BOCA RATON, Fla. -- Supermarket retailers need to gear up for the consumer direct challenge before this business format jumps from infancy into maturity, according to a study released here last week.
A comprehensive report based on two years of research by the Consumer Direct Cooperative, which researches the packaged-goods industry, predicts that 15 million to 20 million households will become regular users of consumer direct services by 2007. The report points to a limited window of opportunity for companies to become forces in this business segment.
The report was presented at the Midwinter Executive Conference of the Food Marketing Institute, Washington.
"Consumer direct can be an $85 billion channel by 2007," said Vic Orler, partner in Andersen Consulting, Chicago, which assembled the Consumer Direct Cooperative and was the consultant for the study.
"There will be room to buy far more than just groceries too. The channel is now in its infancy, but growth will be rapid once the operating model is right. Retailers and manufacturers must develop strategies now to react."
The study defines consumer direct as a full-service channel that enables consumers to order merchandise, usually through a personal computer or other automated ordering system. The research found that about 175 markets (covering 75% of U.S. households) could support more than one consumer direct provider. But markets are expected to evolve at different speeds depending on demographics, consumer attitudes and levels of service.
The Consumer Direct Cooperative is a consortium of 31 organizations, including retailers, wholesalers and manufacturers. The distributors include H.E. Butt Grocery Co., San Antonio; Wegmans Food Markets, Rochester, N.Y.; and Fleming Cos., Oklahoma City.
The road to maturity for consumer direct is expected to follow a route similar to many other industries. "Consumer direct will follow the path of club stores, maturing in eight to 10 years," said Kevin Otero, associate director of consumer direct at Procter & Gamble, Cincinnati, who spoke during the presentation.
The channel's future will depend on consumer openness to change. The study's authors segmented consumers into six groups based on attitudes about consumer direct.
Shoppers likely to embrace this business format include "shopping avoiders," who dislike grocery shopping; "necessity users," who are limited in their ability to travel to stores; "new technologists," who are comfortable with technology; and "time-starved consumers," who would change habits to create more free time.
The challenges will come in reaching two other consumer segments, the first of which is "responsibles," consumers who feel shopping is one of their jobs and is linked to self-worth. Nevertheless, this group has apparently shown willingness to adapt.
The hardest group to reach will be "traditional shoppers." These are consumers who shun technology and enjoy the store environment, making them unlikely to embrace consumer direct.
Besides drawing consumers, the industry will have to overcome a number of hurdles, including resistance to delivery fee charges. But once shoppers are won over, consumer direct operators are expected to reap the rewards of loyalty. The CDC found that consumer direct "captures two-thirds of the dollars previously spent in the grocery store and almost 80% of dollars spent at the primary grocery store."
Users appear eager to extend the relationship to other services, including dry cleaning, video rental and prescriptions.
Traditional retailers have some ready-made advantages in consumer direct, according to the research. "Consumers want their current primary grocery store to also be their consumer direct provider," the report said. "Furthermore, successful retailers have deep category management skills to leverage as well as relationships with manufacturers."
Retailers were urged to jump into the consumer direct waters early by taking some simple steps. These include reviewing industry research, assessing their own capabilities and skills, testing consumer direct services, and approaching suppliers of technology and other services.
COST: Consumers will heavily weigh the price of products and fees. Consumer direct providers need to focus on cost, including efficient ordering and fulfillment, and lowering of customer acquisition and service costs.
INFORMATION CONTENT: Suggestions for recipes and complementary products add value; customized software programs that create replenishment reminders are popular with consumers.
CONTEXT: Shoppers want an interactive experience and user options while plowing through the ordering process. Retailers not ready to attempt consumer direct programs can still make a commitment to better meet consumer needs. The study suggests retailers create goals such as re-energizing the center of the store or building meal solutions programs.
A panel of industry executives commented on the consumer direct phenomenon during the FMI presentation. Tim Dorgan, executive vice president of Peapod Inc., a home-shopping service provider based in Evanston, Ill., said his operation hasn't yet reached the levels necessary for profitability, "But we have the things in place to get us there." He stressed that the tough part of consumer direct "isn't software, it's getting groceries to the person's door in good shape."
Bill Holsworth, executive vice president of business development for Atlanta-based Ahold USA, noted that his company is focused on the home-shopping market. He said the parent company, Ahold, Zaandam, Netherlands, has been pursuing a home-shopping program in Holland and Ahold USA is now partnering with Peapod in Boston.