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The Intersection of Physical and Virtual in the World of Grocery Shopping

Consumers now have more choice about where, how, and from whom they buy grocery products. In this blog, we will share the top trends of how the physical and virtual worlds are intersecting in order to satisfy shoppers however, wherever and whenever they want to shop.

E-Commerce Versus Brick and Mortar

Consumers are no longer shopping just in-store. E-commerce is slowly taking a share of grocery dollars. According to a report by Jones Lang LaSalle IP, e-commerce grocery revenue is projected to grow by 57.4 percent by 2018. However, the overall market share will only be 2.5 percent.

Per Nielsen’s report, The Future of Grocery, the mix of online product sales in the U.S. is approximately 60% non-food to 40% food, the exact opposite of the total in-store consumer packaged goods (CPG) scenario. Products such as shampoo, laundry detergent and toilet paper have a long shelf life yet steady consumption rate and are well suited for e-commerce. Products that have high price-to-weight ratios (i.e. dog food, baby formula) are also well suited for e-commerce.

However, there are some shopping experiences that cannot be replicated online. You can never replace the pure convenience of going to a brick and mortar store when you are in urgent need of an item (i.e. pain reliever). According to Nielson’s global report, 61% of people believe going to the grocery store is an enjoyable and engaging experience. Sometimes it’s simply the instant gratification you get by picking up a fragrant piece of fresh fruit or allowing yourself to indulge in that desired bakery good. People want to touch, smell, see or try products before purchasing them.

Who is Shopping for Groceries Online?

Globally, generation Z and millennials lead the way with 28% and 30%, respectively, ordering online for delivery to home. The below charts outline four e-commerce solutions that rank high with these two digital generations.

Millennials and Generation Z are the Top Online Grocery Shoppers

Changing Shopper Preferences

Price, convenience and quality are the most important grocery store switching drivers. In North America, 72% of consumers look at price first with convenience (45%) and product quality (43%) following. Per a report by Oliver Wyman, hard discount and club formats have an open opportunity for growth. Traditional retailers need to create a competitive strategy that includes lower prices to narrow the gap and show their consumers the additional offerings that only a traditional grocer can provide.

Percent Share of Trade by Channel in North America

For some retailers, it may be time to revamp their growth model by transforming the business. A good example of this is Target and their new initiative of revamping their in-store aisles and developing an online strategy. Target has launched a smaller format store in urban environments to gain additional market share.

For some grocers, like Kroger, a little competition is a key driver. Currently Kroger plans to add five new stores in the Houston area this year. At the same time, H-E-B plans to open seven new stores. This new growth can be attributed to increased disposable income.

According to a study by Market Force, Trader Joe’s is America’s favorite grocery retailer. This comes as no surprise. Their mission is “great food + great prices = value” which encompasses both price and quality and their store format is all about convenience.

Even though price is the top factor, shoppers will still shop whatever format best suits their need at that specific moment. It is critical for retailers and manufacturers to leverage physical and digital assets to optimize the in-store experience. Two current trends are the growing use of programmatic ad campaigning and in-store digital enablement.

CPG Marketing and Programmatic Ad Campaigning

According to a new report from eMarketer, $10 billion was spent on programmatic ad spending in the U.S. in 2014 and is projected to grow to $20 billion by 2016. Programmatic ad technology analyzes active shopper data to deliver targeted ads in real-time as they are shopping online. The CPG and consumer products category is the second-largest sector for programmatic buying. Proctor and Gamble is expected to spend 70% of its digital ad budget on programmatic buys.

In-Store Digital Enablement

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photo credit: bloomberg.com

In-store digital enablement begins with an omnichannel approach creating a seamless interaction at every point along the path to purchase. This includes finding stores, making grocery lists, doing research, purchasing and sharing the information with others. Retailers and manufacturers that provide digital engagement tools to their consumers are winning. Mobile in particular is leading the charge.

In-Store Digital Enablement Trends in North America

  • 26% of shoppers use online or mobile coupons
  • 18% use online or mobile shopping lists
  • 15% download retailer apps or loyalty program apps to their mobile phone to receive information or offers
  • 12% login to store WiFi with their mobile to receive more information or offers

Whether you shop online or in-store, at mass or small format, it is now the age of convenience. Price and quality still rank high, but convenience will always be a factor. Retailers and manufacturers should review their current strategies and determine if they truly are ready for the interaction of the physical and virtual in the world of grocery shopping.

Sources: OwnerIQ.com, Mediapost.com, Bizjournals.com, Chainstoreage.com, Nielsen Global E-Commerce New Retail Report, April 2015, JLL ShopTopic Grocery Share, 2014, and Oliver Wyman Retail Journal Volume3, 2014.

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