To estimate the total amount of fruits and vegetables sales in NYC, we need to take into account certain assumptions like:

• Population of NYC
• Average monthly bill of grocery of NYC resident
• What percentage of this monthly grocery expense is allocated to Fruits and Vegetables
• Percentage of population that is exposed to E-commerce and likely to buy groceries online
  • Assumption is that people willing to buy Fruits and Vegetables online are a sub group of those who have previously purchase online and who actively buy fruits and vegetables in store

Population of NYC is around 8.5 million in 2014, so we can round that to about 9 million in 2019. As NYC is a well educated, highly developed area, the population does not increase very fast. And increases of rent have caused people to move away to 2nd tiered cities. So 9 million is a decent estimate for the next few years.

Without looking deep into actual statistics, I would say NYC residents would have a higher proportion of income allocated to dining out rather than groceries compared to 2nd and 3rd tiered cities in the US. NYC residents are quite affluent, have less free time, career oriented, and higher income in comparison to states like Maryland or Pennsylvania. At the same time groceries maybe 30% more expensive in NYC due to higher rental and logistic costs for grocers. So I would estimate the typical NYC resident might spend $80 a week on groceries. From my own experience as a 25 – 35 adult, I spend around 20% of that grocery bill on fruits and vegetables. So that comes to $16 per week on fruits and vegetables, or $64 per month per resident on average.

The next step is to estimate the percentage of population in NYC that are capable of purchasing goods online. This means they need to at least have internet access and have some computing device. Internet penetration is around 80% in New York state, so perhaps it will be a bit higher in NYC, let’s say 85%. Around 80% of US residents have made a purchase online in the past month. So now we can say that 9 million x 85% x 80% = 6.12 million is the potential e-commerce population of NYC. What about the percentage of resident who purchase groceries? A reasonable estimate might be that 9 out of 10 buy groceries. It is possible that some residents might eat out a 100% of the time. So we can say that around 5.5 million is the total amount of people who have a potential to buy groceries online.

If we multiply the 5.5 million TAM by $64, we get 352 million per month in Gross Merchandise Value. Or 4.224 billion per annum. This number seems high, but it represents the total revenues if 100% of residents suddenly switch their fruits and vegetables grocery purchases to online. Of course that is not realistic, so can take a conservative percentage like 20%, or 1 out of 5, may switch their grocery shopping to online giving an estimate of 844.8 million per year in NYC. Over the years, and increasing amount of resident are expected to switch to online groceries so we might expect 844.8 million to have a growth rate of 10% – 15% YoY.

Clarifying questions:

What is included in online sales: Amazon, Instacart, WF, Costco, Google Shopping, any online website that local shops may have?

Assuming all of the above apply

What is included in Fruits and vegetables: Is it fresh fruit and vegetables or frozen or canned or pickled?

Assuming fresh and frozen fruit and vegetables.

NYC is New York City and not considering the state of NY.

Total no. of fruits and veggies per year = Total $ amt. of fruits and veggies per week * 52 (Assumption here is that most people grocery shop weekly)

Total no. of fruits and veggies per week = No. of households in NYC buying buying grocery online* Weekly consumption of fruits and veggies in $

No. of households in NYC = Population of NYC/Average no. of people per households

Generally middle to high income households with some extra income to spare use online websites to order groceries

Assuming 30% of households fall in this category = 0.9M

If I poll my friends and family, most of us fall in the middle to high income millennial households but only 5% of us order groceries online.

Extending the same 5% to households in NYC = 450,000 households

Our family consists of 3 of us and we spend around 35$ on fruits and veggies per week. Assuming prices of fruits and veggies in NY and SF bay area are similar.

Assuming the same average for all households

450,000 * 30 = $13.5M per week

13.5M * 50 = 675M per year spent on fruits and veggies in NYC online.

Clarify

1. “Online sales” = sales that are done through online grocery services like Amazon.com, FreshDirect, and Instacart. I’m not including meal prep services and not digital checkouts that can occur through your phone but in-store.
2. “Fruits and Vegetables” = fresh produce (not including processed, canned or frozen foods).
3. Consumers only, not including restaurants or other businesses.

Approach

To estimate these sales, I want to think of a formula that I can use to get the answer, then we focus on the individual numbers necessary to calculate each of the pieces.

( NYC Online Population ) x ( Avg. Online Produce $ / week / person ) x ( 50 Weeks / Year )

Estimation

NYC Online Population

NYC has a population of about 8M and US internet access is around 80%. In a large city like NY, I imagine that internet access is higher, let’s increase internet access to 90%.

NYC Population x % Internet Access = NYC Online Population

8M x 90% ~ 7M

Avg Online Produce $ / Week / Person

For this data point, I would like to divide users into segments. I’m would like to use the dimension Age because I see age affecting both the usage of grocery delivery services as well as the avg spend.

I want to start with the following segments, but this is something that we can get more granular if need be.

1. 21-30 – young professionals, more dining-out (dates, social events, etc.),
2. 31-40 – young families, less dining-out, increase in overall produce spend for kids health
3. 41-60 – older families, similar to above, but need to factor food consumed by kids
4. 61+ – senior citizens/retirees, mid-range of dining-out, low tech savviness

For each segment, I’m going to calculate the Avg Online Produce $ / Week / Person, and then take a weighted average based upon the population percentage.

The formula I would use for each segment is the following:

( Weekly Grocery Spend ) x ( Produce % ) x ( Online Grocery Usage % )

21-30 Demographic

Using myself as a basis, I would say that I probably spend $200 / week on myself on groceries. I have a family and rarely dine out. When I was in my twenties, I rarely cooked (especially living in an apartment with a barely functioning kitchen) and ate out the majority of the time. Let’s use half of my estimate, $100 / week for groceries.

