winning cpg strategies in online grocery · optimization, supply chain, procurement and ecommerce...
TRANSCRIPT
Winning Strategies in Online Grocery
Retail Council of Canada STORE 2016 Conference
June 2016
Randy Burt & Vishwa Chandra
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Introductions
Randy Burt
Partner, A.T. Kearney
• Focused on retail and channel strategy, merchandising and trade promotion optimization, supply chain, procurement and eCommerce in the food, drug, mass retail and CPG industries
• Prior experience with Nielsen leading consumer market research functions
Vishwa Chandra
Partner , A.T. Kearney / Former VP of Retail, Instacart
• At A.T. Kearney working with leading retailers and consumer product companies with a focus on merchandising and supply chain operations
• At Instacart focused on partnering with new retailers on the platform and working with 100+ retailers to expand into new markets and grow sales
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Changing Consumer Behavior
Growing urbanization
Technology & Convenience
Changing demographics
Growth is set to take off in Online Grocery
3.5%3.0%
12-16.0%
2019E
8-11.0%
2014 2013 2023
U.S. Online Grocery Share 2013-2023 Forecast
Sources: Brick Meets Click, Packaged Facts, 2014, A.T. Kearney analysis; Packaged Facts, 2014
CAGR 15-18%
+17%
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1. Removed illogic responses (e.g., all shopping methods listed as “most frequent”) and erroneous question entries (e.g., shopping in stores listed as both “least used” and “frequently used”) Source: A.T. Kearney
Respondents
• 1,341 primary grocery shoppers
• 90% female
• 34% urban area / 54% suburban / 12% rural
• Average HH size = 2.9 people
Objectives
•Understand the online consumer
•Analyze online shopping preferences
•Derive strategic recommendations for grocery retailers
Methodology •Online survey
•Statistically relevant sample size (1,341 total respondents)
•All ages, income levels, geographies, and genders
Overview of A.T. Kearney’s 2015 Online Grocery Survey
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Key Findings
Source: A.T. Kearney 2015 Online Grocery Survey
Consumer Profile
•Usage increased across all demographics
•Highly penetrated segments are attractive
– 25-34 year olds: ~40%
– Urbanites: ~40%
– Those earning over $75K: over 40%
•Websites remain relevant while mobile usage grows – social not material yet
•Non-perishable categories lead
•Freshness and cost still perceived as barriers
•More customers are willing to pay for home delivery than pick-up
•Customers want savings:
– Coupons (71%)
– Price comparison (67%)
– Earn loyalty points (65%)
Channels & Categories Consumer Preferences
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Myth #1: Baby boomers won’t adopt online grocery
28%
7%
35-44 18-24
+29
> 65
25%
7%
55-64
32%
6%
45-54
7%
34%
25-34
37%
5%
11%
36%
+20
+26
+26
+18
+29
Respondents by Age Group who Bought Groceries Online
2015 2014 Source: A.T. Kearney 2015 Online Grocery Survey
Consumer Profile
Penetration is growing across age segments
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Myth #2: Online grocery only works in urban areas
Rural Urban
27%
Suburban
33%
41%
Source: A.T. Kearney 2015 Online Grocery Survey
41%
48%
44%
$75K - $100K
$100K - $150K
29%
$25K - $50K
$0 - $25K
31%
$50K - $75K
33%
$150K+
By Area
34% 2015 online penetration for all consumers
Consumer Profile
By Income
Respondents who Bought Groceries Online
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Myth #3: Fresh products won’t be bought online
Avg, Perishables Personal Care
52% 53%
Beauty Items Baby
19% 14%
31%
Packaged Food
Non-perishable
Online grocery penetration by category1
Source: A.T. Kearney 2015 Online Grocery Survey 1. (% Respondents who have purchased products online in past 6 months)
Channels & Categories
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Myth #4: Customers prefer click & collect
Fulfillment Preferences – Online customers
Willingness to Pay1
Customers prefer home delivery and are more willing to pay for it
71%
17%
12%
Delivery
100%
Other
Click & Collect
12%8%11%
11%
23%
13%
15% 21%
26%23%
28%
21%59%
45%38%
18%
6%
18%
3%
Pickup in store same day
$3.99
$1.99
$5.99
$9.99 or more
Home Delivery w/i 2 days
Home Delivery same day
$0
Pickup in store w/i 2 hours
3%
1. Note that responses to question are in regards to a regular “stock-up” trip Source: A.T. Kearney 2015 Online Grocery Survey
41%
55% 62% 82%
Consumer Preferences
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Myth #5: Online will dilute margins and cannibalize sales
First mover advantage is hard to sustain
Incremental sales decrease and cannibalization rises as online grocery grows
Competition drives down delivery fees
Diseconomies of scale in fulfillment, e.g. dark stores
Note: Thrifty Foods and IGA are banners of Sobey’s, Save on Foods is a banner of Overwaitea Food Group
Consumer Preferences
Historical view… …reality
If you don’t cannibalize store sales with online grocery, someone else will do it for you
…who shop online and in store
…with higher baskets…
New Customers…
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Myth #6: Convenience alone will drive online adoption
60%
34%
68%
Most or Very Likely to Return Due to:
Unique Online Features
Source: A.T. Kearney 2015 Online Grocery Survey
