The cost and complexity of delivering groceries is what ultimately led to the downfall of Webvan and other startups that have tried to disrupt the $US600 billion-a-year grocery industry.
But a new wave of promising delivery startups are relying on a tried-and-true model to disrupt groceries: membership.
Membership grocery services help secure consumers as repeat customers and allow companies to lower individual shipping fees on every order. Shipping fees are typically a big barrier to grocery delivery because orders must be delivered fast to guarantee freshness.
The grocery delivery model is attractive because it guarantees that customers are getting fresh food straight from their local supermarket, without having to waste time in the store. The typical American family of four visits the grocery store twice a week, according to the USDA.
In a new report from BI Intelligence, we define what an e-commerce membership program is and how retailers are taking the Costco model and updating it for online grocery shopping. We also assess the advantages and disadvantages of e-commerce membership programs for the retailer, as well as what consumers might look for in these programs and what incentives are needed to get people to sign up.
Here is a small sample of the e-commerce membership programs that we examine in the report:
- Amazon:Amazon charges Prime customers $US99 annually ($US299 for Amazon Prime Fresh) in exchange for a bevy of benefits ranging from free two-day shipping to access to premium video and music content, as we’ve said. We estimate that there are approximately 53 million Prime members worldwide — and 25% of those members live outside the US.
- Instacart: The grocery delivery service partners with Whole Foods, Costco, and Safeway, among others, and offers a membership program called Instacart Express, which costs $US99 annually — in exchange, members get free two-hour delivery on all grocery orders. Customers who use Instacart but do not sign up for the membership program must pay $US3.99 per delivery.
- Shipt: This is another service very similar to Instacart, which has its own grocery delivery membership program called MemberShipt . Members pay $US49 annually and get free one-hour deliveries on orders over $US35. Shipt is the delivery partner for Publix — one of the five largest supermarket chains in the US.
- Thrive Market: The newly launched organic grocer and wellness retailer asks customers to pay an annual fee of $US60 for access to products that are supposedly “always 25 or 50 per cent” cheaper compared to competitors. (There is no non-membership version of the service.) Thrive Market has referred to itself as a sort of Costco-like retailer for health-conscious consumers.
In full, the report:
- Looks out how different services and retailers are putting a twist on the Costco model.
- Includes data about how much shopping club members spend versus regular customers.
- Lists the advantages and disadvantages that retailers face with operating a membership program.
- Outlines the incentives that drive consumers to pay an annual fee for shopping programs.
- Provides an in-depth look at why membership programs could be the key to unlocking the grocery e-commerce market.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.