If you haven’t noticed, the $600 billion-a-year grocery industry is in the midst of massive digital disruption. Traditionally a risk-adverse business, grocery’s late entry to the e-commerce game is largely due to the complexity of the industry. Factors such as constantly fluctuating prices, complex promotions, and the volume and variety of store-level SKUs don’t exist in many other areas of retail the way they do in grocery, making e-commerce seem like a daunting task. But there’s another factor involved: complacency. For decades, grocers have been successful resting on their laurels. If the competition isn’t doing it, why should they?
In the U.S., e-commerce currently accounts for just 1% of all food and beverage sales according to BI Intelligence. But, this slow adoption is not a function of consumer demand — rather it’s simply a function of consumer access. In fact, according to a recent Nielsen study, nearly six in 10 (58%) consumers worldwide are willing shop for groceries online once the option becomes available to them. The trouble is, in the U.S., most grocers simply haven’t offered the solutions yet, despite the availability and maturation of e-commerce technology across similar markets.
Thankfully for grocers and consumers alike, this is all changing. Every day we’re seeing both startups and behemoths emerge with digital grocery offerings and it’s serving as a huge wakeup call to traditional grocers. And as they look for areas of growth (and consumer demand increases and sales start leaking out of their stores to other outlets such as restaurant delivery or meal-planning and delivery services), grocers will start thinking of ways to make themselves more relevant.
So now that the industry is being disrupted, what’s the right strategy for grocers looking to add digital conveniences for their shoppers? Here are four initial considerations to make when determining the best way to move forward:
Start with curbside pickup: There is a misconception in the market that e-commerce equals delivery, and that scares a lot of grocers. What they are forgetting is that they have the most critical infrastructure necessary for click-and-collect e-commerce — a supply chain, labor, brand recognition and a close proximity to every consumer. Stores are built on commuting routes for a reason, so offering e-commerce with a pickup model that is convenient to the consumer’s everyday commuting pattern not only makes sense, but is often the preferred model for shoppers vs. delivery (for our clients that offer both options, pickup is three times as popular as delivery).
Own the experience: Experience has become one of the most important elements of retail today, regardless of industry, so I’ve yet to understand why a retail brand would turn their customers over to someone else. But it’s happening more and more with grocers turning the delivery experience over to a third party. The only other time I remember this happening in retail is when Borders had Amazon fulfill their orders. And look how well that turned out for Borders. To set yourself up for success, own the customer experience from start to finish.
Expect profitability: In a click-and-collect model, grocers will have to invest in technology, labor and modify stores, but you should expect business value quickly. First, you’ll see bulk purchases in categories you’ve been losing market share in for years start to come back to you. Second, you’ll see cross-channel shoppers increase their spend with you vs. when they were in-store only shoppers. Third, you’ll see new customers start shopping with you because the grocer they typically shop doesn’t offer e-commerce — and this online shopper spends on average of twice what an in-store only shopper spends. Moreover, the average ring for an online basket is $157 vs. $50 for an in-store basket. When you combine how these benefits stack up, plus how margins work out given the size of the basket to begin with, you’re looking at incremental profit.
Involve your brand partners: CPGs and grocers have a highly symbiotic relationship that needs to be accounted for in the digital shopping experience. Identify ways to connect brands with shoppers in the digital channel the same way you do in the store. Take it one step further by using loyalty, purchase and intent data to present more relevant and meaningful offers throughout the digital path to purchase.
Grocery is seeing a resurgence in the digital age and grocers that are not at least thinking about e-commerce are putting themselves at a competitive disadvantage that they will not be able to overcome as more consumers seek and come to expect digital options.
Rich Tarrant is founder and CEO of MyWebGrocer. Rich was an early believer in the viability of the online grocery business and has been working with grocers and CPG manufacturers since 1999. For more information, please visit www.mywebgrocer.com.
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