Savings Convenience / Speed
Consumer Preferences
Shoppers expect value across multiple areas
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Canadian online grocery market is just getting started…
Online and In-store Grocery Retail Sales by Country
(USD1 Billion, 2015)
1. Converted to USD using 12/31/15 exchange rate. Source: Syndy State of Online Grocery Retail July 2015, Euromonitor 2016, Profitero, BMO Capital Markets
US: 3% online
penetration 2015
$594 3.0%
97.0%
Online Grocery
In-store Grocery
UK: 4.4% online
penetration
2015
$258
In-store Grocery
Online Grocery
95.6%
4.4%
Canada: 1% online
penetration
2015
$101
Online Grocery
In-store Grocery 99.0%
1.0%
France: 3.6% online penetration
2015
$252
96.4%
3.6%
In-store Grocery
Online Grocery
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…due to challenges specific to Canadian retailers and consumers…
• Brick-and-mortar retailers have evolving capabilities, e.g. content rich websites providing information on food recipes1
• Customers are not as widely accustomed to grocery delivery
• As of 2015, 88% of Canadian grocery shoppers have never tried online ordering3
• Perception on consumer preferences e.g., on perishable goods
• Consumers not willing to to wait for groceries to be delivered2
• Consumers are spread out, adding to logistics costs for delivery
• Limited, outside of Toronto, Vancouver, and Montreal, creating potential barriers to scale
Key Challenges
Content
Awareness
Geography
Service
1. ComScore 2. BMO Capital Markets 3. Mintel
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Toronto
Ottawa
Montreal
Vancouver
Calgary
Edmonton
6 mil
4 mil
2.5 mil
1.5 mil
1.4 mil
1.3 mil
1. BC % share includes Yukon Territories, NWT, Nunavut 2. Includes all cities with metro area population >1MM Source: StatCan, S&P Capital IQ, Euromonitor, Canadian Grocer, company websites
Quebec (24%)
Ontario (32%)
Manitoba (4%)
Saskatchewan (3%)
Alberta (14%)
British
Columbia
(16%)1
Northwest Territories
Nunavut
Yukon Territories
…Retailers have started to enter the Canadian online grocery market via the largest metro areas
Atlantic Provinces
(7%)
Province (% of Canadian grocery share) Cities2 and metro populations
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Key Success Factors for Retailers in Online Grocery in Canada
Integrate with brick & mortar
• Create a seamless, integrated experience for every shopper
• Encourage users to move between channels through offerings
Deploy to customer needs
• Target specific customer segments, e.g. new parents, back-to-school shoppers
• Offer personalized promotional strategies and pricing based on past purchases
Establish enabling capabilities
• Invest in IT to build digital presence via website, mobile app, and social media
• Build infrastructure to enable economies of scale
How can Retailers win?
Define value proposition
• Develop offerings such as same-day delivery and click & collect
• Create competitive price and value with in-store offerings
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Success Factors Key Examples & Opportunities
Convenience • Last mile delivery for growing population
• Click-and-collect or pick up kiosks
Flexibility
• Plan orders in advance or get delivery in <30 minutes
• Pay online or when goods are delivered to the door
• Extended assortment found online
Quality
• Guarantee freshness of items
• Source high-quality, locally produced farm-fresh produce and meats
Pricing • Price parity across channels, low delivery fees
• Guaranteed money back if customers aren’t satisfied
Clearly defined grocery digital value proposition
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Success Factors Key Examples & Opportunities
Digital Layout
• Digital management as an emerging capability distinct from traditional merchant function
• Established dynamic environment – one to one vs. one to many
Personalization • Customized, merchandising (pricing, promotion, assortment)
Digital Engagement
• Digital path to purchase – influence customers at different points
• Meal planning and buying tools targeted to consumers
• Engage with customers during and post shop
Tools and services personalized to the individual
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Success Factors Key Examples & Opportunities
Selection • Consistency in assortment with store with targeted expansion – distinct layout and grouping online
Cross Channel
Engagement
• Distinct focus on making stores a destination (move from HAVE to WANT to visit the store)
• Ensure consistency in messaging across channels
• Embed digital engagement in store
Access
• Customize offering by customer segments
• Allow customers to seamlessly switch between available stores and channels within a specific region
Integrated offering across channels
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Success Factors Key Examples & Opportunities
Partnerships • Partner with 3rd party providers to gain access to more channels, customers and offerings
Investment • Develop multiple platforms (website, applications) with layout designed around user experience
Scale
• Leverage existing brick-and-mortar locations for delivery and pick-up
• Consider adding warehouses or dark stores as scale is expanded
• Micro density requirements
Digital capabilities to enable online grocery
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Thank you