A.T. Kearney, Grocery and Food

Grocery (Finally) Gets With It

RR Online GroceryHow to Satisfy Consumers’ Growing Hunger for Online Grocery

With the grocery industry’s razor-thin margins and slow growth, online sales are not only an incredible opportunity, they also represent revolutionary change in a traditional industry.

With the grocery industry’s razor-thin margins and slow growth, online sales are not only an incredible opportunity, they also represent revolutionary change in a traditionally, well, traditional industry. And when it comes to the online grocery market, consumers are hungry for engaging, personalized and easy online grocery shopping experiences.

This year, American consumers’ appetite for online grocery is finally becoming insatiable. According to a 2015 A.T. Kearney study of 1300 consumers, the number of primary grocery shoppers who bought groceries online increased from 6.8 percent in 2014 to 34 percent in 2015.

By 2019, an estimated 8 to 11 percent of grocery sales will occur online (see figure 1). What’s more, shoppers making the switch to online come largely from particularly attractive segments—urban dwellers, Millennials, and those earning more than $75,000 per year—and their online grocery spending across categories is going up.

So it’s no surprise that online grocery sales are growing five to six times faster than conventional channels, with growth of 15 to 18 percent expected over the next decade. Grocers who make the right moves right now will be well positioned to capture a big share of this growth and delight consumers across channels.

ATK_Grocery_1Who’s Buying?

Over the past year, online grocery shopping rates have increased across all sectors, but here’s a look at some of the biggest areas of growth.

All age and demographic groups are embracing online grocery. It’s not shocking that 25- to 34-year-olds are the most likely to buy groceries online (37 percent), but penetration increased by more than five times in some surprising categories. For example, 25 percent of shoppers 65 and older say they bought groceries online in the past year (see figure 2).

Urban dwellers (41 percent) and people earning more than $75,000 (22 percent) also are buying more groceries online.

The nature of the online shopping journey is driving a more diversified consumer base. Whereas mostly women shop for their families in the store, the online shopping experience often includes other members of the family adding items to the cart.

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Shoppers are still using websites as mobile grows. Online shoppers are increasingly using websites and apps to shop for groceries online, with some pickup in social media activity. However, among older shoppers, non-website options for online shopping (such as social media) are far less popular.

Some old barriers remain. Even as online grocery becomes more widespread, some of the market’s long standing hurdles remain. Nearly two-thirds of respondents say they would buy more groceries online if they could guarantee the quality and freshness of products. As a result, the most popular online categories are non-perishables: personal care, beauty, packaged foods and baby food (see figure 3).

That said, even as buyers continue to express concern about the freshness of perishables, they haven’t stopped buying them online. Andrew Nodes, Business Development Lead for the East Coast at Instacart says, “…customer perception versus customer action are different things. Customers believe they shouldn’t be buying perishables online due to freshness, but they actually do. Perishables are among our top performing categories.”

Shoppers want value, but they will pay for convenience. Many consumers say they still avoid online grocery because of a perception that costs are higher. 58 percent say that prices that better compete with those in stores and free or low-cost delivery would drive online buying (see figure 4).

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Plus, respondents say they want savings— coupons (71 percent of respondents), price comparison between stores and other sites (67 percent) and loyalty programs (65 percent—see figure 5).

At the same time, they want convenience and speed. Nearly two-thirds of respondents say they would shop online more frequently if checkout was easier and they could quickly reorder items.

Mobile apps can enhance the store experience. Consumers say apps that enable price comparisons, the ability to search for and locate items in stores and scan for faster checkouts could increase in-store convenience and positively impact the shopping experience.

Taking a Bite Out of the Online Opportunity

As consumers continue to adapt to technology in their lives and become more urban, online grocery is becoming easier and more appealing—for consumers and retailers. Here’s how retailers can make the most of this pivotal transition.

Segmentation. As in other channels and categories, leading retailers will start by identifying high-population, high-density markets, and targeting customer segments within these markets that represent the best opportunities. Thanks to online segmentation, retailers can target specific shoppers, such as new parents (with an integrated total baby offering across food and non-food) or back-to-school shoppers (including clothing, school supplies and food).

Personalizing offerings with recipe suggestions, shopping lists, customized pricing, recommendations based on purchasing history and online sampling for new products can help lure buyers to make the switch. Treating delivery as a unique channel lets retailers provide a degree of personalization and flexibility that’s unavailable via their traditional channels.

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Value proposition. Converting consumers’ interest in online grocery shopping into increased sales depends on how quickly retailers can make features such as same-day delivery and click-and-collect a reality, and whether they can offer customers the same values and prices as they do in stores.

Third-party providers like Instacart and Google Shopping Express (and soon, most likely, Uber) are emerging to help solve the “last mile” issue, providing same-day or scheduled deliveries at minimal cost to retailers.

As they dig into click-and-collect, U.S. retailers can look to the success of many European grocers. Take Tesco, which has fulfilled more than 170 million click-and-collect orders in the UK—where 25 percent of consumers say they buy groceries online in a given month. France also has a successful history with click-and-collect, with over 3,100 outlets.

On this side of the pond, many retailers are taking smaller first bites, with Harris-Teeter up and running at scale ( around 170 locations), Peapod putting up dedicated click-and-collect locations and many traditional grocers and mass merchants rolling out click-and-collect service.

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Shopper engagement. Engaging today’s omnichannel consumer is about much more than just using multiple traditional media such as TV, direct marketing and coupons to reach shoppers—it’s about creating a personal experience for every shopper, regardless of where or when they shop or what device they’re using.

Retailers can interact with omnichannel shoppers through personalized offers, pricing and promotional strategies tied to shopping preferences and past purchases. They can offer shoppers variety—by category and across digital touchpoints—and use individualized promotional offerings and merchandising strategies to increase engagement.

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Some foreign retailers are already innovating in this area. Take online pure play Singaporean grocer Redmart, which sends customers reminder emails when it’s time to restock their favorite items; or Germany’s REAL hypermarkets, which gives consumers access to customized in-store coupons via its app; or Tesco’s website that prepopulates shoppers’ baskets based on in-store and online purchase history.

As ecommerce becomes the single largest source of growth in North American food retail, capturing increasingly tech-savvy consumers depends on meeting the logistical challenges of online food sales coupled with understanding customer needs and desires.

While pure play online retailers have an edge with their business flexibility and speed to market, traditional food retailers can take advantage of their biggest asset—the store—as they build out their digital capabilities and enhance their online supply chain.

Ultimately, winning online grocers will balance traditional and online capabilities, segment and penetrate the most attractive market opportunities and deliver a seamless consumer proposition that meaningfully engages with shoppers.

Given the state of today’s hyper-competitive grocery market, it’s no longer a question of whether to enter online food sales, but rather how to build online capabilities that can capture customers’ trust, loyalty and wallet across channels

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