Rural America Is the Next E-Commerce Frontier | E-Commerce
By Jack M. Germain
Oct 21, 2020 12:17 PM PT
Amazon reported recently that online grocery sales tripled during the pandemic. The company also saw a 160 percent increase in delivery capacity and tripled the number of Whole Foods pickup spots.
This is all great news if you live in a city with Whole Foods or where grocery delivery services are easily accessible. But if your food and home supplies depend on local pickup and delivery, and you live in rural strongholds, you might be in for some shortages. E-commerce is not every rural community’s Holy Grail for shopping.
Many local rural retailers are strangers to e-commerce. If stores in rural America want to keep customers happy and healthy, transitioning to e-commerce is key, according to Mark William Lewis, CTO of Netalico Commerce.
Rural grocery stores need to offer ordering and delivery comparable to companies like Amazon/Whole Foods and Instacart. That can be difficult because delivery is often more expensive, the more spread out the customers are, he observed.
“Grocery stores can start by offering an easy pickup option to get customers used to ordering groceries online, and then it is only a small extra step to get them to switch to delivery. Small retailers can even use off-the-shelf platforms like Shopify, where they can offer a standard e-commerce experience that most customers expect from the larger retailers,” Lewis told the E-Commerce Times.
The home delivery routine for rural customers is often very different compared to the opportunities enjoyed by suburban and city consumers, agreed Chris Dessi, vice president of Americas at Productsup.
“Delivery services, like Uber Eats, are oftentimes not available in rural areas. If local retailers want to offer home delivery, it is something they will most likely have to organize themselves,” he told the E-Commerce Times.
For example, a local grocery store might hire extra employees as drivers to deliver items from the store to the customer. There are, of course, limits to that solution such as a delivery radius and workforce availability, he noted.
In the wake of the continuing pandemic, some of those refinements are starting to come to rural consumers. The majority of large, widely-known grocery stores offer curbside pickup now as a result of the pandemic. The smart rural store owners have also adopted this option.
“Small and local grocers in rural areas should adjust their budget to prioritize curbside pickup over in-store experiences, as they are getting less foot traffic through their doors,” Dessi advised.
A Business Restarter
Third-party parcel delivery in rural areas is particularly viable now. It is a great option for local retailers in rural areas to look into, suggested Dessi.
“For local retailers considering involving a third-party service, I would suggest hiring a point-person to serve as the liaison between the retailer and third-party vendor. That is an extra step, but managing delivery is a beast of its own and requires dedicated attention in order to run smoothly,” he said.
Another option would be mimicking grocery delivery services like Home Chef or Hello Fresh, using products sold in-store. Again, local retailers run into the issue of being understaffed and delivery radius restrictions, but it is becoming a necessary option, he explained.
E-commerce is the way of the world now, so rural businesses need to know how to overcome the delivery and other barriers. Getting product data set up online and ensuring it is consistent and up-to-date across channels is the easiest way for retailers to make sure they are getting started on the right foot, according to Dessi.
“Once retailers establish their online presence and introduce e-commerce, consumers will surely take advantage,” he offered.
The Rural E-Commerce Challenge
Rural areas provide many logistical challenges for e-commerce. Grocery delivery is even more complex, agreed Meaghan Brophy, retail analyst at Fit Small Business.
“Because residents are more spaced out, e-commerce delivery is significantly more expensive in rural areas. Many e-commerce retailers, even Amazon, rely on the USPS for last-mile delivery in rural areas,” she told the E-Commerce Times.
It is simply not cost-effective for for-profit companies to organize their delivery services in spaced-out neighborhoods, she continued. Grocery is even more expensive and challenging than regular e-commerce because of the temperature regulations required to keep food from spoiling.
Independent grocers could serve their customers by offering delivery with in-house staff, Brophy added. However, it would likely need to look different than a Whole Foods type operation that offers groceries on-demand.
“To make the process more efficient, independent grocers would likely need to organize orders by location and offer specific delivery days for each area,” she said.
Aside from independent grocery stores, many rural areas depend on Walmart and dollar stores for groceries. Walmart does offer grocery delivery in many (though not all) rural locations, Brophy added.
“It will never make sense for dollar stores to offer grocery delivery (unless a third-party platform takes it on independently) simply because of the low price-points,” she said.
Rural America is seeing e-commerce growth, agreed Robb Hecht, an adjunct professor of marketing at Baruch College. To date, it has been sketchy, as WiFi and broadband are not universal as they are in the cities.
“To offset the cost, UPS and FedEx charge an extra US$4 per package for remote residential deliveries. The prevalence of free shipping to consumers and the need to price items the same online and in stores typically leaves retailers bearing this additional cost,” he told the E-Commerce Times.
