Digital Grocery is Not an ‘if,’ it’s a ‘When’
All grocers should be on notice that expectations are changing fast and becoming more digital by the month. Companies that embrace the change have an opportunity to be successful and protect their borders from the giants and interlopers in the space, and companies that don't act fast will likely not make it.
With Amazon.com, Walmart, Target, and Kroger pouring billions of dollars into their grocery e-commerce strategies, one can’t blame smaller local and regional grocers for feeling some trepidation about the future and their place in it. After watching Amazon dominate category after category that took its fancy, even the powerhouses in the category are fearful that the e-commerce giant’s aspirations may spell the end of their reigns as the leaders in the space. It would be easy to take a “wait and see” approach, to let the big guys fight it out and then make decisions based on the victor, but in reality now is the best time to act. Companies that do act immediately will be in far better positions to survive and thrive in the new future of digital grocery than those that do not. It’s very similar to personal health care — a wait-and-see approach is often the quickest path to a speedy death.
The cold hard truth is that e-commerce is the future for all grocers, no matter their size or reach. No one is immune to the digital revolution, and companies that don't digitally transform themselves will die. While grocery is currently small in the e-commerce world, sitting at about 5.5 percent, the channel is set to double in revenue in the next three years. This is due in part to increased customer adoption of online grocery, be it click-and-collect or delivery, and new digitally savvy Generation Z customers entering the market who have expectations that every transaction should start online and end with products brought to their homes.
Food and beverage e-commerce, grocery minus health, beauty and paper goods, is the largest retail category outside cars and auto parts, and is expected to reach $970 billion in 2019, with $20 billion of that being e-commerce. While representing just over 2 percent of category spending this year, online grocery is expected to double to $38 billion by 2023, and will be pushing $50 billion by 2025. This represents a compound annual growth rate of over 12 percent, and is by far the fastest-growing category in e-commerce. Grocery is still a largely brick-and-mortar business, but that's changing fast and represents an enormous opportunity for all grocers to stake their claim now while the market is still fluid. Imagine the opportunities for an online bookseller in 1997 when Amazon still represented less than 2 percent of online sales. That is what grocery is like today, but without having to build awareness of the service.
E-commerce is the path to success for all grocery retailers, no matter their current size or market share, and no one has the market sewn up yet. Therefore, if you’re not Amazon, Walmart, Target, Kroger, Albertsons, or one of the other major chains, what's your path to success against companies that can spend billions and already have massive market reach? The answers may surprise, but are rooted in simplicity and are just digital extensions of what has already been successful in the past — good marketing and advertising, offering top-notch customer service across channels, and knowing your customer and helping them solve their problems vs. just being a service provider or vendor.
Convert … and Convert Fast
Finding ways to convert brick-and-mortar customers into online buyers as soon as possible is critical. In recent surveys, consumers said they have strong loyalty to their current grocer, but that can erode quickly with a poor online experience or an outstanding one somewhere else. Therefore, making your offerings attractive in both service and price, and getting it right the first time, is critical to long-term success. The importance of getting it right the first time, or the tried and true “underpromising and overdelivering,” cannot be overstated. Convincing customers to try online ordering once isn't enough to cement future behavior.
Transparency Builds Trust
Consistent pricing between online and offline channels will increase trust, even if there's a premium or fee for online offers. Transparency is key in order to win the trust of new online shoppers. Avoid hidden markups at all costs and offer guarantees that items will cost the same online as they do in-store. In spite of the possibility that the first few transactions may not be profitable, online loyalty of previous brick-and-mortar customers will be built, and that will always be cheaper than acquiring new online-only customers.
Know Your Customer
Leverage loyalty programs for personalization services that reduce friction both online and offline. Since online grocery orders are more complex than typical online shopping, consider the ability to save shopping carts and lists as table stakes for any online services. Even offering the 15 or 20 most often purchased items close at hand can be the difference between five minutes and 20 minutes of time spent assembling the online shopping basket.
A winning digital strategy doesn’t have to cost millions or take years to implement. Even small steps to cement loyalty and build habit amongst your current customers will go a long way. Consumers are thus far reticent to change when it comes to their food choices, and e-commerce is an opportunity for grocers of all size to seize. The larger players are currently spending billions fighting one another to be the last man standing on the global stage. The opportunity to own the local and regional space is strong. All grocers should look inward — and fast — at how to best transform themselves digitally to compete in this new world.
Jon Reily is vice president and global commerce strategy lead for Publicis Sapient, a digital business transformation partner.