Analyzing the Shift to Online Grocery

Even the most enthusiastic online grocery shoppers are splitting their purchases between physical and digital stores. This parallels the way most shoppers have historically shopped: visiting several food stores for different purposes and occasions.

Motivators for customers’ daily purchase decisions include price, location, convenience, product assortment, quality and, increasingly, personalization—all in different measures for each shopper and trip. Despite dramatic penetration and opportunities presented by online grocery shopping options—such as Amazon Prime, Walmart and its online subsidiary Jet, and third-party fulfillment services such as Ocado—there is still a remarkable tendency for shoppers to stay loyal to their favorite physical grocers, according to the Role of Digital in Food Retailing Survey research from IDC, commissioned by Precima. This means there is an opportunity for trusted and well-established grocery retailers to sustain loyal shopper relationships, especially as they embark on a digital transformation strategy.

IDC’s research underscores several important initiatives that retailers can use to successfully serve shoppers digitally. Among the IDC/Precima report’s most impactful findings are:

Retailers recognize that these key attributes are very important, and that their significance continues to grow. And as brands pursue more digital retailing innovation, these core shopper experience dimensions will become even more relevant. Now it is up to retailers to use them to their advantage, especially as they blend their online and offline experiences.

Knowing that shoppers aren’t likely to completely abandon their in-store shopping habits in the near term, grocery retailers still need to meet their shoppers’ increasing digital expectations. This means companies must remain focused on the two reasons why customers still shop in-store: comfort with in-store experience and suboptimal online experiences.

One area in which digital retailing still struggles for example, is item substitutions. Of course, out-of-stocks (OOS) continue to plague the retail industry, but customers expect both physical and digital retailers to offer solutions.

According to the IDC/Precima study, 80.4% of retailers said good substitution options are important to their shoppers. Meanwhile, 60% of online shoppers said this is important to their decision to shop online. However, online brands certainly aren’t any closer to solving the OOS dilemma than physical retailers. 

A Wall Street Journal  article from 2018 reported on problems with what it called “services’ logistics” at Amazon and Instacart, noting that incomplete orders were a top source of customer dissatisfaction. It is evident that 15% of consumer products listed on U.S. online grocery services are OOS—a rate nearly double that reported in physical stores, according to a report from the Grocery Manufacturers of America.

This could be a strong reason why non-online shoppers expressed positive feelings about doing their own grocery shopping. At the same time, store-only shoppers are neutral regarding e-commerce website ease of use, the IDC/Precima survey found.

One way for physical retailers to jump-start online efforts is to integrate digital shopping alternatives that meet or exceed service levels that customers become accustomed to in their stores. This includes experimentation across a broad range of services.

For example, assortments that are localized and rationalized for productivity and consumer satisfaction earned top marks among retailers. This was followed by optimizing and personalizing products via content, pricing, channels and home delivery options, according to the IDC/Precima survey. This evidence proves that retailers are leaving no stone unturned when it comes to their digital transformation.

Grocery retailers are also mindful that their customers care more about value and experience than they do about technology innovations. Retailers also remain highly conscious about putting forth good promotions and deals.

That said, when it comes to the customer experience, retailers believe shoppers put personalized coupons and offers at the top of the list. Meanwhile, grocery retailers are also enhancing their personalization efforts. Demographic segmentation, for example, is practiced by half of all companies, the IDC/Precima survey showed. At the same time, companies concede they have been held back by limited resources, insufficient analytic tools and other technological barriers. Many of these areas are also identified as objects of planned investment, the study revealed.

The growth of digital grocery retailing is earning much well-deserved attention, and food retailers have ambitious plans to compete. They have to, because the size of the prize is large—and continues to grow.

There is no doubt that grocery retailers are highly challenged to retain and build shopper relationships. However, the retailers that will lead the pack are those that find a way to expand their shopping service option with a full spectrum of satisfying and price-competitive in-store, click-and-collect and home delivery options. In addition, a more detailed understanding of trip missions will be crucial, as will improved ability to personalize offers and assortments at appropriate levels.

While these efforts will surely continue to influence more digital consumer purchases, the vast majority of shopping will remain “split” between in-store and online purchasing—at least for now.

Brian Ross is president of Precima, a global retail strategy and analytics company.