Amazon’s pending deal for grocery chain Whole Foods Market, which has several North Bay locations, is a high-profile reminder of the hundreds of millions of local dollars going into online sales that aren’t going to locally based businesses. But there’s an ambitious effort in the region to equip brick-and-mortar businesses to make a bigger play in the digital world.
Sonoma County GoLocal Cooperative, a buy-local network of about 400 businesses, is gearing up to test later this year a mobile app-based system that would allow local consumers to search for in-stock products to purchase on location or by delivery.
That may not seem revolutionary at a time when more online product searches are started via Amazon than search engines such as Google, and when large retailers offer online shoppers options such as ship to store, in-store pickup and home delivery. But the level of sophistication that goes into creating and maintaining such a system with features today’s consumers expect is daunting to recreate at the local level, say leaders of local business groups.
“We’ve been looking at for a couple of years how to stem some of this home-delivery business, which is essentially what all online shopping is, the convenience of having things delivered to your house,” said Terry Garrett, co-managing member of Sustaining Technologies, a Santa Rosa-based economic-development marketing firm. He co-manages Sonoma County GoLocal Cooperative and is interim manager of the Sonoma County Growers Alliance cannabis trade group.
Taxable sales totaled $26.0 billion in Sonoma, Solano, Marin, Napa, Mendocino and Lake counties in 2015, the most recent data available from the California Department of Finance. The percentage of online to instore sales has increased from 7.8 percent in the first quarter of 2016 to 8.5 percent in the first quarter of this year, according to the National Retail Federation’s analysis of Census Bureau figures. That would amount to more than $2 billion a year for North Bay counties.
In Sonoma County alone, total “retail leakage” is estimated to be $1 billion annually, according to ESRI figures Garrett commissioned plus Census data. The county’s online leakage could be around $700 million annually, based on 8 percent share.
“Retail leakage” is economics-speak for spending by residents of an area that’s higher than what’s going to local businesses. It includes purchases by residents from businesses outside a given area, whether done at a physical storefront, directly from a business by phone or online, or via virtual superstores such as Amazon.
The Seattle-based mega e-tailer Amazon is estimated to command as much as half of online sales in the U.S.
“Every bite that comes out of our local retailers, we have a motivation for how to stop that,” Garrett said.
The challenge has come in recreating with local resources some of the functionality from the two-decade head start Amazon has had on e-commerce. The GoLocal approach is starting with the retail type that many of the big players have been tackling: grocery and food. That’s what analysts guess is Amazon’s goal with Whole Foods, which itself has been partnering with grocery delivery vendors such as Instacart.
“People make purchases every day, and the likelihood of them being inconvenienced by going out of their house to get something offers the greatest market opportunity,” Garrett said.
But for local grocers, getting their inventory online is complex. Garrett and his team have built the software and are moving into testing this fall with one undisclosed grocer member of GoLocal and just 1,200 items, or shelf-keeping units (SKUs). That means uploading information and photos for each.