What s ahead for online grocery?

Transcription

1 What s ahead for online grocery? Growth forecast and implications October 2014 By Steve Bishop Co- founder and Managing Director, Brick Meets Click Brick Meets Click helps organizations understand, plan and drive growth in the space where traditional and digital food retail are converging.

2 WHAT S AHEAD FOR ONLINE GROCERY? 2 What s the new thinking about online grocery growth? Brick Meets Click now forecasts that online grocery spending in the US will reach between 11% and 17% in most markets by The fastest growing markets should reach the top of the range, but even slower growing markets could see one in ten grocery shopping dollars move online. Think of these curves as guardrails. A few major markets like New York and San Francisco may exceed the upper boundary, and markets with little investment may fall below 11%. But, most markets will fall within this range. Steve Bishop Co- founder & Managing Director Brick Meets Click

3 WHAT S AHEAD FOR ONLINE GROCERY? 3 Why a market- level analysis? National averages roll all markets into a single number, so they are of limited value if you are trying to understand and respond to business and customer conditions. For each specific market, the share of food buying that shifts online will be driven by: The level of shopper readiness and the availability of online grocery shopping services. The number of customers who have a positive experience online shopping and are comfortable recommending to someone else. The rate of penetration, driven by the speed/scale of investment. These considerations shaped our forecast model. The analysis is based on research that polled 22,000+ shoppers affiliated with 7 different grocery banners across three regional markets (Mid- Atlantic, Midwest, and West Coast). It s the largest study ever to focus specifically on online grocery spending in the US, and the only market- level analysis done to date.

4 WHAT S AHEAD FOR ONLINE GROCERY? 4 Online spending is growing faster than expected. A year ago, we developed three market based scenarios for online grocery growth in our analysis, but it s clear that online grocery shopping is outpacing the most conservative scenario and growing faster than expected. The conservative estimates we developed are no longer relevant. The upper ranges are where we re headed. What s driving the accelerated growth? Two trends - Greater access and attractive convenience. Shoppers now have more access to online options primarily driven by the newer, smaller providers. As shoppers in more markets gain greater access, more are participating. The greater convenience, at least for some shopping occasions, is proving attractive enough to shift part of household grocery spending online.

5 WHAT S AHEAD FOR ONLINE GROCERY? 5 New players are increasing access. We re all waiting for the big players like Amazon and Walmart to scale up, but meanwhile, highly focused online grocers like Relay Foods, Fresh Direct, Door- to- Door Organics and other services are already moving in to serve well defined markets and establish important customer relationships. In just the past year, many of these smaller providers have significantly expanded their operations into new territories Brick Meets Click

6 WHAT S AHEAD FOR ONLINE GROCERY? 6 More options for convenience are attracting more shoppers. With online shopping s improved accessibility and ease of use, consumers are now finding practical ways to save time, eliminate shopping trips and make automatic pantry stocking easier. What do I want... Artisanal cheese? Organic produce? For some things, I want the really good stuff. A complete meal delivered so all I have to do is cook it? Bring it on, Plate, HelloFresh, Blue Apron. This is my favorite way to cook now. A subscription for routine purchases? I ll never run out of cat food again (purrr!), or razors or butter or toilet paper. That s what I call progress! Delivery or pick up? At the store or at a depot on my way home? Can it wait till tomorrow, or do I need it in half an hour? No worries, I can get it whichever way I need it.

7 WHAT S AHEAD FOR ONLINE GROCERY? 7 How will online growth affect traditional grocery? Although online grocery will still represent a fraction of US grocery spending for many years to come, it s an important, high- margin fraction. Online shopping appeals disproportionately to higher income and more profitable customers, so the loss of sales will have a disproportionately negative impact on profits. This puts traditional food retailers in a difficult situation. The growth of online food shopping will shrink the size of the market served by stores, put pressure on the costly game of trying to take share from competitors, and increase the importance of finding new areas of growth. >>> Who will capture these growing online sales? Will lost in- store sales be recaptured and offset by your online channel, or will they be grabbed by the competition? Now is good time to step up your online game.

