By Keith Daniels
Online grocery sales are now in the high single digits as a percent of total revenue for grocery. They are growing at a 10 percent range, per IBISWorld. Amazon grocery purchases are growing 25 percent. And penetration of consumers are now making online grocery purchases is in the 30-35 percent.
Meanwhile, “basket-bandit” sites – those that siphon off a portion of the grocery purchases such as Amazon as opposed to pure online grocery plays such as Peapod – are generating a steady stream of sales leakage. Basket-bandit sites capture 84 percent of all online grocery trips and 50 percent of all online spending. Amazon is remarkably capturing approximately half of all online grocery spending.
Smart traditional brick-and-mortal grocers are moving into the online ordering segment, and many are now offering home delivery. These grocers are seeing about 10 percent of their revenues come from online sales, which is on par for the industry.
Walmart is still slowly entering into the market. The regions where they have created a footprint have changed the landscape of the industry with their lower pricing model leveraging their logistics and scale. Walmart continues to test alternative concepts to the Supercenter such as online ordering and pick up kiosks and Neighborhood Markets. Ultimately, chains that offer convenience and product at the best price will succeed.
Grocers have learned some valuable lessons about grocery e-commerce. First, online grocery is going to continue to excel. However, this does not necessarily mean the end of brick-and-mortar stores. Customers are not necessarily ready to begin buying perishables online as there is concern about ensuring quality and freshness. There will still also be a want for the quick stop and the need to satisfy impulsive buys. Retailers will need to adapt and evolve to the needs of the consumer to survive. Large chains that offer best pricing while still providing quality will continue to do well.
One mistake grocers make is not embracing online fast enough. Given the lower margins in grocery, if you lose 5 percent of customers to a competitor’s online business, that will make a big difference in your profit and loss (P&L). Additionally, online grocery typically attracts the most profitable customers: dual-income households, customers who prioritize convenience over price or promotions, and big-spending customers. Growth in smartphones has outpaced the acceptance of the PC, so it is critical that grocers have a mobile solution.
One challenge online shopping poses for grocers is the loss of sales from impulse buys. Grocers will need to figure out ways to replace this volume. Another issue is trying to fulfill online orders from current store inventory. This is often a less efficient solution for order picking and could lead to issues such as stock outs which leads to issues around substitutes. It is probably best to start, or quickly move to a warehouse fulfillment solution.
Online ordering and delivery is here to stay this time. There are still things to work out, but given that this is where the growth is in a very mature and competitive industry, supermarkets would be foolish not to have an online presence as they will likely get left behind. The downside is that those customers who are used to having the market right down the street may have to get used to fewer brick-and-mortar storefront options as retailers will need to consolidate locations due to the changes in sale patterns.
Those grocers who are able to change quickly to customers’ preferences, such as the organic trend, and can provide convenience and product at the best price through a variety of channels, will succeed.