The grocery business is one of the largest industries in the U.S. economy. In 2014, the U.S. Census Bureau reported sales from traditional grocery stores alone totaling $566 billion. Online grocery shopping is still evolving, and by 2018, about 5% of traditional grocery sales could move online, representing more than $35 billion in annual sales according to a report published by Grocery Manufacturers Association.
You might think that an average share of 5% may not sound like much, but it will have drastic impacts on this industry. On one hand, at 5%, e-commerce will make up nearly one-half of the total growth in the sector for the next five years. On another hand, if quite low-margin brick-and-mortar grocery companies do not participate in e-commerce growth, there inevitably will be consolidation as sales decline and margins collapse. Successful grocery leaders will have to adapt their operation and marketing strategy to respond to this new dilemma.
The experience of other largely developed markets - UK, France, and South Korea among them - shows what will happen in the near future in the U.S. In 2015, when online penetration in the U.S. grocery industry stands at nearly 1%, it is already roughly 5% in the UK, 4% in South Korea, and 3% in France.
Trend #1: Grocers’ most important customers are now ready to take advantage of online grocery.
According to an online grocery survey conducted by the Boston Consulting Group (BCG) in 2013, consumers in the U.S. said they expect to use an online grocery service once a month. Most valuable customers, families with young babies or older babies as well as households with high incomes are even more interested in this service offering options like click-and-collect or home delivery. Moreover, when these shoppers start purchasing online, they are likely to spend more (from 30% to 50% more) than what they would have done in-store.
In a large competitive grocery market, like the U.S., the ability to grow by adding physical stores is limited whereas adding an online grocery service is a much lower-cost growth option and it will surely address current sources of dissatisfaction among your most valuable customers such as:
- Lack of time to shop in-store
- Lack of assistance with carrying heavy bags to the car
- Lack of recommendations and valuable information gathered in-store to select products
- Lassitude towards the anonymous repetitive shopping experience.
Trend #2: Click-and-collect service is getting more and more popular.
The concept of click-and-collect is straightforward to understand. A customer orders their shopping list online and then proceeds to the physical grocery store to collect their purchase. The popularity of this trend is that each shopper is able to browse online from the comfort of his or her own home and, rather than pay for shipping and anticipate the delivery, the shopper can collect their purchase from the store at their own convenience.
In large developed markets like the UK and France, click-and-collect services have become more and more popular, especially in rural areas. A majority of grocery stores now propose a drive-through service where consumers can pass by and collect their shopping. The advantage of the drive-through pickup is the time saving and the convenience - online shoppers can often collect their groceries without having to get out of their vehicles.
Click-and-collect has become so popular because it brings tangible benefits to customers. For shoppers, it is a reasonable alternative to expensive same-day delivery, allowing shoppers to pick-up locally same day at no extra-cost. Moreover, shoppers can now precisely plan their pick-up and integrate it smoothly in their customer journey. No more waiting at the front-door for the delivery man to show-up! Shoppers also have a richer personalized shopping experience online than when shopping in-store. They can get better deals since grocers are adopting price matching techniques with click-and-collect, giving shoppers cheaper price options as well as more product options.
In most markets, where the service is well implanted, surveys indicate that customers are ready to drive up to 15 minutes, on average, to pick up an order. But on the other hand they show that consumers are not willing to pay delivery fees that are high enough to cover the last-mile delivery cost. In the U.S., consumers are comfortable with the idea to pay from $5 to $10 per delivery but sometimes actual cost of delivery can jump as high as $20 in rural zones. Click-and-collect is the in-between cheap service that U.S. customers were waiting for to start online grocery shopping.
Trend #3: Digital devices including mobile play an increasing role.
According to eMarketer, nearly 50% of the US population uses smartphones, and by 2016, that proportion is forecasted to jump to almost 60%. No surprise then that shoppers want to integrate their mobile devices into their future grocery experience.
