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Largest Grocer in U.S. Prepares to Enter eCommerce with Vitacost Acquisition

Kroger, the largest pure grocery store chain by sales in the United States, recently purchased online vitamin merchant for $280 million to gain a stronger presence in internet retail as they face increased competition from the likes of Amazon, FreshDirect and others selling groceries online.

At first glance, a grocery store acquiring a vitamin retailer may not seem relevant to eCommerce retail, but the $280 million dollar investment by Kroger is about “progress towards a more Omnichannel experience,” as explained by the company’s CEO, Rodney McMullen. According to estimates from eMarketer, total U.S. eCommerce retail sales will approach $300 billion in 2014, but this is dominated by product categories like consumer electronics ($66.2 billion) and apparel & accessories ($64.5 billion), while food & beverage is expected to contribute $6.8 billion in sales, only 2.3 percent of total U.S. e-retail sales. Food & beverage is one of the fastest growing product categories in terms of eCommerce retail sales in the U.S., however, with a forecasted compound annual growth rate of 17 percent from 2012 to 2017.

While many retail product categories have seen tremendous shifts from brick-and-mortar to online sales, grocery stores in the U.S. have continued to transact with an overwhelming majority of their customers at the point-of-sale. Even the most avid online shoppers are still visiting the grocery store once a week as stocking and shipping groceries to households has been more difficult than most other product categories due to industry specific issues like the need for climate controlled shipping and guaranteeing product freshness.

But this isn’t to say that online grocery shopping and home delivery cannot be done in the United States, in fact, many major eCommerce players are getting a head start in this market. Amazon offers AmazonFresh, for ordering groceries online with same-day and next-day shipping, which is available to customers in the Los Angeles, San Francisco and Seattle areas. Meanwhile, online grocery shopping is much more common in the UK where Tesco, the world’s largest online grocer, grossed £2.5 billion in online grocery sales earning £127 million in profit in 2013.

In the case of Kroger, the brick-and-mortar grocer is looking to stay competitive as more companies compete by selling online and consumer’s preferences continue to shift. Kroger’s primary benefit from the Vitacost acquisition is a fulfillment platform for home delivery and an existing eCommerce platform they can bolt on rather than develop from scratch. According to McMullen, the Vitacost acquisition “accelerates” where Kroger is “by a few years.” Kroger will first expand to home delivery for groceries that are considered “shelf-stable” before moving on to fresh food.

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