18 August 2022
3 insights that point to where grocery ecommerce is heading
Studies explore fresh food, variable delivery fees and hybrid shopping.
Studies explore fresh food, variable delivery fees and hybrid shopping.
When talking about the ecommerce boom of the pandemic and practices that went from nascent to commonplace, the rise of grocery delivery is near the most glaring examples.
Even as more in-person shopping returns, there are signals that this change will have lasting effects. Shoppers sought out curbside pickup options and delivery to protect their health, but they also discovered things they liked about the digital mode of shopping. At the same time, grocers stood up operations for online ordering to meet demand, and are now continuing to expand them in order to provide flexibility for customers. According to McKinsey, online and delivery orders for groceries increased by about 50% during the pandemic, and are expected to rise further this year.
Yet it’s worth remembering that practices stood up during a public health emergency may be just the beginning of laying the groundwork for the grocery ecommerce we will see as it continues to develop. There will be opportunities to observe behavior, and draw insights to make the process more efficient, while finding ways to meet demand. At the same time, online ordering is taking place alongside in-store shopping. Shoppers can move between both modes.
All that is to say, there remains a lot to learn. Here are three findings from recently released studies that show how grocery ecommerce is evolving:
Ecommerce is often associated with products that have a long shelf life, and are easy to box up. However, the shorter, local delivery modes of grocery ecommerce make fresh food a bigger part of the equation.
In fact, this grocery category is a big driver of online ordering, according to a new study from FMI – The Food Industry Association. Goods in fresh or perimeter (the outer aisles of a store where the short-shelflife items are stocked) now make up 40% of all online sales, according to a finding from the State of Fresh Foods report. This is just shy of the 41% share for dry goods, and well ahead of the 11% share for frozen foods – another category that brings ecommerce challenges.
“The fact that 40% of online sales are being generated by fresh foods departments suggests a major change from previous trends,” said Rick Stein, VP of fresh foods for FMI, in a statement.
For one, this illustrates how grocery ecommerce is different than other consumer categories. There's room for the shopper experience to account for customer expectations of receiving the right quantity and weight, as well as the more subjective look and feel of an item. As suggested above, the delivery process is also different. Fresh food is only likely to make it over a short distance, and being able to deliver quickly (minutes or hours, not days) is important.
It also underscores how the shopping behavior changes brought about by the pandemic were particularly impactful to fresh foods, according to FMI. People weren't only ordering online, but also cooking more at home with their family. All of this led to higher demand. Along with ecommerce, retailers are also putting more emphasis on foodservice and prepared foods. This includes making space for enhanced space allocation and increased staff, as 82% of retailers are planning to grow space for grab-and-go options.
“These broad-level changes particularly impacted fresh foods departments, and even as we shift to more in-person activities, shoppers continue to rely on their grocery stores for fresh food items. Food retailers and suppliers are responding to the heightened consumer interest in fresh food items with enhanced, affordable offerings both in-store and online,” said FMI President and CEO Leslie Sarasin.
Customers will wait to save. (Courtesy of Mercatus)
Price is always a big motivator of shopping behavior, and it’s even more pronounced in an environment of 40-year-high inflation.
This makes a difference when it comes to the decision to shop online or in-store, new shopper behavior research from Mercatus, fielded June 30 through July 1, 2022, suggests.
Customers may be ordering fresh food more, but there's still plenty of evidence that they like the in-store experience of selecting their own produce and viewing not only look and quality, but also price.
An even bigger factor in choosing where to shop is the cost of delivery. While ecommerce is convenient, it can feel like a premium.
This bares out in Mercatus' data. Among US households that decided not to use an online grocery service, the top two reasons were “I like to select my own fruits and vegetables,” and “I do not want to pay for the extra charges.” About 3 out of 5 respondents voiced each of these sentiments. Yet only one in seven households said, “The products are more expensive online than in the store.”
“These findings reinforce the idea that customers are more sensitive to the added service costs that they can plainly see,” said David Bishop, partner at Brick Meets Click, in a statement. “This makes sense, because accurately perceiving differences in product pricing online versus in-store, even with known value items, requires more effort on the customer’s part.”
