Get ready for some big changes for grocery retail in 2016. The winners will be those retailers who understand that their success depends on the blended performance of their online and offline offerings, not one versus the other.
Moving forward, it will be crucial to reinvent the grocery retail model by leveraging all assets – digital and physical (including stores) – and this means putting online grocery within the context of the total business.
The virtuous cycle for online grocery is in full effect
In 2015, we saw that shopper exposure and interest drove retailer investment, and retailer investment drove shopper exposure and adoption:
More than 40% of US households have now had experience buying groceries online according to new Brick Meets Click research. These experiences are changing the way consumers buy groceries. Access to information and new choices has made the path to purchase more personal and made the “consumer decision tree” a much less useful guide for presenting products.
The consumer needs that drive grocery trip missions have evolved as more digital capabilities have become available. Today, meeting those needs and winning the trip increasingly involves offering online tools that make the trip more efficient and let the customer start their shopping/order outside of the physical store.
Investment in online grocery increased significantly across the board.
Notable expansions include:
Traditional big players like Kroger, Ahold, and Walmart see online services as increasingly essential to serving their customers – and as one of the keys to driving increased sales
Regional chains and independents like HyVee, Woodman’s and Dashes are using online services to increase their share of customer spending
Big digital players like Amazon and Google are disrupting the market by approaching online grocery as a building block in their broader business strategies rather than as a business that must be profitable on its own
Speciality online retailers like Door-to-Door Organics are bringing more service value to consumers by aggregating desirable products, and meal kit providers like Hello Fresh compete in the meal solutions niche, often in new ways such as partnering with other disruptive services like Uber
What’s ahead for online grocery?
The amount of online grocery spending will increase significantly, and the growing use of digital shopping tools will further fragment the market.
1. Big online spending increases
We’re approaching an inflection point that will rapidly drive up the share of online grocery spending, as shoppers increase their use of digital/online tools for full-basket shopping trips. Market after market will reach that inflection point as large traditional retailers roll out online shopping options that make it a lot easier for consumers to get their broad grocery shopping done at one online location – especially to serve the “shop when I want” and “stick to my list/budget” trip missions.
Today’s $25 to $35, three-to-five item, online grocery order for specialized items will rapidly grow to $140 to $170 orders as households see the convenience of shopping more broadly for groceries online.
2. More fragmentation
New platforms, the growing use of online shopping tools, and increased competition to serve the digital needs expressed in the updated trip missions will increase customer satisfaction – but further fragment the market and accelerate changes in how people shop for groceries.
New online platforms will impact how purchase decisions are made. Echo and other new communications channels will offer shopping shortcuts for finding and replenishing products.
Existing online platforms continue to make it easier and easier for shoppers to move directly from, for example, a recipe to an ecommerce platform.
Strategic guidance for 2016
1. Put online grocery in the context of the total business
Traditional retailers will realize that while it’s critical to offer their customers an online shopping option, their success will be determined by the blended performance of their online and offline offerings, not one or the other. This means leveraging all assets – digital and physical (including stores) – to come up with more meaningful and differentiated ways to:
Become the destination of choice for trip missions that are important to core customers
Create fun and engaging shopping (online and offline) that appeals to feelings and emotions in addition to providing access to products. (This isn’t a new idea, but it’s now become much more important)
Fulfill orders in ways that fit comfortably into how consumers want to live their lives – without a big upcharge for this service
2. Understand that local shoppers will tell you a lot about what you should be doing
These changes – the approaching inflection point that will drive up the share of online spending and the increasing market fragmentation – won’t happen all at once across the country. They will take place market by market, driven by the tools and services that are available and in use.
This local dynamic makes it essential for a retailer to understand what’s going on among the shoppers in their area. In other words, a good understanding of how your customers are using the new digital shopping tools (particularly those offered by the competition) and where your consumers are headed in terms of more convenient shopping, will tell you a lot about what you need to be doing. Bill Bishop is Chief Architect, Brick Meets Click
Recognized as one of the retail food industry’s preeminent advisors, Bill bas been involved in research and consulting since 1976 with a concentration on the new issues and developments impacting this business. Over that time he specialized in a range of areas including: