The future of groceries is on-demand: what retailers need to know
In the last post, we talked about how digital is disrupting retail, creating the on-demand economy. Today, we want to focus more on groceries: what the new shopper looks like and the winning business models to accommodate them. We will also answer the question: after on-demand groceries, what will it be?
No more trollies please, get me groceries home delivered (now)
“Online tills are ringing […], with online grocery sales […] forecast to grow a further 73% to reach £15 billion by 2020”.
“Today, as many as half (48%) of Brits are current online grocery shoppers.” Of course, one fifth of these guys aged 25–34 (I know, millennials again!) are driving online adoption. We already mentioned convenience as the main driver of change in consumer behaviour. Let’s dive a bit deeper: why are people seeking convenience? How is this changing their shopping behaviour?
- In the digital age, time is a commodity. We rely on technology to access products and services faster, but also to have better experiences. Ordering groceries online not only saves us a trip back home carrying shopping bags, but also raises our expectations in terms of overall quality of the experience; and we’re spoiled by great experiences. Performing a task faster means we’ll do it more, as we demand more efficient and memorable experiences every time.
- “37% of all grocery e-commerce sales […] came from purchases on a mobile device”. M-commerce not only provides convenience in shopping: if coupled with classic promotional tricks (largely used by online-only players like Ocado), it can drive an impulse purchase attitude.
- Busy schedules, impulse buying and more variable lifestyles such as sofa-surfing are contributing to online grocery growth: “almost half of the UK will make the most of their Saturday evenings […] ordering essential groceries […] at an average rate of £21.82 a night”.
“As we see Brits turning away from the main weekly shop and towards fluid, when-needed shopping, it is important for online grocery retailers to find a way to engage with these consumers”.
Digital is changing grocery shopping patterns: people buy less, more frequently, and impulsively: they’re embracing groceries as a convenience shopping, on-demand experience.
How your business model can cope with the new grocery shopper
Established online-only players like Ocado revolve on warehouse-based models. Owned, out-of-town, automated warehouses stock huge quantities of products, and a fleet of refrigerated vans deliver groceries to consumers on a time-slot basis. An expensive model, which next-day delivery offering is not fast or flexible enough for new shoppers described above.
Multi-channel players like Waitrose and Tesco are using dark stores: in-town, smaller warehouses where dedicated staff called “pickers” assemble orders to hand over to delivery drivers. Service gets better, as customers can be reached faster, and stock is more optimised according to demand. It’s still really expensive to account massive real-estate investments to only online sales, which are still not huge compared to in-store.
Is it really worth investing in warehouses, whether out or in town? Talking on this topic, Macy’s Chief of Stores Peter Sachse said to Wall Street Journal:
The future of multi-channel retail is called ship-from-store model. Get your customers exactly what they need, when they need it, without investing in warehouses.
- Turn your stores into warehouses. Because in-store stock will drive both walk-in and online sales, it finally makes sense to pay the real-estate premium for central locations. Since stores are closer to customers, new shoppers will be waiting less for delivery, as coverage is capillary throughout the city. Also, costs decrease while revenue and margins increase due to stock optimisation.
- Offer same-day delivery. By integrating a logistics infrastructure from a third party operator, you can provide a same-day delivery service for your online “impulsive buyers”. New shoppers prefer to buy smaller baskets, more frequently: it’s important they get it now. Thus, there’s no need for investing in owned large vans, if a fleet of scooters (or utmost, cars) can do the job quicker and better.
- Streamline operations. Ensure technology is devoted to guarantee a seamless experience to customers. Store pickers should assemble online orders right from stores’ aisles by scanning the products and handing them over to drivers. So new shoppers get the delivery, quickly!
- Engage with customers. New shoppers seek convenience, both in experience and in prices. Established players should leverage brand equity and marketing budgets to provide great quality and wide selection of products, together with targeted promotions. As customers move to when-needed shopping, retailers might consider offering delivery passes, so to be more competitive than both pure online players and discounters.
In other words, winning grocery players will adopt business models that provide customers with the most seamless, fastest and convenient experience, while keeping infrastructural costs low.
Again, the underlying logic of the ship-from-store model can be easily applied to any other retail vertical: from pharmacy to fashion, etc.
If the food market (meals and groceries) has been the first retail vertical disrupted by the fusion of technology and logistics, what’s next? Food goes hand in hand with…beverages. Next time, we’ll be talking a bit about that.
Matteo, Marketing Executive
Interested in finding out more about how Quiqup helps retailers coping with the new online shopper?