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Meet the World’s Best Omnichannel Grocers
The third annual Digital Benchmark Study from Incisiv reveals the leaders and the laggards. The leaders in grocery are now growing digital revenues at five times the rate of laggards, as the post-COVID shopping world comes into focus in the third annual Digital Benchmark Study from Incisiv.
9 Min Read
Illustration: Shutterstock
They’re growing up fast.
Think of COVID as something of digital grocery’s pubescent adolescence—an accelerated period of sudden and oftentimes awkward physical and emotional growth along a journey to adulthood.
And just as no two teenagers mature at precisely the same pace, retail grocers today find themselves somewhere along the continuum of providing shoppers with the tools, capabilities and experiences they need to serve this growing field most effectively, winning digital loyalty over time.
As Incisiv’s 2021 Digital Maturity Benchmark Study illustrates, the differences between the most mature and those still getting there are providing outsized advantages to the former as they chase a lucrative prize: Even as researchers slightly temper their projected growth pace of digital as the post-COVID shopping landscape comes into better view, online grocery penetration will more than double in the coming five years, comprising 20.5% of an estimated $1.285 trillion market in 2026.
Incisiv currently estimates online comprises about 9.5% of a $1.1 trillion market. The retailers it considers the most mature—or in the parlance of the report, the 13 “Leaders” emerging from 117 companies studied through observational assessments and consumer preferences analysis. The digitally most mature grocers are growing digital revenues at a rate of more than five times of their least-grown-up rivals. “That correlation,” says Amar Mokha, chief operations officer of Incisiv, “is only getting stronger.”
The report, whose findings are published here for the first time and detailed ahead, is loaded with insights that provide both the big-picture of the online journey and recommendations and examples illustrating the areas in which retail grocers need to continue to invest. Among its highlights:
Online grocery adoption, which jumped almost 43% between 2018 and 2020, is expected to grow to 50% by 2022.
As effects of the pandemic on grocery stores began to recede, some consumers—particularly, older ones—went back to shopping in-store. This and other signals triggered Incisiv to temper its projections for the rate of future growth slightly: While last year’s report anticipated 21% of total grocery revenue would be digital by 2025, new projections put the 2025 figure at 18.5% on the way to 20.5% by 2026. That’s still miles ahead of pre-pandemic estimates.
The report for the first time examines differences in the demographic makeup of digital adopters and zip-code analysis of respondents, pointing to a largely underdeveloped opportunity to better “personalize” experiences for online shoppers.
COVID sparked big progress and near-parity with all classes of trade in fulfillment last year, but in so-called “top-of-the-funnel” capabilities—search, discovery and navigation of e-commerce shopping sites and apps—grocery still badly lags them.
The study no longer “ranks” grocers in a single best-to-worst list, but instead groups them into tiers based on their “maturity” among four key capabilities—Ease of Search and Navigation; Seamless Ordering and Checkout; Convenience of Placing and Receiving Orders; and Customer Engagement and Service—as Laggards, Followers, Challengers and Leaders. Their placement is based in part of their having reached “table stakes” or differentiating capabilities in those areas.
As in previous years, the study examines dozens of discrete attributes making up each of the four key areas.
According to Mokha, the study is the most comprehensive and largest of its kind, with 42,190 discrete attributes assessed across 117 retailers, and analysis of nearly 12 million data points. In addition, Mokha adds, we collaborate on a shopper study with Mercatus on an annual basis that adds context .
Online Grocery Store Outlook
Despite a slight adjustment, online penetration projections are still well ahead of pre-COVID estimates.
Search & Discovery
With about 90% of shoppers checking the website before even planning their store visits, the research and discovery process of digital channels can be the most crucial element of success, but grocers have a long way to go.
Seamless Ordering & Checkout
Loyalty in online shopping is low; 50% of online shoppers defect for better deals. Retailers have to make the value tangible for the shopper beyond the product and make checkout an easy and frictionless process.
Convenience of Placing & Receiving Orders
Availability of omnichannel fulfillment options has become widespread, with 86% of retailers now offering BOPIS and 71% now offering curbside pickup. However, it is the ease and experience of ordering and receiving products that will determine its winners and losers.
Customer Satisfaction & Issue Resolution
In the absence of physical interactions, customer satisfaction has to evolve from a call-center resolution function to a pro-active customer engagement and satisfaction engine that will directly contribute to shopper loyalty.
