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Will competition force all grocers to offer free store pickup?

Wednesday, September 19, 2018  
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RetailWire | Tom Ryan 

Source: Kroger ClickList

With Walmart, Target and Whole Foods all offering free grocery pick-up, should Kroger and other traditional supermarkets stop charging as well?

Kroger’s ClickList pick-up program charges $4.95 for regular orders and $7.99 for expedited ones in most markets. (Walmart’s and Target’s pick-up promise excludes perishable items.)

A note from UBS that came out last Wednesday estimated that offering free-in-store pickup would cost Kroger five to 10 cents a share. The calculation assumes one to two percent of Kroger’s sales are purchased using the service, the average order is $100 and average fee is $4.95.

“While we don’t expect Kroger to change its fee structure in the near term, we believe there’s a chance it may revisit it in the next few years,” UBS wrote, citing pressures from Walmart and Whole Foods, according to Barron’s.

UBS noted that Kroger may be able to offset its margin pressures through the automation and best practices upgrades it is instituting with the help of Ocado, the British e-grocer. Under an exclusive deal reached in May, Ocado is developing automated warehouses for Kroger in the U.S.

UBS’s note came out a day before shares of Kroger fell 10 percent after the grocer reported second-quarter earnings that missed Wall Street’s targets. The comp growth of 1.6 percent (excluding gasoline sales) versus strong mid-single-digit growth in grocery for Walmart and Target in the quarter was an indication that Kroger is losing share to the discounter giants.

Analysts attributed the growth in grocery seen at Walmart and Target to investments the retailers have made in pricing, assortment quality (including private brands), as well as technology, including online and store pickup.

Kroger’s digital business, which includes ClickList and home delivery, was a bright spot in the quarter, up 50 percent.

Whole Food doesn’t generally compete with Kroger in its markets, but Amazon’s ownership may change that. Last month, Whole Foods launched grocery pickup, including perishables, for Prime members at select stores. Orders are free over $35, $1.99 under $35, and $4.99 for 30-minute pick-up with no minimum order.

Free in-store pickup is fairly standard across apparel, department stores, home improvement and office supply stores. Supermarkets generally charge between $4.95 and $6.95.

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