NEW YORK — Several headwinds will serve to constrain online grocery growth in the coming years, according to Fitch Ratings here.
In a short note commenting on the potential for the growth of online grocery in the wake of AmazonFresh's expansion into Los Angeles, Fitch noted that high delivery fees will deter consumers from ordering online, while high costs and low profit margins will deter more companies from entering the space.
“Most consumers will conclude that the convenience of having their groceries delivered is not worth the added cost,” Fitch said in the note on Monday.
The note, from lead analyst Phil Zahn, estimated that online grocery would increase to encompass about 2% to 3% of total grocery sales in the next 10 years, up from 1% now. That assumes an annual growth rate of about 10% to 15% for online grocery and 3% for the total market.
The growth in market share of online grocery will go to existing players like FreshDirect and Ahold’s Peapod; expanding online retailers like Amazon and Google; and existing traditional retailers like Wal-Mart and Safeway, Fitch projected.
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