Sophie Schwartz
Sophie Schwartz
Commerce Strategist

Online grocery market reaches significant size

Ecommerce is playing a growing part in food sales to consumers. “One quarter of online respondents (source 2015 Nielsen global survey) said that they order grocery products online, and more than half (55%) are willing to do so in the future.” Asia Pacific leads the online grocery shopping trend, with 37% of Asia Pacific respondents (46% in China) ordering food and purchasing delivery service online.

In the U.S. alone, online shopping for food and drinks is estimated to reach $33 billion in 2016 (representing 4% of the estimated $796 billion online shopping market). The U.S. online grocery market share is expected to reach between 12% and 16% of the total market by 2023 (source AT Kearney 2015 study). “In the relatively low-growth, low-margin business of food retail, online grocery is one of the largest sources of growth for retailers and consumer product manufacturers alike, with sales growing five to six times greater than conventional channels.”

Discounters are rapidly and successfully expanding their online footprint. They leverage 5 success factors allowing them to deliver an intuitive and convenient shopping experience to consumers. Food retailers have a tremendous opportunity to learn from them.

Consumers primarily assess their online food shopping experience against 5 criteria

5 Ecommerce Success Factors

In general, they expect an intuitive, convenient experience when purchasing food online.

1) Time Saving - Shoppers need to be able to assemble a valuable ‘full-shop’ basket gathering products across various (typically 10-15) categories. In addition, the food shopping trend on mobile devices continues to accelerate, according to Christian Wanner’s experience (source  McKinsey interview, LeShop.ch co-founder). “The frequency of purchase moves from 20 days to 10 days between two orders. Repeat customers drop now  60 items into their baskets in less than 10 minutes.”

2) Simplicity  - Shopping steps (search, filter, add to cart or list) and especially check-out need to be fast, easy and fun.  Complicated checkouts account for  12% of drop offs in online food shopping ( source Baymard Institute checkout usability study).

3) Value - Savings (coupons, online competitive prices, loyalty points) is the first motivation for online food shopping. 71% of consumers say they would return to an online grocery website if they were offered coupons (source AT Kearney 2015 study).

4) Convenience - Online grocery shopping is tapping into pure convenience drivers (source Hartman Group 2015 report). 27% of shoppers expect to save on driving or gas15% of them order food items in large quantities. Equally, shoppers expect a reliable service up to delivery, such as being informed in advance in case of missing items, to have a store associate providing their order immediately when they show up to pick it up in-store, to be delivered within the booked time slot.

5) Safety - Payment and cost reliability both account for 41% of online shopping cart abandonments:  13% of cart abandonments are due to  payment security concerns and  28% are triggered by  unexpected shipping costs ( source Baymard Institute checkout usability study).

Discounters are by nature better placed on the above 5 success factors

5 Ecommerce Success Factors

The assortment in discount stores is far less than in convenience stores. Aldi holds 1,200 items compared to 42,000 items carried by the average supermarket, according to the Food and Marketing Institute. The lack of choice saves time and simplifies shoppers’ decision process. 

It also strengthens efficiency: No checkout lines (Aldi cashiers are even described as “unbelievable ninja-fast” by blogger mom), no shortages on shelves, no complex promotions, immediate rebates. Discounters are by definition lower-price driven. Furthermore, budget savings perception is strengthened by the lower basket size at discounters. 

Discounters accelerate their investments in grocery e-commerce

Walmart  keeps pushing ecommerce: In 2016, it is among top companies posting jobs for software developers” (source Forbes). “Walmart upgraded its mobile app and invested in the fulfillment of online grocery orders, allowing customers to place orders online and then pick up their groceries at a nearby store in 150Walmart stores in 20 markets as of February 2016” (sourceGeekwire).

Amazon “already rules food and beverage shopping online, with 22 percent market share” in the U.S. in 2015 (source Cowen&Co). Forecasts indicate Amazon’s 26% market share of food and beverage grocery sales online in 2016. Amazon has a strategic interest to expand on grocery. They will benefit from food shopping frequency, for general merchandise categories.They are in a good position to act as category price killers when there is an opportunity (as a discounter), especially as grocery is not their profit lever. And, they will easily leverage their logistic infrastructure in place.

Amazon is expected to be one of the 10 top players in the U.S. food and beverage grocery market by 2019 (estimates Cowen and Co). More to come in Europe grocery too: Amazon food and beverages started in France in 2015 with 34,000 food items, Amazon launched a fresh produce offer of 20,000 products in Italy in February 2016, and the AmazonFresh launch in the UK is said to be imminent.

Aldi German discounter (630 stores in the UK, 1,000 stores planned by 2022 – source The Guardian) invested 35 million pounds (equivalent to $50 million USD) to kickoff home delivery services in the UK in January 2016, starting with a strategic category that made Aldi success with consumers: wine (source The Independent).

Lidl  is preparing itself for grocery ecommerce in Europe. To do that, they decided to start with non-food items sold in Belgium, launched in March 2016 (source Retail Week).

So, what’s next for food retail?

First, if discounters step into grocery e-commerce, it means that it is a profitable and mass-volume generating business opportunity online. Food retailers should not hesitate to take their fair share. They can no longer afford to waste time and hesitate to go for online transactions. 

Second, food retailers must consider these 5 criteria to prioritize their efforts and investments online and reduce risks: Time Saving, Simplicity, Value, Convenience and Safety.

Third, stay tuned. Technology-enabled solutions and best practices from our e-commerce experience are to be shared byOrckestra to help food retailers to grow their business online, meeting consumers’ need for a convenient, intuitive shopping experience on new touchpoints.

Sophie.