Meet the Most Mature
Ten U.S. retail grocery brands—BJ’s Wholesale Club; Costco Wholesale; Hy-Vee; Albertsons’ Cos.’s Jewel-Osco; Kroger; Ahold Delhaize’s Giant Co. (Giant/Martin’s); Publix Super Markets; Target; Walmart and Wegmans Food Markets—are included in Incisiv’s list of 13 global retailers recognized as overall leaders. Coop Group (Switzerland); Loblaws (Canada) and U.K.’s Sainsbury’s complete the list.
These brands “have a strong foundation of table-stakes capabilities along with leadership in the adoption of differentiating capabilities,” the report notes. BJ’s, the Natick, Mass.-based membership wholesale club, ranked No. 2 overall to Tesco in last year’s rankings and led all grocers studied in 2019.
The Leaderboard
The study grouped 109 brands into the following four categories based on their adoption of table-stakes capabilities and differentiators Leaders grew revenues by 11% last year; Laggards by 2%.
Q&A with Incisiv’s Amar Mokha
Big trends and big opportunities are all in the data.
Jon Springer: Let’s start with the market trends you see coming out of this study.
Amar Mokha: Digital share of revenue continues to grow: Adoption, which jumped almost 43% in 2020 over 2018, is expected to exceed 50% by 2022. So where does that put us? Last year, we projected that digital share of grocery would be about 21.5% of total grocery sales in the U.S. by 2025. That was middle of the pandemic when sort of things were shut down, and there were restrictions on going to the store.
Now that people see almost the light at the end of the tunnel, people are vaccinated, stores are open, and restrictions have come down, there is a fair bit of population that is beginning to shop back in store.
And what we are now projecting is that while the share of revenue would continue to grow, we’ll probably hit 20% by 2026 and not 21% by 2025.
In a recent shopper study we conducted in partnership with Mercatus, we also looked at demographic profiles, and for first time we asked about ethnicity. Younger consumers have a higher propensity to shop demographics. And when you look at ethnicity, African-Americans and Latinos’ digital adoption is almost 10% more than Caucasians.
In what areas have retailers made the most progress, and where do they still have work to do?
Grocers were quick to adapt because of the pandemic last year. And suddenly, they all ramped up their fulfillment capabilities, to be able do curbside pickup or buy online, pick up in store. That that is one area where grocery retailers are almost the industry benchmark when it comes to digital maturity.
But when it comes to the top-of-the-funnel engagement, the No. 1 friction point that consumers speak about is the inability to have a properly functioning search, the inability to have a streamlined navigation in their customer journey, in the same way a department store, apparel or direct-to-consumer [retailer] has, from a look-and-feel perspective: The slick navigation, single- step checkouts, etc.
Grocery retailers have thought of every conceivable function and feature when it comes to fulfillment—they’ve implemented buy-online, pick-up-in-store, same-day delivery, two-hour pick up. Now some are talking about 20-minute fulfillment also. Interestingly, while retailers are gung-ho on fast-track delivery, it comes with a cost to the customer. When you speak to customers about the propensity to spend for faster speed of delivery, is very low.
Another interesting insight was, if you look at home delivery, the adoption rates are dropping to pre-pandemic levels, where it was about 23% of all grocery orders placed online. It went up to almost 37% last year in the middle of the pandemic. But we see a significant increase in online orders being picked up in store.
Grocers have not yet really started doing much around personalization, and that’s where this discovery on ethnicity took us. So if a particular profile, whether it is African-American or Latino or Asian or Caucasian, is more valuable, then what makes the whole element of personalization become all the more important.
So, we should anticipate that search and discovery will be top priority for grocers? Where would you expect the most relative investment?
I have a two-part answer. Grocery retailers who got their house in order earlier around fulfillment and ordering are going to step back to basically align their operating models. Now, more and more orders are flowing through the store. Based on our findings in the Mercatus Shopper Study, the stores are going to end up filling almost 75% of them. So, they’re first focused on streamlining the operating margins, equipping the stores to be able to provide that experience, both to in-store customers and the customers ordering digitally but touching the store for fulfillment.
That is a big area where retailers are bleeding money, and taking a hit on customer service, because they’ve essentially had to throw more and more labor in to sustain that basic customer experience.
Once they’re past that, then we’ll see the next wave of investment. And if I have to make a call, my first bet would be experience on mobile, followed by personalization. The third would be on search and discovery.
When does this survey stop being necessary for the industry?
Even for the most mature retailers, I would say we still have two to three more years. On the front end, things are looking better, but still there’s a long way to go on the back end. And given the wrench that COVID threw in, suddenly everything’s sort of shifted towards digital. And everybody has to wait and watch whether this digital shift sticks or not across retail, and then, whether the investments will continue to yield the dividend that they’ve yielded in the last 18 months, or not. That'll determine the next wave of maturity, and the evolution of digital channels.
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