The grocery industry is one of the few categories that hasn’t been disrupted by e-commerce yet. As of December 2014, less than one percent of food and beverage sales currently occur online, according to Business Insider, making this $600-billion market largely untouched by advancements in mobile and cloud technologies.
But that doesn’t mean grocery companies can afford to take a back seat. Getting e-commerce right is an urgent task, as the industry’s future growth will come mostly from e-commerce. Online grocery sales are expected to grow at a compound annual growth rate of 21.1 percent, while offline sales are projected to grow by 3.1 percent.
Perhaps more alarming for established grocery chains is the fact that tech giants—including Google and Amazon—are beginning to enter the online grocery space. Hungry to steal business from traditional grocers, these companies are offering same-day delivery services for food and beverage products and are experimenting with subscription services for daily grocery items. These companies already disrupted other retail sectors, and traditional grocery companies need to invest heavily in e-commerce in order to defend their market share.
The battle for e-commerce dominance in the grocery industry has just begun. So how can companies prevail? The three steps below provide a good starting point.
Address barriers to adoption.
Jonathan Marino, senior finance writer at Business Insider, says a big hurdle for online grocery adoption is “consumers' preference to shop for themselves.” A BMO Capital Market report found that consumers’ preference to pick out their own food is by far the biggest factor stopping people from buying groceries online. Paying for delivery service is a distant second.
But just because people aren’t willing to buy food online now doesn’t mean they won’t change their mind in the future. The rise of e-commerce in the apparel industry and other retail sectors shows that customer attitudes and behaviors can change over time as companies improve their online offerings and services.
The key for companies is to address customer concerns regarding online grocery shopping. Furthermore, as grocery e-commerce gains wider adoption, companies need to continue to gain feedback in order to refine their strategy.
Identify opportunities to differentiate services.
The market for online grocery shopping is set to become crowded as tech giants try to compete with established brands in the food and beverage industry. In addition to providing a seamless customer experience, companies need to offer compelling and differentiated products.
In an article for LinkedIn, Brian Fetherstonhaugh, chairman & CEO of the customer engagement agency OgilvyOne Worldwide, suggests one approach brands could take:
Imagine if shoppers got reminders from the grocery store about special offers, possible savings and recommendations based on their shopping history. What if they were able to review freshness ratings and were given the option to pickup in-store so as to save time and money? What if shoppers were notified whenever someone else in their household started a new shared grocery list, allowing them to add items?
Now imagine allowing shoppers to ask retailers questions, and sending them special recipes and ideas. And letting them redeem coupons as they check out online. When they choose to pick up their groceries, their pick-up time is confirmed. And when they arrive at the store, they receive more special offers. After shoppers receive their groceries, they can subscribe to receive certain items on a regular basis, making their lives even easier.
The scenario that Fetherstonhaugh described is theoretical, but it highlights the need to be innovative and creative in this new space. Grocery shopping is a regular activity for many shoppers, and they’re used to doing it in physical stores. To change behavior, companies need to understand their customers and look for opportunities to make online grocery shopping more enjoyable than doing it in-store.
Engage the millennial shopper.
From their entertainment options to clothing and apparel, millennials are accustomed to accessing and buying everything online. Many of them want the same experience for grocery shopping.
The abovementioned Business Insider study found that 25 percent of millennials—more than any other demographic—are willing to pay a premium for same-day delivery. Millennials are set to become the early adopters of online grocery shopping, and companies that meet the needs of these customers will set themselves apart from the competition.
E-commerce is on the verge of disrupting the grocery industry. As online shopping finally gains momentum in this space, companies need to build a relationship with their customers and inject customer intelligence into their strategy and tactics. Failing to do so has costly repercussions with billions of dollars on the line. The need to understand the modern grocery customer cannot be overstated.