There’s no doubt that the retail industry has transformed dramatically in the last year. As we look back, it's apparent that those retailers that invested heavily in digital were better equipped to weather the pandemic storm than those that did not. The U.S. grocery sector, a sector that historically lagged behind in digital adoption, was one of the most affected by consumer behavior shifts. Responding, many (but not all) grocers invested in enabling their digital operations and moved quickly to build out online ordering and contactless fulfillment.
A year later, as more consumers get vaccinated, grocers in North America are grappling with questions related to the return to pre-COVID behaviors. What does the future hold for grocery post-COVID?
Online Ordering is the New Normal
We believe that while consumers will gradually return to dining out over the next 12 months, online grocery is here to stay. According to Publicis Sapient research from June 2020, nearly half of U.S. respondents (45 percent) said they will use online grocery more in the future. Foot traffic signals are also suggesting a structural, ongoing increase in online grocery shopping, with foot traffic in grocery stores during Q4 2020 dropping below the lowest numbers in April 2020, according to SafeGraph.
A higher volume of digital orders has benefits for consumers and grocers. For example, consumers gain convenience of delivery, pickup, and the ability to reorder, while grocers have a new way of building loyalty and using digital experiences to separate from their competition. Huge opportunities remain for specific grocery features in digital, including artificial intelligence (AI)-driven product substitutions, the ability to shift delivery times, and supply chain delivery optimization (i.e., fulfillment optimization).
This shift to online ordering will encourage many grocers to take in-house control of their commerce, fulfillment, and martech technology, moving away from some partners. At a minimum, we feel grocers must own the customer relationship and customer data for a better chance at retaining customers for the long term.
Convenience and Safety Will Remain Priorities
Contactless fulfillment and shopping methods will gain momentum post-COVID, as consumers continue to prioritize health and safety, and have become accustomed to the convenience that these services provide. According to our research from June 2020, 43 percent of U.S. respondents said that curbside pickup is their preferred fulfillment method when replenishing household staples. Grocers should remain focused on building up their contactless offerings such as scan-and-go checkout and click-and-collect to remain competitive after the pandemic subsides.
Grocers Will Rethink Their Store Strategy
We expect that grocery stores will never be as full of customers as they were before the pandemic. There are several store models that leading grocers are considering as they continue to adapt to the accelerated shift to online ordering. First, remain as they are. Pickers typically use the same aisles and facilities as customers. We see some picking efficiency improvements through the use of wayfinding and routing the batching of orders, and partial order optimization strategies using AI/machine learning. Second, we’re starting to see more grocers transform some of their existing real estate into “dark stores” used only for online orders. The idea of “dark stores” is something grocers, such as Walmart and Ahold Delhaize, were exploring before the pandemic. If you have a large volume of online orders, and have low-performing stores in the area, this can be a viable strategy. However, setting up a warehouse/fulfillment center in an expensive location of a former retail store can drive costs higher.
An emerging best practice is hybrid stores — i.e., store designs that leverage micro fulfillment centers — that allow you to pick up boxed goods while still browsing for fresh produce. Target, for example, fulfills 80 percent to 90 percent of its orders through stores and has been able to achieve 2x the profitability of its peers in part due to the strategic decisions it has made in fulfillment. Robotic technologies can enable picking of 80 percent of orders within five minutes or 10 minutes of the initial order — a potential game changer for the customer experience
Lastly, grocers can consider large, automated warehouses located outside city centers. These are most prominently being invested in by Kroger through its partnership with Ocado. These are high volume and high initial price, but able to process massive quantities of orders. Their location outside key demand areas, however, make the last mile costly.
There's no “one size fits all” solution. Grocers must take a hard look at their fulfilment options and decide which of the models make the most sense for their business, from full automated robotic solutions to micro fulfillment solutions in the back of store.
Amazon Becomes a Serious Competitive Threat
Amazon.com is making big strides in the grocery sector and shows no signs of slowing down. The company recently opened its 12th Fresh Store, and reportedly plans to open more stores this year. While many traditional grocers are still far ahead of Amazon in terms of overall store footprint, they can’t afford to ignore the moves the company is making. Amazon’s stores — Amazon Fresh, Amazon Go, and Amazon Four-Star — are clean-sheet designs with a range of digital solutions and configurations designed to cater to consumers’ expectations and needs for online ordering, convenience, and contactless checkout/fulfillment. Other grocers must continue to build on their digital capabilities and offerings across these areas in order to retain market share as Amazon creeps in.
In the past 18 months, the grocery sector has shifted from quiet to being at the forefront of digital transformation. Grocers that embrace and prioritize a digital-first approach — from ordering and fulfillment to the in-store experience — will be best positioned for a successful future. We look forward to seeing how grocery will continue to transform in the months and years to come.
Hilding Anderson is the head of retail strategy at Publicis Sapient, a digital transformation partner helping established organizations get to their future, digitally-enabled state.
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Hilding Anderson, Publicis Sapient’s Head of Retail Strategy, works with Fortune 500 companies and top global retailers to advise them on digital business transformation and how to drive higher performance in the changing digital landscape. Particular strengths are in digital business transformation, retail strategy for the data-driven retailer (CDP, algorithmic retail), engineering modernization, and growth strategy.
Hilding’s 20-year career started as an entrepreneur, founding a technology consulting services firm in Cambridge, Massachusetts focused on the retail and healthcare spaces. After a brief stint at a dot-com, he pursued an MBA at the University of Texas in Austin graduating in 2005 with a 3.8 GPA and specializing in Management and the entrepreneurial growth.
Following graduate school, he joined Publicis Sapient’s management consulting practice, working with boards and CEOs in the retail and financial services industries to transform their business. Partnering closely with clients, he developed digital and omnichannel business strategies, working closely with technologists to define and execute business strategy.
In addition, over the past decade, he has researched and published 5 books that document the changing digital landscape and consumer behaviors for retail. He also conducted annual in-depth evaluations of 70+ retailers omnichannel strategies in North America. Building on that expertise, he now leads the business strategy for Retail North America, guiding 40+ accounts on the right business strategy and path forward. His recent indicative work includes shaping a business transformation road map for a large department store, engaging with the chief digital officer of a top luxury apparel retailer in NY on GTM digital strategy and business justification, as well as partnering with a large home improvement retailer on the East Coast in experience strategy and innovation.