What the Shift to Digital Grocery Means for Loyalty
The shift to online is finally well underway in food retailing. It only took a few decades or so.
Ironically, grocery was, in fact, one of the very first retail sectors to test the waters with online shopping. Peapod launched its dial-up service in 1989 — five years before Amazon appeared.
Yet grocery has proven to be one of the most challenging sectors to bring online for unique obstacles facing both grocery retailers and consumers. For consumers, there are concerns of quality and lack of trust in ordering online — especially when you think of fresh product or meat/seafood. Further, when shoppers order food, they want it now, especially if making something for dinner that night.
Perhaps most challenging is that it’s impossible to replicate the sensory shopping experience of a grocery store. You can’t enjoy the smell of fresh bread from your computer (at least not yet) nor feel if the fruit is ripe.
For retailers, there are equal challenges making e-commerce work efficiently and cost-effectively. Grocers have massive assortments ranging from large/bulky shelf-stable items to produce to items required temperature control from refrigerated to frozen. Most challenging is the logistics and economics of delivery – given the frequency of purchase and lower average basket size and low margins, it is extremely difficult to make delivery profitable.
These barriers are now falling rapidly, as shoppers in gain familiarity with the digital process and the classic trust barriers fall (quality, delivery) and habits increasingly change with shoppers regularly splitting their shop and trips across store and online. Increasingly, leading retailers refine functionality and tailor experiences to meet expanding demand. Shopper behavior has never been more fickle in terms of their willingness to switch to another store or even channel. Those who demonstrate they best understand shoppers and meet their ever-changing needs are poised to win.
Recent research finds that by the end of 2018, nearly half (48%) of grocery shoppers purchased at least some of their groceries online, while another 20% said they were considering it this year.
These findings come from a Precima-commissioned research study of consumers and retailers conducted by IDC. More than 4,000 consumers and 444 retailers responded.
Not surprisingly, to bridge the trust barrier, most digital grocery shoppers get their feet wet purchasing non-perishable products. Shelf-stable, non-foods and HBC departments lead the way, bought by about 30% of current digital grocery shoppers. It’s easy to trust what’s in the package and these items ship easily using third-party services or are readily available for store pick-up.
Between 19% and 24% of shoppers, by comparison, put fresh, chilled and prepared food categories in their online baskets. Trust may be a bit more elusive to consumers who are used to inspecting, feeling and sniffing their proteins, produce, bakery and dairy products.
It’s notable that interest in all departments is high among shoppers, who say they are very likely to begin buying online in the next 12 months. Intent to buy shelf-stable packaged food items online is 48%, while intent to buy fresh bakery items online is 34%. More than one-third say they will buy deli items.
Traditional retailers should take note of this, because as a group they seem to be trailing this important trend. Just 16% of responding grocers indicated firm plans to offer fresh bakery items online in the next 3-5 years, for example.
The research reveals that confidence in fresh item selection has some important implications for retailers as they work to sustain and build shopper loyalty in the digital era. Online grocery fulfillment adds new trust and loyalty elements to the equation that can engender a strong bond or strengthen an existing one.
Retailers who leverage data and customer insights can personalize the digital shopping experience for customers and help manage their transition and trust to online. For example, starting by incenting shoppers to start online with shelf-stable products or non-food products — to build trust — and offer incentives to address delivery concerns (guaranteed delivery time for first order and/or free or discounted first-time delivery)
Among all shoppers, 67% rated “good quality of delivered fresh food” as important when it comes to their choice of online grocer. Retailers who can help ease consumers online, get build their trust to then move to perishables/fresh/protein. By ensuring to get perishables consistently right early, retailers have an opportunity to gain loyalty from shoppers over less nimble competitors.
Loyal shoppers allocate a significant portion of their food budget and shopping time to retailers that they trust to consistently meet their needs.76% of retailers stated that the importance of loyalty has increased. Retailers need to satisfy a shopper’s needs better than the competition.
Shoppers say they are loyal, and prefer to shop at a single store, but when it comes down to it, only 19% actually do their grocery shopping at a single store in a typical week, and only 7% spend more than 90% of their food budget at a single store.
To consistently build shopper loyalty, the new digital imperative means food retailers must exceed customers’ online shopping expectations in other parts of the customer journey. Shoppers rate customer service (68%), convenient delivery windows (66%) and low prices (66%) as important. Curated assortments (62%) and personalized offers (63%) can be also differentiators.
Across all industries, consumers consistently demonstrate that they value the online experience in saving them time and providing convenience. What’s more, shoppers build online habits early and develop strong loyalty for those retailers who earn their digital trust. This is a huge opportunity for leading grocers to capitalize on this consumer trend and help shoppers make the transition in food.
The shift to digital grocery means shoppers are shifting their expectations and altering their habits to an unprecedented degree. New loyalty may be nurtured in this period of discontinuity. A superior digital shopping experience is an opportunity for retailers to make a positive first impression, again.
Brian Ross is president of Precima, a global retail strategy and analytics company.