Why online grocery could be a $100B opportunity in the next four years
At the Food Marketing Institute’s Midwinter Executive Conference last year, the retail trade group along with Nielsen made waves by predicting online grocery shopping would be a $100 billion business by 2025. That number has frequently been cited by the industry and by the media, even as some claim the figure is bloated.
Well, the organizations just doubled down on their prediction.
At last weekend’s FMI Midwinter conference in Miami, FMI and Nielsen announced that online grocery adoption is accelerating thanks to changes in consumer behavior and a few key acquisitions — most notably Amazon’s acquisition of Whole Foods last June. They now predict that online shopping will reach that $100 billion figure by as early as 2022, and that 70% of shoppers will at least occasionally shop for groceries online by that time.
“Consumers have redefined and are going to continue to redefine food shopping,” Thom Blischok, chairman and CEO of The Dialogic Group, a retail and CPG consulting company, said during a presentation on Saturday. “There is no going back.”
Over the last year, retailers and manufacturers have grown their online shopping capabilities. But as further research conducted by FMI, Nielsen and other groups show, these companies are under-prepared for the e-commerce revolution. And that, numerous experts said, leaves an industry-wide hole for Amazon to drive through.
It’s not just a technology problem
In the months after Amazon’s Whole Foods acquisition, nervous retailers quickly expanded their e-commerce platforms. Many signed on or expanded relationships with third party providers like Instacart, Shipt and Unata (which was recently acquired by Instacart), while some decided to go it alone. Doing so helped them reach more online shoppers, but according to experts at last weekend’s Midwinter conference, food companies haven’t adequately addressed key shortcomings in their supply chain, data management or company personnel.
Likewise, manufacturers, though they tend to be further along in adoption of online best practices thanks to their direct-to-consumer efforts, are also lagging. According to Laurie Raines, vice president of retail commercial strategy with Nielsen, most retailers and manufacturers think preparing for omnichannel retailing means investing in technology, when the truth is, it’s also about hiring the right people and implementing the right processes.
“Technology is not the answer,” she said during the presentation with Blischok. “It really is the enabler that will help processes be more efficient, and help people implement the changes they need to.”
Many company leaders admit they aren’t prepared for the increase in online shopping. According to interviews and surveys that Nielsen and The Dialogic Group conducted, just 7% of retailers and 18% of manufacturers claim they have the culture or skills needed to succeed in omnichannel selling.
“That is the starkest reality or challenge we’re facing right now,” said Chris Morley, president of Nielsen U.S., during a keynote presentation Saturday night.
A key challenge, according to presenters, is securing the talent that can help companies build attractive, predictive online programs that also integrate with the store experience. Jason Lobel, CEO and co-founder of SwiftIQ, a retail analytics company, said data scientists, for one, typically don’t want to work in the retail and food sectors.
“Data science is not a core competency for retail,” he said during a presentation on automation and machine learning. “It’s hard for retailers and brands to hire that talent.”
Nielsen and Dialogic’s research also found that food companies suffer from overlapping organizational structures, poor forecasting, poor data management, and weak marketing and merchandising initiatives.
Moreover, companies aren’t developing clear strategies and benchmarking their progress. Just 22% of retailers reported they have a short– and long–term omnichannel strategy, while 35% of manufacturers reported the same. When it comes to developing extensive metrics to measure their return on investment with digital strategies, only 5% of retailers and 15% of suppliers say they’ve established these metrics.
Technology isn’t the sore spot many company leaders think it is, according to Blischok, Raines and others. But it has become an area where retailers and manufacturers, absent a clear strategy, tend to waste a lot of money. Blischok estimated food companies spent between $3 and $4 billion on technology last year, and that 60% of that money was wasted.
The new digital shopper
Grocers and food suppliers could also benefit from better understanding the shoppers that are moving online at such a rapid pace. According to Raines, many companies assume it’s only young, tech-savvy consumers who are engaging in e-commerce, when in fact digital shopping is pervasive.
“If you asked anybody what was driving online spending most people would say millennials,” she said. “The millennials are driving online spending. Or it’s the affluent. But really it’s clear that everyone is.”
