Nielsen: Online groceries to be $25 bln business by 2014

Online grocery shopping had a rough start in the 1990s...but Nielsen forecasts it'll be a $25 billion business by 2014.

Online grocery shopping might have gotten off on the wrong foot at the tail end of the original 1990s dot-com boom, with firms like HomeGrocer and Webvan launching to much fanfare then quickly disappearing from the scene. However, since then traditional grocery chains like Safeway have been experimenting with online ordering and delivery, Amazon.com has been operating Amazon Fresh as a test service in Seattle, and mega-retailer Walmart has been offering an online grocery service in San Jose, and firms like PeaPod and FreshDirect are re-invigorating the industry. How much? According to research firm, consumers spent about $12 billion on online groceries in 2010—and they forecast that figure will hit $25 billion by 2014.

“From a demand standpoint, the first generation of ‘digital natives’ are forming households,” Nielsen wrote in its blog. “To these tech-savvy media mavens, online is a way of life for convenient, on-demand and personalized attention. Plus, broadband penetration and mobile adoption rates continue to increase.”

Nielsen is so interested in the online grocery business that the research firm is teaming up with MyWebGrocer to start a new service in the third quarter to track online grocery sales, much the same way it tracks video game sales, mobile phones, television viewing, and other industries.. There currently is no aggregate reporting service for online supermarket sales.

Nielsen notes that consumers’ behaviors when shopping for groceries online differ from their in-store buying habits. Consumers are more apt to spend more for food and beverages online then in retail stores ($80 online versus $30 in stores), and make larger high-margin health and beauty products purchases ($30 online compared to $10 offline). Nielsen also notes online shopping can offer consumers not only a greater variety of product sizes and categories—since retailers aren’t limited by physical shelf space—but also creates an environment where niche players can more easily compete with established major brands and where a price transparency and cost comparison features can help create a “rational market.” That is, online shoppers are less likely to find significant pricing differences for the same product in different stores—something that’s all-too-common in brick-and-mortar grocers.

Still, for some consumers, online grocery shopping will always be a hard sell. No matter how far Internet technology comes, it’s still going to be touch to pick out the one perfectly ripe cantaloupe from a smartphone.