what's ahead for online grocery? updated growth forecast & implications

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.

http://www.brickmeetsclick.com/

WHAT’S AHEAD FOR ONLINE GROCERY? 2 _________________________________________________________________________________________________________________________________________________

www.brickmeetsclick.com © 2014 Brick Meets Click

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 2023. 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




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.




Online spending is growing faster than expected.

What’s driving the accelerated growth?

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.

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.




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.

©2014 BRICK MEETS CLICK




More options for convenience are attracting more shoppers.

What do I want . . .

Artisanal cheese? Organic produce? For some things, I want the

really good stuff.

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.

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.




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.




What might the dollars look like on an aggregate basis?

“By 2023 . . . 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

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.




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%




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.




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




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.




Brick Meets Click

Learn more about our research and

how we can help you succeed.

Contact Steve Bishop

773-‐593-‐3836

[email protected]

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



http://www.brickmeetsclick.com/steve-bishop-1

what's ahead for online grocery? updated growth forecast & implications

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