According to Nielsen research, 44% of Baby Boomers and 39% of Greatest Generation consumers surveyed over the past three months reported buying at least one CPG product online. That’s compared to 61% of millennials who did the same, and 55% of Generation X’ers. Nielsen also found relatively equal penetration across income groups.
A wider range of online consumers means a bigger target for retailer marketing efforts. But according to Graeme McVie, chief business development officer of Precima, securing customer loyalty in a ruthlessly competitive market is difficult. Although his firm found that shoppers typically give their primary grocery store high marks, just 19% of consumers surveyed reported shopping with one grocer every week. Just 7% said they spent 90% or more of their weekly food budget at their preferred supermarket.
“Loyalty has to be earned by satisfying the needs of customers better than others can,” he said during a presentation.
Experts noted that online shoppers have a plethora of options at their fingertips, and won’t tolerate an unattractive or inefficient e-commerce experience. They also want to feel like they’re getting a good deal, and that they can trust the quality of the products offered.
“Trust, value and experience are table stakes,” said Raines. “Customers will not come online if they have issues with any of those.”
Beyond those table stakes, Raines also noted the importance of integrating mobile technology. Although many retailers have added list builders, digital coupons and other functions to their mobile apps, relatively few have enabled online shopping. That’s a missed opportunity, according to recent research from the The Consumer Technology Association, which found that 60% of U.S. consumers use mobile technology to shop, while 67% use their phones to research additional information.
Experts throughout the conference also pointed to the importance of offering an e-commerce platform that’s fast, predictive, and that seamlessly works with company branding efforts. At the same time, they said that their mission in omnichannel is a familiar one to all of them: satisfying the customer.
“The digital transformation happening in our industry right now is a guest-driven transformation, not a technical challenge,” said Mark Skogen, president and CEO of Festival Foods, during a keynote presentation.
Efficiency, investment and collaboration
So how do companies keep from wasting resources and develop an omnichannel strategy that’s nimble enough to compete with Amazon? Blischok said grocery companies need to start by committing to investing in digital and in becoming more efficient. He said spending anywhere from 5% to 15% of their capital expenditures on digital is necessary, along with an operating model “that’s about 35% less than it is today,” he said.
The biggest challenge food players face, according to Blischok and others — the area where so much wasted money and product goes — is the supply chain. Stores that are used to stocking products only for those customers that walk in the door now have to forecast online demand as those brick-and-mortar locations now serve as e-commerce fulfillment centers, as well.
“It can really put a strain on the store if it’s not managed well,” said Doug Baker, vice president of industry relations, private brands and technology with FMI, in an interview with Food Dive.
Addressing this begins with investing in better data and forecasting. According to Blischok, numerous company leaders he interviewed complained they were gathering inaccurate data, while others admitted they had no effective process for managing their data. Forecasting, meanwhile, is something retailers have become adept at, but they often utilize multiple systems that don’t work together.
“Forecasting is often really good in silos, but it needs to be joined together,” said Morley.
Companies also need to address redundant roles within their organizations. Some of the company leaders interviewed by Blischok complained of having to go through multiple buyers or managers or buyers to address e-commerce issues when one point of contact would have been more effective.
“Both parties recognized significant duplication in the organizational structure,” Blischok said. “That has got to be fixed going forward.”
Throughout the conference, experts also pointed to the importance of collaboration between retailers and suppliers. The relationship between the two sides is often contentious, with each refusing to share information or to work together on promotions and other marketing initiatives. But given the uphill battle both sides face in offering omnichannel solutions, the two parties need to pool their strengths, said Blischok.
Retailers have shopper insights, while manufacturers have theirs. Combined, he said, they could reveal a richer tapestry of consumer demand. Likewise, grocers and manufacturers can collaborate on digital shelf programs and product assortments. Dialogic’s interviews revealed that both sides tend to share the same view as to how digital shelves should appear and function.
Collaboration isn’t a new message, but in Amazon the two sides may finally have a common opponent that could bring them together.
“Too often in our industry, the relationship between retailers and vendors can be adversarial, but we believe we both serve the same guest, and both benefit from providing better service for the customers,” said Skogen. “There really isn’t time in our fast-paced industry for fighting between vendors and suppliers.”
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