The Future of Online Grocery Sales

Stephen DeAngelis

February 28, 2018

When Amazon acquired Whole Foods, any lingering doubts the grocery sector was changing were laid to rest. As I noted in an earlier post, the food sector is now learning what companies in other sectors (like entertainment and transportation) learned several years ago. The digital era is disruptive. Companies failing to transform into digital enterprises driven by a sound digital strategy are going to find themselves in history’s dustbin.[1] There is anecdotal evidence in the grocery sector indicating this is already happening. Jeff Wells (@JeffWellsWH) reports, “The current retail market is growing increasingly unfriendly towards traditional grocers. With consumers moving online, making quick store trips and seeking out fresher and more unique products, these large grocers geared towards legacy national brands and stock-up shops are quickly becoming dinosaurs.”[2] Mary Shacklett puts it this way: “Following Amazon’s acquisition of Whole Foods, traditional grocers that are not already online, must find a way to enter the multichannel world.”[3] “Must” is a strong word compared to a term like “should.” Why “must” grocers not already online find a way to enter the multichannel world? The answer to that question lies in many of the predictions being made about the future of online grocery sales.

 

Is the future of online grocery sales bright?

 

Wells notes a Brick Meets Click “Ecommerce Supermarket Scorecard Report” concludes “total online grocery sales are growing at 25% per year. … The average number of e-commerce orders per store, meanwhile, is up 20%. The firm also found grocers that have offered e-commerce for more than four years see 5.2% of total orders online compared to 3.4% for other retailers that offer the service.”[4] I admit 25% annual growth in online grocery sales is impressive even if such sales only amount to around 3% to 5% of total sales. Are past growth figures prelude to the future? Alissa Marchat (@AMarchatShelby) reports a study released by the Food Marketing Institute (FMI) and Nielsen concludes, “In as few as five to seven years, 70 percent of consumers will be grocery shopping online.”[5] The latest FMI/Nielsen report is the second one published on the subject of online consumers. Marchat notes, “The first year of research predicted that consumer online food and beverage spend could reach $100 billion by 2025. Today, FMI and Nielsen report that the pace of change and adoption has far outrun initial predictions, where the pervasiveness of online engagement could cut the timeline by as much as half.” If their predictions hold, grocers must capture a piece of that money stream to survive. Wells notes, “That number has frequently been cited by the industry and by the media, even as some claim the figure is bloated.”[6] If the prediction of 70% of consumers shopping online by 2024 strikes you as optimistic, consider the fact that as far back as 2014 “online grocery shopping studies found that one-third of primary grocery shoppers had bought groceries online … and this trend was extending across all age groups.”[7]

 

The studies don’t claim consumers will shop for groceries exclusively online; rather, they predict consumers will do some of their shopping online. Grocers are certainly buying into the hype. Wells observes, “Over the last year, retailers and manufacturers have grown their online shopping capabilities.” Rich Nanda and Jennifer Lacks Kaplan, principals at Deloitte Consulting LLP, add, “The grocery industry, which historically has lagged electronics, auto, home products, and other retail categories in digitally influenced sales, is finally catching up. In 2016, 51 percent of in-store grocery sales were influenced by digital technologies somewhere along the path to purchase. … Digital now permeates the grocery buying cycle, influencing awareness, selection, purchase, and loyalty. According to a Deloitte study, the top digital touchpoints used by consumers to research products and brands are grocery retailer websites (52 percent), grocery retailer apps (41 percent), and consumer products (CP) apps (27 percent).”[8]

 

Challenges remain

 

It’s not all fair weather and clear roads for online grocery sales. Wells notes, “Right now, profit is elusive in grocery e-commerce thanks to high overhead costs and the inefficiency of last-mile delivery.” Jennifer McKevitt (@mckvt) adds, “Entrenched shopping habits and cold chain challenges continue to inhibit online grocery adoption.”[9] She also challenges the Brick Meets Clicks assertion that online grocery sales are growing rapidly. The number of consumers trying online services may be growing; but, she writes, “The U.S has generally been slow to adopt online grocery shopping, with a mere 6% increase in sales since 2014.” Nanda and Kaplan assert one reason online grocery sales remain sluggish is because “more than one-third of consumers surveyed say they ‘love to shop for groceries,’ further highlighting the importance of grocery retailers in the CP brand consumer journey.” In other words, some people still like to personally select the items they are going consume. Other Deloitte findings include:

