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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:
40% of ecommerce groceries are fresh food
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 don’t want to pay any more than necessary
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.
The rise of hybrid shopping
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.
Trending in Shopper Experience
The job market continues to hum.
The labor market continued to show strength to start 2023, as the monthly jobs report posted big numbers.
Key data from the U.S. Bureau of Labor Statistics’ monthly jobs report:
- Unemployment fell to 3.4%, ticking down from 3.5% in December to remain at historic lows.
- The economy added jobs to the tune of 517,000, which bested the 2022 average of 401,000.
- Average hourly wages rose by $0.10, marking year-over-year growth of 4.4%.
The Current’s view: The labor market continues to be an economic outlier. While there are signs of consumer pullback and belt-tightening among tech companies and retailers after months of high inflation, the job picture remains bright. While tech companies and some retailers are cutting back markedly, there are few signs of the widespread “pain” that economists predicted in this indicator of the economy.
What brands and retailers are thinking: Jobs are a major indicator of demand, and the labor market continues to hum along. That means the consumer pullback is tied to choices about discretionary spending and holding off on certain purchases in the face of high prices, moreso than being unable to afford items altogether.
What the Fed is thinking: Here’s more evidence that a soft landing might be possible. The Fed has been raising interest rates to bring down inflation. There is risk that this will slow down the economy, including employment. There was some slowing in job growth in December, but this report indicates labor market softening still hasn’t happened for a sustained period, even as inflation is cooling. After the central bank scaled back its latest interest rate hike to 0.25% on Wednesday, Fed Chair Jerome Powell said he sees a “path” to bringing down inflation without a significant rise in unemployment. Here’s one more piece of data to bolster that belief.
Keep in mind: The labor market is still out of balance between supply and demand. This report shows a big rise in jobs and the labor force participation rate remaining the same. Job openings actually increased in December, the Labor Department found. So there a still the case. Eventually, it will likely have to come into balance. But given the unpredictability of this economic era, it’s tough to know when, or even how.