Why People Still Don’t Buy Groceries Online

Nearly 30 years ago, when just 15 percent of Americans had a computer, and even fewer had internet access, Thomas Parkinson set up a rack of modems on a Crate and Barrel wine rack and started accepting orders for the internet’s first grocery-delivery company, Peapod, which he founded with his brother Andrew.

Back then, ordering groceries online was complicated—most customers had dial-up, and Peapod’s web graphics were so rudimentary that customers couldn’t see images of what they were buying. Delivery was complicated, too: The Parkinsons drove to grocery stores in the Chicago area, bought what customers had ordered, and then delivered the goods from the backseat of their beat-up Honda Civic. When people wanted to stock up on certain goods—strawberry yogurt or bottles of Diet Coke—the Parkinsons would deplete whole sections of local grocery stores.

Peapod is still around today. But convincing customers to order groceries online is still nearly as difficult now as it was in 1989. Twenty-two percent of apparel sales and 30 percent of computer and electronics sales happen online today, but the same can be said for only 3 percent of grocery sales, according to a report from Deutsche Bank Securities. “My dream was for it to be ubiquitous, but getting that first order can be a bit of a hurdle,” Parkinson told me from Peapod’s headquarters in downtown Chicago. (He is now Peapod’s chief technology officer; his brother has since left the company.)

Until online grocery-delivery companies are delivering to hundreds of homes in the same neighborhood, it will be very hard for them to make a profit. as it is. Add on the labor, equipment, and gas costs of bringing food to people’s doors quickly and cheaply, and you have a business that seems all but guaranteed to fail. “No one has made any great amount of money selling groceries online,” Sucharita Kodali, an analyst with Forrester Research, told me. “In fact, there have been a lot more people losing money.”