Given the steady growth of online retail sales and the proliferation of mobile commerce, one might presume that online grocery shopping would now, after a few years of struggling, finally be a sure thing. It contains all the “ingredients” to attract today’s online consumer as well as feed hungry retailers with opportunities to build loyalty, increase frequency of recurring purchases and leverage in-store pickups to push impulse buying. However, a closer look at the e-grocery channel and failed attempts over the years reveal that the “recipe” for success may not be so simple.
While the creation of an online storefront and the subsequent processing and shipping of orders has become every day for retailers, distribution logistics of online grocery fulfillment is vastly different, and far more complex, than other market sectors. For example, orders can be rather bulky and can take up valuable floor space while staged for pickup or delivery. Because of environmental storage requirements, some items may need to be kept cool or even frozen during staging for pickup or delivery. Additionally, distribution logistics must include the required flexibility needed to serve a large variety of customers with widely different desires in how they obtain their orders. One customer may want their order delivered to their home between 6pm and 8pm on the day they place the order or, if that’s not possible, they prefer pickup on their way home from work. Another customer would rather place their order on Wednesday for home delivery on Saturday before noon. Yet another wants to order today and pick up tomorrow so they can hand pick produce that’s fresh.
Managing the logistics
As you can see, the logistics of offering online grocery shoppers flexible pick-up and delivery options can become quite challenging but are nonetheless critical ingredients in a successful online grocery business model. Any inconvenience in flexibility can result in the customer abandoning the idea of purchasing groceries online for a method that they were mostly satisfied with in the first place. Or switching loyalty for someone who can better serve them according to their personal preferences.
One of the hurdles to getting customers to change grocery shopping habits and adopt a new way of doing business with you online is that most shoppers are satisfied with how they currently get their groceries, or in the least, have grown accustomed to the habit. They are familiar with the store layout and variety of choices, recognize the cashiers and may even regularly exchange pleasantries with them, and are accustomed to presenting their loyalty card to reap the rewards. It is an experience that whether enjoyable or not, is at least familiar. They know what to expect every step of the way, and know approximately how long it should take from start to finish based on experience. Safe to say if customers are coming back to your store, they are somewhat satisfied. And like with every other B2C, and even now B2B, business model, it's all about the customer and giving them an ideal experience in-store and online, every time.
So how to bring these customers online and show them a good time? And deliver the goods? What options do grocers have regarding flexible fulfillment? How can they determine which are realistic and feasible to deliver profitability rather than drain assets?
Click and collect, home delivery or other?
Let’s examine the most common options already proving successful in European markets, particularly the UK, and now gaining traction and stickiness in markets across the US and Canada:
1) In-store Pickup aka “Click and Collect”
Traditional grocery retailers find this model the simplest option to adopt into their existing family structure. With this model, online orders are picked, packed and stored at the traditional retailer location for customer pickup.
Customers are likely to see this option as an enhancement to, rather than a replacement for, something they know and are satisfied with. For the grocery retailer, it is the most efficient startup option, requiring minimal changes to the in-store structure requiring just a dedicated area for storing orders.
If a customer forgets something in their online order, they can simply grab it when there to pick up. On the retailer's side, getting customers into the store always increases the chance to capture impulse purchases or try in-store couponing incentives. Convenience all around.
Just be sure to dedicate store real estate to the storage and pick up of these orders. Customers don’t want to stop in on their way home from work to pick up an order and have to wait in line, or worse wait for someone to complete their order. These errors defeat the purpose of convenience.
2) Order online for home delivery
When entering the world of online grocery retailers may also consider using their existing model to process online orders for delivery to the customer’s home or place of business. However, a pick, pack and delivery model can prove difficult for traditional retailers because of variable costs and inefficiencies. Delivery requires vehicles, drivers, the cost of fuel, and other incremental expenses which would somehow need to be built into the online product pricing structure in order to drive profits.
Plus needing customer service strategies in place to deal with scheduling, delays due to inclement weather, traffic conditions, incomplete orders. The cost of which comes at the high price of unhappy customers sharing poor experiences and perhaps taking their business elsewhere.
Customers who shop online may be willing to pay slightly more for the convenience, for example same-day shipping costs for retail purchases, but for groceries? How much is enough to not make them turn their noses, yet make home delivery a feasible option for your business? You could perhaps instill flexible pricing – determined by number of items, frequency of purchases, total amount, lifetime value of customer, mileage from store to house, customer loyalty status. All major considerations in an online business strategy.
3) Central distribution points
One solution to delivery inefficiencies is to establish centralized distribution points for online orders; so called, ‘Drive thrus’, a specific distribution point where orders are staged for customer pickup. A concept currently being tested in Europe.
Having defined distribution points in strategically located central locations eliminates delivery inefficiencies while adding value to customers. The customer can place their order and then pick-up with the convenience of drive-thru service, avoiding in-store lineups, parking, the time of having to go into the store and perhaps running into someone they know causing further unexpected delays. Drive thrus are straight-forward with no fuss, offering more flexibility in terms of pickup time as these distribution points are dedicated to the service, and can provide more real estate for proper storing of fresh and frozen food items waiting for pick up.
Of course this implicates purchasing and setting up real estate and staff and process, so again, the value must be measured to see if it will affect prices of online orders. Which is perhaps why many North American grocery retailers are waiting to see how their European counterparts fare with this option.
The logistics and costs involved with the last mile of online grocery fulfillment are complex and daunting, paralyzing many grocers from making the leap into the digital world. It requires a solid yet highly flexible foundation at the onset of building an online model in order to test options and determine what is most profitable while continuously offering customers engaging experiences. Plus the scalability to adapt as business needs change in a rapidly evolving digital economy with new technologies and touchpoints disrupting the industry.
At the root of online grocery success is ecommerce technology that enables all of the above, while significantly increasing efficiency and productivity across the board. Omnichannel success, in particular for grocers, must satisfy in-store shoppers who are generally content with the current way of shopping, yet want the convenience and instant gratification of online shopping, without sacrificing price or quality.