As U.S. grocers scramble to stake their claim in the rapidly growing e-commerce space, there is growing concern that many are not doing enough to differentiate themselves and assess long-term the impact of online shopping to their business.
While much of the attention toward e-commerce has focused on Amazon and its archrival Walmart, nearly every major grocer across the country has made meaningful investments or partnerships in the space — from click and collect to meal kits and grocery delivery — in order to establish a foothold in the rapidly evolving space.
"E-commerce is the platform to be in," Carmela Cugini, vice president of grocery, wholesale and international at Walmart's Jet.com, said at the Digital Food and Beverage conference last week in Chicago. "The retail landscape will always have brick and mortar. That is not going away, but (e-commerce) is reshaping what the future looks like."
“Everybody feels they have to be in e-commerce so they are throwing things against the wall. It’s all over the board, (they feel) that they have to do it, and I’m not sure everybody knows what they have to do.”
Phil Lempert
Founder and editor, SupermarketGuru.com
However, grocers' aggressive push into e-commerce has received mixed reviews from observers who question the route many have taken to get there.
“Everybody feels they have to be in e-commerce so they are throwing things against the wall," Phil Lempert, founder and editor of SupermarketGuru.com, told Food Dive from the sidelines of the conference. “It’s all over the board, (they feel) that they have to do it, and I’m not sure everybody knows what they have to do.”
Lempert pointed to Kroger's investment in Ocado and Target's purchase of Shipt as forward-thinking strategies, but many other grocers, he said, are simply partnering with Instacart or other delivery services while they figure out how to position themselves in e-commerce. With only 2% of grocery sales coming online, it has resulted in a "huge infrastructure that isn't necessary" even if that figure jumps to 4% or 5%, he said.
Still, even though e-commerce accounts for a small percentage of sales, research shows consumer demand accelerating, with The Food Marketing Institute and Nielsen estimating the channel will have 70% penetration and be a $100 billion business within the next few years.
To have the best chance of success, Lempert said supermarkets need to develop a long-term plan that effectively balances click and collect and delivery. They also need to spend time training people to pick produce as fresh purchases increase, Lempert said, and to copy some of Amazon's tricks, like giving shoppers a discount if they use the grocer's credit card.
Jet.com's Cugini said the company conducted a study of 3,000 consumers earlier this year to asses why they selected an online grocer. It found price, product assortment and overall experience were the primary drivers.
"Whoever wins the fresh and local side will have a halo impact across their entire assortment to say, 'Hey, you know what, if you know how to do fresh and local, you know how to do all your assortment and we trust you,' " Cugini said. "(It's) really important to get that right, and it's really hard to do online."
Albertsons, which operates banners including Safeway, Shaw's and Vons, trains its personal shoppers to look for the freshest item and select the produce that best matches the consumer's order. For a shopper wanting four pears, employees are told to look for fruits at various stages of ripeness, said Jewel Hunt, group vice president of e-commerce with Albertsons, during a panel discussion.
"Customers will tell us if they think they haven't gotten the freshest produce possible," Hunt said. "They're not shy."
Taking on the big guys
Few grocers have been as aggressive as Kroger in mounting an e-commerce challenge to industry heavyweights.
In just the last four months, the Cincinnati retailer has purchased meal kit maker Home Chef, signed an exclusive agreement with Ocado that will bring the British e-grocer’s automated fulfillment capabilities to the U.S., expanded its same-day delivery service through Instacart and announced that its same-day click and collect service, known as Clicklist, is available across roughly 45% of its 2,800 stores.
The grocer estimates that 75% of households in Kroger markets can either shop online through curbside pickup or delivery, with a goal of expanding that threshold to nearly 100% by the end of 2018.
Matt Thompson, vice president of Clicklist Kroger, said during a panel discussion that the retailer not only assesses online sales but also customer engagement — such as whether shoppers open emails, log in to the website or mobile app and click through on a text message — in order to determine its success rate and whether the company is giving shoppers what they want digitally.
"Five years ago, we spent a lot of money in the stores, opening new stores, that sort of thing," Thompson said. "Now, we've put a lot of that investment in technology. It's been a conscious decision to say we need to invest in what makes this business scalable and profitable."
