The industry's latest challenge: deciding if and how to build an omnichannel experience
It’s been a tough 20 years for traditional grocers. Burdened with razor-thin margins and limited investment in consumer research and innovation, the industry’s traditional stalwarts have seen themselves slowly fall victim to a variety of specialized players—from Walmart in the ’90s, to Whole Foods, Trader Joe’s, Aldi and dollar stores more recently.
During this time, traditional grocers’ share of grocery spending has dropped from 90% in the late 1980s to under 50% today. And this share decline has not yet bottomed out. Omnichannel is just the latest in a series of challenges for undifferentiated middle grocers. In fact, 96% of consumers said they planned to purchase groceries from a non-traditional food retailer in the next 12 months.
This industry pressure has led to a flurry of acquisition activity as a mechanism for traditional grocery chains to either drive growth or stay relevant. Take Safeway’s recent sale to Cerberus Capital, following on the heels of Supervalu selling five of its chains to a consortium of private equity buyers, Kroger’s acquisition of Harris Teeter, and Great Atlantic and Pacific Tea Company’s continued hunt for potential buyers. Now, this undifferentiated middle group of grocers faces a new threat in the form of online retailers like AmazonFresh, eBay Now, Instacart, Peapod and even Walmart.com.
The way it looks now, traditional grocers are on the verge of losing the next major grocery battle: omnichannel. In fact, traditional grocers are currently staring down a huge chasm between the omnichannel services they’re providing and what their consumers want and, increasingly, expect.
According to a 1,400-person consumer survey conducted by Kurt Salmon in 2014, 67% of consumers have searched for grocery product information online, while 26% of consumers have purchased a grocery-related product online. (See Exhibit 1.) And 48% and 33% of these online consumers are researching and purchasing, respectively, using a tablet or mobile device.
Beyond basic searching and purchasing online, consumer demand is growing for additional value-added services—and, if implemented, grocers would likely benefit from increased sales and loyalty. For example, 59% of consumers surveyed said they’d be likely to use online searchable store inventory, as illustrated in Exhibit 2, with 39% saying they’d purchase more from a grocer who offered that service. Plus, 54% of consumers would be likely to use buy online, pick up in store services, with 33% saying it would lead them to purchase more.
But despite this growing consumer demand, most traditional grocers are just beginning to implement these types of omnichannel offerings. In a Kurt Salmon study of nearly 50 large grocers, only 8% offered searchable online inventory, and just 53% offered buy online, pick up in store ability.
So how can traditional grocers fight back and gain both more alignment with their consumers’ wants and some much-needed differentiation? First, they need to invest in developing a robust, unbiased understanding of their core consumers. Many grocers skimp on gathering consumer research, instead relying on their category captains to provide insights on a category-by-category level through a traditional category management relationship. Of course, these supplier-based insights can not only be incomplete or biased, but, more importantly, they offer a disjointed view of a grocer’s consumers across the entire consumer experience.
Next, armed with action-oriented consumer insights, grocers need to put them to use through a rapid innovation process, one that enables them to constantly identify and cheaply test promising ideas, rolling out the ones that work more broadly and moving on from the ones that don’t enhance the consumer value proposition and the grocer’s bottom line.
The gauntlet has been laid down whether grocers decide to act or not. But as the middle ground of grocery gets increasingly squeezed by discounters, specialty players and online innovators, traditional, undifferentiated grocers will soon have even less room to play. Enter omnichannel, which represents a significant opportunity. Traditional grocers still have time to get it right and drive loyalty by directly responding to their consumers’ unmet demands and building a compelling, customized omnichannel experience.