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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
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.