These investments, at least so far, appear to be paying off. Same-store sales during Kroger's first quarter increased 1.4%, marking the fourth-straight quarter of comparable growth for the grocery giant, while digital sales rose 66%. Clicklist users spend 40% to 60% more than the average shopper, proving that it's not cannibalizing store sales and that efforts to provide a uniform, seamless experience has been successful in convincing shoppers to spend more of their dollars with the grocer.
Thompson said investments like its partnership with Instacart and purchase of Home Chef are about accelerating its presence in areas that would take too long or be too expensive to do on its own, all with the goal of getting it out in front of where the consumer is, and where they are going, as quickly as possible.
"We looked at where the customer is going and how quickly they are going there, and some days it just feels like there isn't enough speed to get to where we need to be," he said.
Keeping an eye on your brand
Sylvain Perrier, president and CEO of Mercatus, said low margins and pressure from industry giants Walmart and Amazon make it difficult for grocers to spend too much money experimenting with e-commerce.
Still, he told Food Dive that with the lion's share of grocers offering similar e-commerce experiences, supermarkets need to focus on the quality of their service and the customer experience they offer — much like they did when Walmart widened its national store network in the 1970s and 1980s.
"They can't lose sight of their biggest differentiator, their brand, not necessarily how they fulfill it to the customer," said Perrier, whose company helps grocers create a multi-channel platform for online shoppers. "I think that's what's getting lost in this is quality of product, brand recognition are not top of mind."
While there are no guarantees how the online future will unfold and which of the strategies being employed by supermarkets will ultimately succeed and dominate the market, retailers will continue to invest to shore-up their e-commerce platforms. Those in the industry caution that technology has become an area where retailers and manufacturers, absent a clear strategy, tend to waste a lot of money.
Thom Blischok, chairman and CEO of The Dialogic Group, a retail and CPG consulting company, estimated in January that food companies spent between $3 and $4 billion on technology last year, and that 60% of that money was wasted. The biggest loss of money, according to Blischok and others, is the supply chain. Stores that are used to stocking products only for those customers that walk in the door now have to forecast online demand as those brick-and-mortar locations now serve as e-commerce fulfillment centers.
Ran Peled, vice president of CommonSense Robotics, an Israeli company that's developing automated fulfillment technology for grocers, said during a panel discussion that once costs come down in about three to five years, "retailers are going to really press that gas pedal and then we might live in a world where 50% of your consumption is being done without going to a store."
Thompson said Kroger, like other retailers, is collecting and studying data it accumulates from its operations to help it better respond to e-commerce demand. It has found that nearly all customers, for example, who buy online tend to have some fresh items in their basket. They also are more likely to purchase in bulk, selecting the eight, 12 or 16 roll package of paper towel rather than the single or double packages popular in the store. The online purchases are having an impact at their stores, too, with the grocer having to devote more space to big-pack items.
Walmart has excelled at getting shoppers to buy groceries on their computers or smartphones. It built this advantage through an aggressive click-and-collect expansion, with more than a thousand stores offering store pickup and nearly half of its locations set to offer the service by the end of this year. Walmart has made an equally assertive push into home delivery, with stores in 100 cities set to come online by the end of this year.
Online grocery shopping is "not a question of if it's gonna happen, it's a question of like where are (consumers) going to do that. There's a lot of of wonderful retailers out there and tremendous competitors and I think we all keep each other sharp, and this is a space I think we're all learning and growing."
Carmela Cugini
Vice president of grocery, wholesale and international, Walmart's Jet.com
A challenge for Walmart, where most of the items in its brick and mortar location are $5 or less, is taking that price online — where there are additional expenses of picking, packing and shipping — and profiting from it. Cugini warned against offering different pricing for products online compared to in-store, a statement echoed by Thompson's Kroger who said doing so can "confuse consumers" and potentially turn them off to the service.
To make online viable in the long run, Cugini said Walmart aims to get the average product purchase closer to $10 without making the actual item more expensive. With bulk items popular online as consumers look to stock up, Walmart can get the shopper to upgrade from the smaller package of Oreo's sold in the store where trips are occur every week or two to the larger package through e-commerce.
Online grocery shopping is "not a question of if it's gonna happen, it's a question of like where are (consumers) going to do that," Cugini said. "There's a lot of of wonderful retailers out there and tremendous competitors and I think we all keep each other sharp, and this is a space I think we're all learning and growing."