8 WHAT S AHEAD FOR ONLINE GROCERY? 8 What might the dollars look like on an aggregate basis? To convey a general sense of the potential sales range represented by the forecast, we translated the market- level analysis into an aggregate for the overall US grocery market. By even at the middle of those two projections, online grocery sales would exceed today s sales of the nation s largest supermarket chain, Kroger. The Food Institute Press release Oct. 2, 2014

9 WHAT S AHEAD FOR ONLINE GROCERY? 9 How do grocery dollars migrate online? Spending rises with frequency. We ve learned a lot about how shopper spending on groceries migrates online. Since 2012, we ve surveyed 45,000 grocery shoppers about their online grocery shopping habits, and we ve found that as people get more comfortable and more involved in online grocery shopping, they move more of their grocery dollars online. Once- a- month shoppers did 17% of their grocery spending online Twice- a- month shoppers did 21% of their grocery spending online (a 25% increase) Three- times- a- month shoppers online spending doubled to 42%

10 WHAT S AHEAD FOR ONLINE GROCERY? 10 The implications: What s at stake? The greatest vulnerability to brick and mortar food retailers is that a growing proportion of high- value households those with higher incomes and more education who spend more per week on groceries will shift a significant amount of their grocery spending online. Improvements in the experience and increased positive word of mouth will encourage more to try it. And each year, a percentage of once- a- month shoppers will move to twice a month, and 2x a month shoppers will move to 3x a month. The trend will accelerate as the following features gain momentum: The opportunity to buy both perishables and packaged grocery products online becomes more available and accessible. Increasingly convenient pick- up and delivery options become available. The price/value gap between in- store and online shopping narrows. $$$ As spending migrates, the impact of online grocery shopping will undermine the profit model of brick and mortar food retailers by changing the product mix and reducing the blended margins. The timing of this shift will vary by market, but ultimately the impact will be universal.

11 WHAT S AHEAD FOR ONLINE GROCERY? 11 How to respond Online sales will increasingly cannibalize in- store sales, so not responding is increasingly risky. Selecting your next steps depends on your role in the marketplace; retailers and suppliers will face different challenges. For traditional grocery retailers The goal is to make up the sales lost to online by enhancing the store experience, via your own online channel or by finding new growth opportunities. 1. Assess your high- value shoppers. Learn where are they in terms of shifting to online ordering so you know how fast you need to respond; then assess where and how you can meet those needs. 2. Maximize the store advantage. Fully exploit the appeal of the store by combining the power of digital technology to make the shopping experience unique and compelling. Differentiate in- store experience with superior service, cleanliness, unique prepared food offerings and tech options such as Beacons, texting, and other digital communications. 3. Seek new growth opportunities. Some retailers are developing profitable B2B channels. Get in front of the curve and play larger than you are by working with progressive retail partners to conduct test- and- learn programs. You want to be active now and establish early- mover advantage. Steve Bishop Co- founder & Managing Director Brick Meets Click

12 WHAT S AHEAD FOR ONLINE GROCERY? 12 How to respond (cont.) For suppliers The growth of online grocery spending increases both opportunity and challenge. All suppliers have an opportunity to better connect with and sell to their heavy consumers online, and participating in online pantry and subscription programs is one way to do this. Some responses will be shaped by a supplier s size. Smaller suppliers have an opportunity to use online tools to gain access to a larger number of customers, be they retailers or consumers. Large, branded suppliers need to find new ways to reach the mass market. This means collaborating with brick and mortar retailers in order to meet short- term sales goals while simultaneously using digital marketing to increase the effectiveness of marketing and trade spending. Increasingly, this will involve working with retailers to more efficiently deliver coupons and other consumer promotions, while at the same time providing them with the content needed to sell your products online successfully.

13 WHAT S AHEAD FOR ONLINE GROCERY? 13 Brick Meets Click We help organizations understand, plan and drive growth in the space where traditional and digital food retail are converging. We also host a commercial- free forum on the future of food shopping and retail. Visit us at brickmeetsclick.com Follow us on: Twitter, LinkedIn, Google+ and Facebook Learn more about our research and how we can help you succeed. Contact Steve Bishop [email protected]