UK-based online supermarket Ocado reports that 28% of its online orders were placed through a mobile device. Aside from placing orders, consumers also want to use their mobile for different daily tasks such as create their shopping lists, manage their current online orders, contact a customer representative or simply retrieve and consult their favorite recipe. Consumers are also willing to use their own device while shopping to get help in-store and would rather do so than ask a sales assistant or check an unmanned device.
In a Deloitte Digital 2015 survey on the Digital influence in UK retail and the shopping journey, 23% of customers used a digital device while in-store during their last store visit and 6% used a digital device after their last shopping trip. The intention to use mobile phones more extensively in-store is even higher. Over half of consumers want to use their own digital devices in-store for the following main purposes: 1. Compare product price with other suppliers 2. Get additional nutritional or health product information or 3. Check product availability in other stores.
In the future, consumers want to use their digital devices more and more throughout their path to purchase and make their shopping trip easier!
Figure 1: Customer preferences on assistance in-store
Trend #4: Discounts and deals could get more personal!
For a majority of U.S. consumers, custom coupons are the best way to simplify their future shopping—for example, receive discounts on their mobile devices for products they usually buy or those they are likely to be interested in.
In particular, they expect to receive these targeted digital coupons while entering their favorite grocery store. For this purpose, consumers are ready to share some personal details with their preferred grocery store so they could receive real-time promotions on their own mobile device and get some targeted suggestions of specific products .
60% of U.S. consumers want real-time promotions and offers while sharing their personal information.
Customers also appreciate being recognized in-store and the fact that they can automatically be granted discounts or loyalty points at checkout. At the end, consumers are ready to share a reasonable amount of personal data if they have a better shopping experience, meaning: 1. Get more personalized deals to save more money 2. Spend less time in grocery store and 3. Access personalized suggestions on products while shopping in-store.
For the online grocery experience, as a minimum, they expect the shopping experience to be optimized by device and in particular to be fully mobile friendly. While sharing their personal data and their shopping history, they are willing to get product suggestions but also recipes related to their consumer profiles. They will be more and more receptive to getting reminders online to order items that they might have run out of and need to be refilled. They are also ready for “one-click” checkout with their usual retailers who will know how consumers want to pay and have their products shipped.
Figure 2: What customers mainly expect while sharing their personal information
Trend #5: The adoption of contactless payment will accelerate.
With the development of click-and-collect services for grocery shopping, consumers are also willing to simplify the payment process while collecting their shopping. Since they already use their smartphone to retrieve their order information and contact the store, more and more consumers say they would be interested to pay for the goods in a digital format with their own device, rather than using an unmanned desk or through a sales associate.
In the UK market, where the online penetration in the grocery industry is one of the highest in the world, 2014 was a big year for contactless transactions. Total contactless spending exploded in 2014, setting a new record of £2.32 billion which represented a 255% increase from the previous year’s figure. And all the signs point to 2015 being an even bigger year for contactless payments.
What are the factors driving this rapid growth? When consumers are polled to give the main reasons why they would use contactless payment, a majority says that using a contactless card is quicker, easier and more convenient than traditional payment methods. Contactless payments do not require a PIN code for small-medium amounts, making the transaction much simpler when compared to a standard debit or credit card.
A Deloitte Survey on Digital influence in UK retail also shows a growing adoption of mobile payment systems (e.g. PayPal, Square, Apple Pay, Google Wallet). While in 2012, only 1% of those surveyed bought in-store using their phones as a payment method, this value has now increased to 18%. It is expected that in the next decade, smartphones will begin to rival debit / credit cards as a major payment method.
In conclusion, the most valuable customers of the grocery industry are now ready to use the online service of their favorite store. To save time and energy, they would rather pick-up their grocery in-store vs. being delivered at home. During their customer journey, mobile devices are more and more preferably used to manage order information and interact with their favorite grocery store.
While shopping online or in-store, these consumers are ready to receive real-time promotions as long as they are properly targeted and offer better deals. Important to note, shoppers want to reduce time spent grocery shopping and mobile contactless payment is getting more and more popular since it simplifies and accelerates the payment process.
To continue being successful, grocery companies will have to adapt to new customer habits and focus development on online grocery, since e-commerce will represent nearly one-half of the total growth for the next five years.