Why grocers need to reconsider strategies for e-commerce success

Demand for grocery e-commerce has skyrocketed in the last 19 months. What was once a modest revenue stream suddenly accounted for 8% of all grocery sales in 2020 and is projected to steadily rise to 20% of sales by 2026.

The grocery e-commerce landscape is evolving at a rapid pace and grocers are seeing new challenges continue to arise. Even those who already had an e-commerce strategy in place, are recognizing that what worked pre-pandemic may not work today.

When Amazon acquired Whole Foods in 2017, it sparked concern that the retail behemoth would dominate grocery sales both online and in-store. Other grocery giants, including Target and Walmart, had already begun experimenting with their own e-commerce strategies, but as recently as 2019, online grocery shopping only accounted for 3.4% of all grocery sales. 

With increased demand for online grocery shopping in 2020, many regional grocers turned to online marketplaces like Instacart and Shipt as a convenient and low-barrier entry point into e-commerce. Marketplaces offered a quick-to-market solution without having to invest the time and resources needed to develop their own e-commerce program.

These third-party fulfillment services were a helpful stopgap when retailers faced unprecedented customer demand for e-commerce. But in 2021 and beyond, a successful online grocery strategy calls for a comprehensive approach.

Retailers hoping to see new or continued growth need to invest in strategies involving marketing, fulfillment, operations and a differentiated brand experience. This means taking steps to own the digital grocery experience and not letting anyone come between them and their customer base. Retailers who only rely on marketplaces for their online grocery strategy aren't just paying high third-party fees, but are also losing out on valuable customer data and insights.

And by only using marketplace providers, retailers are missing out on the benefits of the "three Cs of grocery retail" in relation to e-commerce operations: control, cost management and connection with customers.

Control

Retailers need to control their e-commerce experience with a platform that has the flexibility to build their unique shopping experience. This experience must suit their business needs and meet the evolving needs of their customers, whether through the platform’s capabilities or technology integrations.

Cost management

Retailers who rely on third-party marketplaces are typically subject to high fees and low margins, making it difficult to see long-term success. But, they can reduce e-commerce costs without sacrificing the quality shopping experience that their customers expect. This can be done by improving operational efficiencies and by offsetting e-commerce costs with increased revenue through programs like digital advertising.

Connection with customers

The biggest risk to grocers relying on third-party marketplaces is being disintermediated. Regional grocers have spent years cultivating relationships with shoppers, but brand loyalty can be hard to maintain with so much competition in the online grocery space today. The key is to offer exceptional online shopping experiences that reflect the grocer’s unique brand with the features that their customers value most.

Barclays Investment Bank’s recent report “Dissecting Instacart’s Hangover” showed that customer loyalty to local grocers has improved since the pandemic. According to a survey of more than 1,000 consumers, 37% (down from 43% in 2019) said they would continue using Instacart even if their local grocer was no longer available on the platform. This change is owed in part to growing competition in the grocery delivery space. But it can also be attributed to grocers successfully building loyalty with their customers by improving e-commerce services.

Why grocery pickup is the key to e-commerce loyalty

While optimizing customer data is important in helping grocers regain control of their customer relationships, retailers looking to further build customer loyalty should also be meeting their customers where they are.

Consumers' grocery shopping preferences have shifted since the pandemic. Throughout 2021, grocery pickup has gradually increased in popularity across the U.S., accounting for nearly half of all online grocery sales in September 2021, according to the monthly Brick Meets Click/Mercatus Grocery Shopping Survey data.

And new Mercatus research, done in collaboration with Incisiv, surveyed more than 40,000 U.S. customers and showed that while online grocery shopping sales will continue to increase in 2021, only certain channels will see considerable growth. Home delivery is expected to shrink to lower than pre-pandemic levels. Meanwhile, brick-and-mortar grocery stores will be the bedrock of fulfilment, with 75% of online orders being fulfilled via pick-up services.