When thinking about the percent of the grocery bill that is fresh produce, I’m thinking of the different categories of food – drinks, proteins, dairy products, produce, snacks. Let’s say that the bill is split evenly among those categories, so let’s use 20%.

This demographic is the most comfortable with technology. And when I think about my last visit to the grocery store, I a handful of people that fit this cohort. Let’s say that most use online grocery delivery services at 75%.

( Weekly Grocery Spend ) x ( Produce % ) x ( Online Grocery Usage % )

$100 x 20% x 75% = $15 / Week / Person

31-40 Demographic

Since this is the group that I’m in, let’s use my above estimate of $200 / week spent. Here I’ll also want to use the same 20% produce percentage as above. However, this group is less tech-savvy than the 21-30 segment. However, since many have families with young children, they do value and pay for convenience. Let’s use grocery delivery service usage as 60%. This also is aligned with my own anecdotal experience, where I would say more than half of the people I know use grocery delivery services.

( Weekly Grocery Spend ) x ( Produce % ) x ( Online Grocery Usage % )

$200 x 20% x 60% = $24 / Week / Person

41 – 60 Demographic

The average household size in the US is 3 people. So let’s add a 50% increase to Weekly Grocery Spend for this demographic to account for any children. Also, let’s reduce the online grocery usage to 30%, thinking that they are half as likely to use a service as the 31-40 demographic.

($200 x 1.5) x 20% x 30% = $18 / Week / Person

61+ Demographic

This demographic probably spends more time dining out than those with families, but not as much as young professionals. Let’s take the split the difference and use $150 as the average weekly spend on groceries. However, I imagine this demographic has very low usage of online grocery delivery services. Let’s say that it’s 5% usage.

$150 x 20% x 5% = $1.50 / Week / Person

Weighted Average

Now for each demographic, I want to use their percent of the population to calculate a weighted average spend on online groceries.

• 21-30 ~ 10% x $15
• 31-40 ~ 10% x $24
• 41-60 ~ 20% x $18
• 61+ ~ 20% x $1.50

Weighted Avg = 1.50 + 2.40 + 3.60 + 3.00 = $10.50

Calculation

( 7M NYC Online Population ) x ( $10.50 Avg Produce $ / Week / Person ) x ( 50 Weeks / Year ) ~ $3.5B Avg Produce $ / Year

Reflection

Using this estimate, I want to gut it check, by calculating the overall grocery delivery market. If we take this number and adjust it to account for ALL GMV of grocery delivery service within NYC, that would be an estimated $17B. Let’s say that NYC is 5-10% of the total market (given it’s one of the largest cities in the US). The current TAM for grocery services would be $170B-340B.

This market size seems too high, given there only a handful of major players in the space. With Instacart being one of them, I think they have under $5bn in sales.

When reviewing my assumptions, I may want to adjust is the average spent on groceries per week. Given the network of people I’m exposed to (professionals within tech, legal, and finance industries), my estimate on weekly average spent could be skewed too high. Using the 31-40 demographic, and assuming two people per household, the annual budget for groceries would be 200x2x50 = $20k. If the average household income in the US is 60k, then on a post-tax basis (40% tax rate –> $36k post-tax), the grocery expense would account for over half the budget. Based on this, let’s reduce our weekly grocery spend by a factor of 3.

I also may have been too aggressive with my online grocery usage estimates. Let’s reduce by a factor of 3 as well.

Adjusted calculation ~ $350M Avg Produce $ / Year. Using a similar check, this would bring the NYC online grocery market size to almost $2B, and the total market size to $20-40B. This seems more aligned with my understanding of the market.

Assumptions

• This estimation will not take into consideration service fees, delivery fees, or tips
• we are specifically interested in consumer purchases of fruits and vegetables from local grocers (i.e. instacart, peapod, wholefoods/primenow, etc.)
• Fresh and frozen produce are in scope

Equation

NYC annual online produce purchases = (Num NYC households) x (% pop. that purchase produce online) x ($ spent on online produce purchases)

(NYC HH) =

300M Americans –> 100M HH = 3ppl/HH

8M/3 = 2.67 M

(% pop. that purchase produce online) =

segment population

• wealthy –> 10% of pop–> 90% purchase produce online = 24K HH
• mid class–> 50% of pop–> 20% purchase produce online =267K HH
• lower class–> 40% of pop–> 0% purchase produce online

291K HH

($ spent on online produce purchases)

• wealthy
  • assumption: likely eats out more often than not
  • weekly grocery bill = $150
  • buy more organic and exotic produce & more produce = 1/3 of bill
  • total = $50 per week
  • annual = 50*52wk = $2600
• middle class
  • assumption: eats out more than national average but less than the wealthier segment
  • weekly grocery bill = $100
  • buy some organic foods = 25% of bill
  • total = $25 per week
  • annual = 25*52wk = $1300

NYC annual online produce purchases =

• wealthy HH
  • 24K x $2600 = 4 x 12 x 13 x 100 x 1000 =156 x 4 x 100 x 1000 = $62,400,00
  • 267K x $1300 = 267M x 1.3 = $347M
  • total = $409M

Adjustments

• I probably purchase groceries more often than other young millenial new yorkers, so my estimate of new yorkers who purchase online groceries might be high
• I don’t purchase groceries online b/c stores are within walking distance which might mean that my estimate is too high