When it comes to convenience, time matters, too. In fact, it’s a primary factor that the customer has control over in grocery ecommerce. Right now, a customer only chooses when they want to receive an order, while service fees are fixed. The research indicates that there is an opportunity to consider a variable fee approach. From Mercatus:
When presented with a fixed fee of $9.95 for a large order (>$100), over 30% of customers selected to receive their order within 30 to 60 minutes, and more than 40% of customers selected to receive it within 1 to 3 hours; fewer than 10% opted for the next day or later.
When offered a variable fee that scaled down as the time to delivery was extended, the share of shoppers that selected delivery within the 30-to-60 minute and 1-to-3-hour windows declined by more than half, and over 40% of customers selected to receive the order next day or longer.
This shows that customers are willing to wait in order to save. Offering different fees could also be another way to provide customers with choice – a bedrock benefit of ecommerce since the beginning. The cost of delivery could vary based on time, just like the cost of a tomato varies based on weight.
Hybrid shopping describes consumers who buy 25-50% of their groceries through ecommerce.
A new study from PepsiCo showed an uptick in this group over the last six months, Progressive Grocer reported. Further, 40% plan to continue in this mode over the next 4-6 months, which was up from 20% last year.
To PepsiCo SVP and Head of Ecommerce Marketing Emily Frankel, it underscores how ecommerce is sought out for convenience that provides not only choice, but the ability to calculate how items fit into a budget.
When it comes to grocery ecommerce, “It’s not just early adopters anymore,” Frankel told Progressive Grocer.
The hybrid shopper provides a neat summation to consider where the data released this week indicates grocery ecommerce is heading. They are willing to buy items anywhere, even the fresh items that may not have been originally considered part of ecommerce. They are comfortable shopping both online and in-store, but specific dynamics will move them to one or the other. They want convenience, but will also be analytical about cost. Ultimately, they will choose to buy from those who build experiences with these dynamics in mind.
Ask Instacart answers prompts with personalized recommendations.
A pair of recent launches from Instacart highlight how the grocery ecommerce company is integrating two of the key emerging areas of technology into its offerings: Generative AI and marketplaces.
Let’s take a look:
Instacart is seeking to harness generative AI to create a more personalized shopping experience.
A new tool called Ask Instacart that is launching this week is designed to allow customers to type in questions about specific recipes or general recommendations for an occasion. Embedded in the search bar, Ask Instacart also provides personalized questions to be asked by customers. In addition to specific items, it provides information about food preparation, product attributes and dietary considerations.
For those eying how generative AI will play a role in the shopping experience, Ask Instacart shows how search can be transformed into a place for discovery. Instacart is aiming to provide answers to the more open-ended questions that people would naturally ask, not just simply provide info in response to a question that has one answer. It shared the following sample prompts:
The tool is also showing the way for generative AI to integrate with retail media. Ask Instacart is designed to integrate with a brand's sponsored products campaign, so that the answers to questions that match consumer needs can also provide a way for brands to stand out.
To create the tool, Instacart combined the language understanding of ChatGPT with its own AI models. It added in catalog data from 80,000 retail partner locations around the country, which together have more than one billion shoppable items.
Beyond mission: Ecommerce marketplaces have honed a shopping experience where it’s easy to find what you’re looking for. But if shoppers want to happen upon something they didn’t know they needed, social media or the store is still the best place to visit. Instacart is showing how generative AI can make discovery a marketplace function. It also signals that advertising will come to generative AI by way of retail media. Going forward, the growth of discovery could make retail media more valuable as a tool for advertising that raises brand awareness, not just lower-funnel conversions.
Instacart will power a new virtual convenience store for the grocery chain Aldi.
Aldi Express will feature 2,000 of the most-shopped Aldi items, ranging from prepared food and snacks to grocery staples.
Drawing on 2,100 Aldi locations around the country, items will be delivered as fast as 30 minutes, the companies said.
“Through ALDI Express, we’re making shopping more convenient so you can satisfy a craving or get a missing ingredient in minutes,” said Scott Patton, VP of National Buying at ALDI, in a statement. “Together with Instacart, we’ll continue to find ways to innovate and make the online grocery experience even more effortless and accessible.”
Aldi began offering delivery via Instacart in 2017, and has since expanded services to include pickup as well as alcohol delivery.
Aldi’s marketplace moment? While Aldi previously offered delivery, making the assortment available through a virtual store offers the opportunity to create a marketplace for its goods. With the virtual store, it will more closely resemble DoorDash and Uber Eats, which have been expanding their grocery assortment. With a marketplace, additional revenue opportunities could open up for the grocer, such as advertising through retail media.