 

  • While consumers continue to cite value as a key purchase driver, quality of ingredients now rates high in importance as well. This likely reflects an increased consumer focus on health and wellness.
  • Brand selection is often made in stores. While 90 percent of consumers surveyed say they consider a set of brands prior to arriving at the grocery store, more than 50 percent make the brand purchase decision at the store.
  • Mobile is becoming an important influencer in purchase decisions, with 34 percent of respondents saying they use a smartphone to help them choose a brand during a shopping trip.

 

Cognitive computing can address challenges and provide opportunities

 

Those findings suggest there are ways to leverage cognitive technologies to influence consumers. Since many consumers are using smartphones while shopping in-store as well as online, there are product placement & recipe targeting opportunities available. CPG companies face an emerging opportunity to spur product demand, directly, at the same time consumers make decisions as they browse web-based food content related to recipes, shopping and cooking. The Enterra System of Insight and Actions™ can help manufacturers and retailers target recipe insertions and generate product placement options. The key is our unique ability to capture vast amounts of consumer data, analyze it in real-time, recommend and inject products directly into web-based content. Targeted and highly engaging, Enterra® recipe insertion and product placement transforms Big Data into big opportunities for CPG companies. The FMI/Nielsen study suggested six organizational imperatives that can help retailers and manufacturers accelerate their omnichannel success. You will see that cognitive technologies can also help address these goals. They are:

 

  • Align organizational structures for omnichannel success: Integrate digital offerings in parallel with brick-and-mortar operations.
  • Address discrepant datasets: Scrub master data files for discrepancies; strength in data and accuracy are critical components to successfully support online sale efforts.
  • Integrate forecasts to increase operational efficiencies: Integrate online and offline forecasting so the right amount of inventory is available to meet orders through either channel.
  • Optimize shopper insights: Bring retailer and manufacturer shopper information together into a single, comprehensive view of customer insights.
  • Improve marketing and promotions: Optimize the management of omnichannel marketing and promotions.
  • Merge digital and in-store shelf capabilities: Manage the physical shelf and its digital counterpart to create a seamless shopping experience, where consumers see the same information both on or offline.

 

FMI Chief Collaboration Officer Mark Baum concludes, “People, process and technology are the trifecta for a true omnichannel collaboration model. No matter the maturity stage, food retailers and their CPG business partners will find value in leveraging these six organizational imperatives as they respond for a more digitally engaged consumer.” Cognitive computing systems can help the grocery sector enter the multichannel world. Wells concludes, “Conventional grocers face a tough road. In addition to investing more in their stores, they now have to establish an e-commerce presence to keep up with the likes of Amazon and Walmart. It’s tough to spend so much capital in such a competitive, low-margin industry, and the only solace, it seems, is that they have less and less of a choice in the matter.”

 

Footnotes
[1] Stephen DeAngelis, “Amazon is Transforming the Grocery Sector,” Enterra Insights, 30 January 2018.
[2] Jeff Wells, “Report: Tops and Bi-Lo set to file for bankruptcy,” Food Dive, 20 February 2018.
[3] Mary Shacklett, “Are Grocers Ready for Multichannel Fulfillment?Food Logistics, 15 September 2017.
[4] Jeff Wells, “Study: Online grocery sales growing by 25% per year,” Food Dive, 31 August 2017.
[5] Alissa Marchat, “70 Percent Of Consumers Will Be Grocery Shopping Online By 2024,” The Shelby Report, 29 January 2018.
[6] Jeff Wells, “Why online grocery could be a $100B opportunity in the next four years,” Food Dive, 29 January 2018.
[7] Shacklett, op. cit.
[8] Rich Nanda and Jennifer Lacks Kaplan, “Bridging the Grocery Digital Divide,” The Wall Street Journal, 20 October 2017.
[9] Jennifer McKevitt, “Online grocery sales could hit $100B by 2025, but challenges remain,” Supply Chain Dive, 22 January 2018.