For retailers, that adds to already steep costs. Shipping a container of Tide Pods laundry detergent from Atlanta to urban Oklahoma City is estimated to cost a retailer $11.44 — already more than the approximately $11 price of the item itself, according to an analysis by Spend Management Experts. Shipping the pods to Mangum, Okla. costs $15.65, he explained.
Also, consider that Amazon and its Whole Foods will soon have drones delivering e-commerce purchases. Once that ramps in scale, the delivery costs should decline, reasoned Hecht.
Rural population differences also factor into the delivery mechanisms for rural consumers, suggested William Schumacher, CEO and founder of Uprising Food.
“Grocery delivery is a bit harder to obtain in rural areas as there are fewer people to offer the service and to deliver groceries,” he told the E-Commerce Times. “In order for e-commerce to be as productive in rural towns as it is in the city, grocery stores would need to take charge of delivery in order to ensure customer satisfaction.”
No Clear Path
By its geographical nature, serving the rural consumer is a persistent challenge. To some extent, e-commerce in rural areas suffers.
For obvious reasons, most businesses will address market segments that are easy to reach and serve. The rural consumer is often subject to what economists call a “rural penalty” or a lack of services, resources, employment, and consumption opportunities that give this population unequal social outcomes, according to Jim Salas, professor of marketing and economics at the Pepperdine Graziadio Business School.
“From a business perspective, rural areas suffer from gaps in human capital, distance, and low population challenges and overall, lower socioeconomic differences which often do not represent the “low hanging” fruit that most businesses go after,” he told the E-Commerce Times.
The delivery routine for rural customers is typically the same as postal rates are the same for everyone. That is true even when USPS has to drive hundreds of miles, he added.
Salas suggested that the math indicates rural e-commerce is not lagging behind more populated areas though. Rural America is increasingly digital, more and more of rural communities are connected to the Internet — with Internet access rates for rural communities approximating those of households across the country, 85 percent versus 94 percent, he said.
With 12.4 percent of all retail sales projected to be online by the end of this year, 73 percent of those sales will come from rural consumers. However, some studies have found that rural consumers with access to the Internet choose to not go online, let alone conduct purchase transactions.
Other reports show online grocery shopping is a challenge when 55 percent of shoppers are very satisfied with their local grocery stores and 65 percent of them have never purchased groceries online. These results do not change much when distinguishing between rural and urban consumers. The unanswered question is whether those results are caused by demand or supply issues, he asked.
“I think it is a bit of both. Rural consumers may have digital access, but the cost is much higher for them compared to their urban counterparts. They are also demographically older, not as educated, and of lower socioeconomic status so these factors place them on the low end of tech adoption in general, said Salas.
He also focused on a behavioral component to this debate over rural versus urban e-commerce. The appeal of rural communities for many who reside here is in being an intimate part of the community. This often plays out in visiting your local store and socializing in person, he noted.
“In fact, these communities often have a negative view of big-box retailers who are encroaching on their local shops, run by their friends and neighbors. They are far too familiar with the Walmart effect,” he said.
Tide Is Turning
While rural e-commerce is a challenge, Salas does not think that it is out of reach of rural consumers. If anything, they are about to see more competition in this space for their business, he predicts.
As online shopping becomes more and more of a norm for all consumers, including rural shoppers, Walmart, eBay and Amazon have all announced renewed interest in this market.
In fact, Walmart has a defensive strategy to product its in-store sales by moving to an omnichannel strategy. Amazon and eBay see the 37 million working-age adults in rural communities as an attractive market. Walmart has launched free two-day deliveries through Walmart.com for orders over $35 and introduced its Pickup Today program that allows customers to order online and pick up in stores.
“This fits their announced strategy of investing more in their online channels than building new brick and mortar stores and allows them to leverage their rural footprint strategically against competitors like Amazon,” Salas said.
Consider one SMB entrepreneur’s experience with rural e-commerce as an example of changing times. Meaghan Thomas, owner of Pinch Spice Market, delivers organic spices to many rural areas.
“We are seeing a 400 percent year-over-year growth as people turn to shop online for pantry items like they never have before,” she told the E-Commerce Times. “E-commerce shopping levels the playing field for rural consumers, especially when it comes to shopping for food and pantry items.”
Thomas often gets messages from customers in small towns or remote areas that cannot find high-quality organic spices or international blends at local stores. When they discover her online spice shop, they are excited about the variety they have at their fingertips. Plus, since she uses USPS for deliveries, she is able to keep low shipping costs for customers.
“We eat most of the shipping cost to make the idea of shipping a little less painful, charging only a portion of the real shipping cost. While we eat that cost, we easily make up for it in the increased volume. We also offer free shipping when they spend over a certain threshold — $45 in our case,” Thomas said. “More than 60 percent of our rural customers become repeat buyers.”