The Digital Shopper: 3 Trends Reviving Growth and Profitability for the Grocery Industry

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The Digital Shopper: 3 Trends Reviving Growth and Profitability for the Grocery Industry

By Randy Evins - 10/07/2020

The pandemic became the push most consumers needed to fully commit to a new way of shopping — online. But this change in shopping behavior is really an acceleration of the trend, which was already in motion (albeit, slowly) years before COVID-19 turned into a global crisis.

Approximately 27.9% of U.S. grocery consumers used an online channel within the first four weeks of a lockdown, which impacted 94% of the population. While this shift is a remarkable leap from 14.5% two months earlier, the use of digital shopping will unlikely return to pre-pandemic levels, even if the trend gradually tails off.

This transformation of the traditional consumer into a digital shopper is undoubtedly on the fast track. However, how will it change how grocers start moving toward recovery and planning for a future of resilient growth and profitability? Based on my conversations with grocery executives and managers, I see three trends emerging: customer adaptive, customer passion, and a pathway to profitability.

1. Customer adaptive: Let the customer drive everything

For years, grocers have been highly focused on their customers — but usually on the ones visiting the physical store. They would spend considerable time, money, and resources to determine which promotions, inventory mix, and shopping experience will keep classic in-store grocery customers engaged and loyal. Flyers were sent weekly, end caps were built, side stacks were strategically placed, and signs were hung to entice customers to buy. Yet, customer service remained at the core of the shopping experience, where store employees were at the center.

Even when digital shopping began to gain some traction a couple of years ago, grocers still wanted to pull online customers back to the store. It was a reasonably effective strategy — until COVID-19 changed the game. 

In a matter of a few days, customers were forced to hunker down in their homes and find a new way to get food for themselves and their families without exposing themselves to the virus. People of all ages, income levels, races, and geographies were all faced with this same reality, leading to a 500% increase in online shopping for major grocery chains.

To say this trend toward online grocery spend overwhelmed the industry is an understatement. It also opened executives’ eyes to the possibilities of moving from an omnichannel approach to one that adapts to the customer in real time.

Omnichannel is simply the ability to sell in multiple channels, typically in the store and online. But a customer-adaptive approach allows grocers to deepen engagement by creating an environment that pushes the products and promotions that a customer wants to the forefront of the decision-making process.

A grocer that adopts a customer-adaptive strategy is best-positioned to engage with new and existing shoppers wherever they are, at their leisure, and on their terms no matter how socially distant they are. More importantly, the company can quickly transition from a single, on-premise channel to a diversified, experience-driven, and customer-centric environment supported by intelligent processes, a culture of continuous innovation, and new business models.

Thriving in this new digital world requires grocery executives to demonstrate leadership as a first mover.

2. Customer passion: Driving experiences with one goal in mind

Decisions that may impact the customer must always go the way of the customer. Every business leader, no matter their responsibility and organization, should consider how their ideas will influence the customer and delight them. This mindset is what drives the ultimate goal of customer passion — to never, ever disappoint.

Thriving in this new digital world requires grocery executives to demonstrate leadership as a first mover. Waiting for a competitor to perfect the digital experience will only help stores lose customers for life. Instead, businesses need to put their ideas for digitalization into practice, starting with the workforce and brand culture.

Consider supply chain operations. The organization is passionate about controlling expenses and the cost to serve. Where else in the company would a decision-maker calculate the travel time between a pick slot and a reserve slot and do everything in their power to remain cost-effective as humanly, and sometimes robotically, possible?

There are times when an obsession over costs controls the quality of customer service. Ask any grocery district manager who wants to send one more load each week to a busier store. Supply chain leaders will often fight to avoid the request because it will negatively affect their productivity rate. But as I already mentioned, if the decision impacts the consumer — in this case, store conditions — the mantra “never disappointing the customer” becomes the lens through which every decision must be made.

3. A pathway to profitability: Gaining more margin than before

Food retailers have historically achieved low net margins that run as little as 2% in some cases. Meanwhile, while potentially driving incremental sales growth, digital shoppers add cost to operations, cutting into and sometimes exceeding that 2% margin.

Every shopper who converts to a digital experience no longer brings profit to an already thin bottom line. But what if that digital transaction could have at least the margin it would have had in store? Would that change the game? Is this the real barrier to digital transformation adoption?

The answers to these questions lie within five critical opportunities for margin improvement:

  1. Inventory: Machine learning and artificial intelligence turn information shared by the digital shopper into insight that predicts, with substantial accuracy, new demands. This level of intelligence enhanced the supply chain’s ability to operate with less inventory and alleviate some of the labor needed to manage excess inventory.
  2. Pricing: In a digital environment, grocers allow shoppers to see the price being offered, while taking advantage of margin growth opportunities that does not exist in the store. Through personalization, each shopper experience has its own strategy and the technology supporting it maintains profitability.
  3. Promotions and trade spend: The move from flyer-based strategies to personalized offers enables smarter spend and attracts supplier trade spend in higher amounts. Meal deals and cross-category offers, for example, also entice trade dollars as new-found potential emerges.
  4. Store design: In the past, bigger was always better. But in the future, right-sized, personalized assortment will lead to right-sized stores with less need for space. Visual selling diminishes, and stores and their accompanying expenses shift from sweeping actions to individualized outcomes.
  5. Labor: This is the most significant, controllable expense in any store operation. Selecting groceries for digital customers will yield more customer-facing labor dollars than stocking shelves and valuable selling opportunities.

Digital is no longer an option — it’s how grocery shopping is done

As the pandemic continues to unfold and test the adaptability of every customer, grocers must remember that transformation of bottom-up processes requires a top-down perspective. Experiences and culture will always remain the common denominator of every change. But committed leadership is vital to help the business stay the course, no matter how challenging the competitive landscape becomes.

Randy Evins is industry advisor food, drug store and convenience at SAP.

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