Study: Store pickup, small formats have a lot to offer

Adding online grocery pickup and learning from innovative small-format stores can help food retailers tailor the omnichannel shopping experience to their customers, according to an analysis from Brick Meet Click.

Shoppers’ demand for new offerings that meet their personal lifestyles continues to fragment the mass market in terms of distribution and retail channels as well as in products and communication, Brick Meets Click said in its report “Capitalize on the Growing Appetite for Customization and Personalized Shopping Options,” released last week.

“Grocers and suppliers who fail to respond to this growing demand for products and services that are customized to satisfy the personal preferences of shoppers can get left behind,” noted Steve Bishop, managing partner of the Barrington, Ill.-based strategic advisory firm.

In online grocery, that means retailers should offer store pickup service along with delivery to ensure they are meeting a broader range of customer preferences. Many shoppers prefer pickup over home delivery, and pickup brings retailers key benefits in cost, incremental sales and customer relationships, the report said.

“Pickup service doesn’t just cost the customer less than delivery, it also costs the retailer less to operate,” according to Brick Meets Click. “From the customer’s point of view, pickup service fees are typically half that of delivery and, occasionally, there’s no fee. From the retailer’s point of view, variable expenses to operate a pickup service are lower and easier to manage than delivery. So customers spend less on explicit fees and retailers make more profit with pickup as compared to delivery.”

Related:As grocery e-commerce sales grow, the online shopper evolves

About one-quarter to one-third of grocery shoppers who buy online and pick up at the store make added purchases in the store during the same visit, Brick Meets Click research finds.

“If a customer wants to choose their own produce or needs a prescription, hot prepared foods, a gift card or even alcohol in certain markets, then a pickup option works better for satisfying this broader range of grocery-related needs,” the report said.

Store pickup, too, helps brick-and-mortar grocers reinforce the personal connection with their customers — a key advantage over pure-play online grocery services, Brick Meets Click pointed out. “Otherwise, when customers choose delivery, especially when the grocer partners with a third-party provider, the digital experience and independent contractors define the customer relationship to a much greater degree,” noted the report.

Related:Survey: Grocery stores need to ‘enter the modern age’

In an analysis of transactional sales data from about a dozen retail grocery banners offering both online delivery and pickup, Brick Meets Click found that an average of a quarter of online grocery customers used pickup only, a majority used delivery only and a small group used both.

“This clearly shows that grocers need to offer both options to reach their entire potential online market,” the report said. And to maximize the sales potential of store pickup, retailers should seek ways to improve the pickup experience, such as by reducing the wait time between the customer’s arrival and the delivery of the order to their car.

Raley's Market 5-ONE-5 store in Sacramento focuses on store focuses on helping customers make more informed and healthier food choices.

On the brick-and-mortar side, Brick Meets Click noted that small formats are indicating where consumers are leading retailers — and where grocery retailing may be headed. The report cited such examples as Raley’s Market 5-ONE-5, Hy-Vee Health Market, a new Whole Foods “bodega-style” shop in Manhattan attached to one of its full-service stores and a new Aldi urban store concept launched in England called Aldi Local.

“These stores aren’t just smaller; they are built to serve specific shopping occasions and to test new business models that are fundamentally different from traditional grocery stores,” Brick Meets Click observed. “These small stores will create a next generation of retail that uses new technologies to achieve more efficient use of labor, inventory and selling area.”

Smaller retail concepts also can help retailers enhance proximity to their customers by penetrating densely populated areas, even if it’s just a few city blocks.

“This isn’t how grocers have historically thought about the business, but it is the way chain drugstores develop in urban markets,” explained Brick Meets Click. “And we should use this model to think about what’s happening since it’s enabled drugstores to generate much higher sales from a given market area by leveraging the value of the network. Proximity is clearly the game Amazon is working on as well.”

Improved web search optimization also has become pivotal for grocery retailers, Brick Meets Click added. The report said suppliers are adding hundreds of online attributes to their products to help consumers find what they want more easily. Attributes range from full lists of ingredients and nutritional claims to how the products were made and packaged.

“To date, some retailers have been slow to add attributes because it hasn’t always been clear how they add value to the business. But leveraging product attributes is becoming essential for being a nimble competitor and satisfying shoppers’ needs,” Brick Meets Click said. “Grocers who can quickly identify where product sales are increasing faster than the category will be able move first with products trending ahead of the market and, therefore, deliver a better customer experience that will capture more spending.”