them are above 1% as far as I've been able to find. I agree with you about local store pickup - a few of the regional chains allow the customer to place an order with a computer or phone, then have the order waiting in a climate controlled room. ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "crtbv8l", "text": "This is great, thanks for posting.\n\nIt's also important to note that some consumers are willing to pay a premium for online groceries. It saves time and effort on the part of the customer. \n", "replies": [{"id": "cs0vi0f", "text": "Agreed - Books and electronics online sales growth was primarily due to lower prices (which can be attributed to lower inventory/storage costs). Online grocery ordering doesn't have similar inventory/storage advantages and therefore won't have much, if any, price advantage. Online grocery ordering rests on how much consumers value the added convenience. ", "replies": [], "depth": 2}], "depth": 1}]