1 A Service US ONLINE GROCERY SHOPPING A Fresh Look at a High-Growth Channel August 2013 KELLY TACKETT Research Director

2 1.Introduction 2.Grocery e-commerce shopper assessment 3.Competitive landscape 4.Outlook and implications Contents

1. Introduction

4 Additionally, health & beauty represents more than two-thirds (67.9%) of current online grocery spending. Currently, only a tiny portion of US consumer spending on grocery is occurring online. Planet Retail estimates online grocery spending totals USD25.86 billion, or roughly 1.3% of total category spend. 1. Introduction  While health & beauty specialists and drugstores bolstered their online presence during the past decade, traditional supermarkets largely ignored the channel and pure-play e-tailers focused on the fresh component of the grocery offer worked to fine-tune the business model – characterized by high operating costs, low margins and high shrink rates - so as to avoid replicating the colossal failure of channel pioneer Webvan during the dot-com bust.  On the demand side, shoppers’ accessibility to the grocery category offline has only increased during the past decade, with the proliferation of retailers selling food (e.g. dollar stores, drugstores, warehouse clubs) as a traffic driver. $25.86bn total online grocery spend 67.9% health & beauty

5 Key drivers of supply:  The entrance of e-commerce giant Amazon.com and mass retailing behemoth Walmart into the channel.  An increasing variety of e-commerce grocery operating models that are lowering the cost of entry.  An increase in interest in e-commerce by expansion-minded mainstream supermarket retailers that have little domestic runway left for their traditional formats. Changing forces in both supply and demand, however, suggest strong growth potential for online grocery retailing. Peapod, the Ahold-owned online grocery retailer, opened a click & collect format in partnership with Ahold’s Stop & Shop banner in August © amazon.com