The Current, delivered daily.
This year may have brought a shift away from pandemic-era patterns. But when it comes to shopping, consumers are emerging with reshaped expectations.
As more people turned to ecommerce, they got comfortable ordering from a vast assortment of goods and having it delivered fast. That meant they became accustomed to shopping experiences that centered the customer, and offered different options that fit with what they wanted in a given moment.
The change wasn't only on the consumer side. Any discussion about the shifts that this period brought would be incomplete without considering the transformation that took place in at the operational level among retailers who stood up and scaled ecommerce operations quickly to meet demand. This may be where one of the most lasting impacts of the pandemic lies. Retailers today are outfitted with capabilities that may have otherwise been implemented over many years. They aren’t abandoning them, but only building and developing them further to keep pace with expectations.
One of the brightest examples of this lies in the grocery industry. Online grocery shopping went from nice-to-have to a necessity, introducing many parts of the population to ecommerce in the process. Now, it’s one of the stickiest categories of ecommerce in the post-lockdown period, McKinsey experts said.
Despite all the change that took place, the transformation at many grocers is by no means complete. Even now, 90% of grocers categorize their ecommerce operations as somewhat or not at all sophisticated, according to a recent survey from FMI.
This is in part due to the complexity involved. When it comes to new capabilities, pickup and delivery get the most billing, but it goes deeper. The digital transformation required not only technology to be implemented, but also the creation of shopping experiences that are the norm in retail categories like apparel to a business that requires handling big orders, perishable items and weekly visits. They also had to account for the challenges that come with an industry that historically runs on low margins. Currently, only 51% of grocers report profits from their ecommerce business.
Importantly, grocery is also built as an omnichannel business, with both ecommerce fulfillment and in-store shopping often taking place under the same roof. Many grocers also updated their in-store technology alongside adding new capabilities to send goods out.
Payments fuel ecommerce expansion
One of the largest operational changes is taking place in payments.
“In the pandemic, with more consumers choosing to shop online, grocers were forced to update their payments strategy,” said Pedro Carvalho, head of sales at Primer.io, an automation platform for payments and commerce. “They needed to provide consumers with the payment methods that they wanted to increase payment acceptance rates and checkout conversion. The end result is a better experience for consumers with food retailers massively expanding their payment options, and adding payment methods ranging from Buy Now Pay Later and express checkout options to new payment service providers [PSPs],” such as Stripe or Square.
To get there, they first had to understand their customers. Grocers have some unique challenges. For one, grocery stores attract everyone, so their businesses must often cater to a diverse customer base.
“Grocers often rank as some of the biggest retailers in each country. This means that they need to cater to a wide variety of consumers, who all have their payment preferences,” Carvalho said. “By working with these payment methods, either at the point of sale or online, grocers are better able to cater to their wide consumer base, and give their consumers a seamless check-out experience.”
The pandemic also saw a spike in use of payment methods that were built for ecommerce, such as Apple Pay or buy now pay later. Grocers must also consider how these not only provide for a transaction, but can help market to new consumer segments, and potentially lower costs.
“This helps grocers boost their top line sales and shave expenses off their bottom line,” Carvalho said. “This makes it essential to not just work with more payment options, but also develop healthy relationships with them, in order to remain competitive and provide consumers with the best prices.”
As systems continue to be stood up and improved, there will be recognition of how they can integrate with different parts of ecommerce that not only help shoppers easily find items and check out, but also reach their door. Primer.io is seeing more examples of this, as grocers seek to orchestrate payments with other kinds of tools.
“For example, we have grocers using Primer to connect their shipping provider to their payment services in order to automate money flows based on the shipping status,” Carvalho said. “To that end, we’re working with an Asian supermarket that is linking its loyalty program to its payments workflows. We’re working with another grocer that is automating customer service tasks based on the payments data it receives.”
These workflows have typically been difficult to create. With the technical work and maintenance required, a large roadmap measured in weeks and months would be necessary. Primer set out to make the path simpler by offering a single underlying infrastructure for online payments. The retailers can build on top of their existing payment stack, so new payment and commerce providers can be added and managed without new integrations or development work.
“With Primer, these flows can be built in minutes by anyone in the business–with no code,” Carvalho said. “As a result, we’re seeing appetite from grocers to truly blend payment and commerce suppliers to give customers a great shopping experience.”
Meeting expectations around the world
It’s not only individual industries like grocery that have specific methods, either. As a global company, Primer is seeing how merchants behave differently in different regions of the world.
Europe is seeing more fragmentation of payment options, while Asia is seeing more digital payments generally, so there’s a big focus among grocers there on adding local payment methods, including wallets and bank-to-bank transfers, in those regions.
In the US, grocers are increasingly looking at payment optimization.
“We see grocers adding extra PSPs, creating redundancy strategies so that they can still accept payments if one of their providers fails, adding retry workflows and more to improve payment acceptance,” Carvalho said.
The evolution may not be uniform everywhere, but the point of technology like Primer's is that it doesn't have to be. What's true across the digital landscape, however, is that change will continue moving forward. To keep pace, grocers must ensure that they nourish consumers not only with food, but with great shopping experiences, as well.
Trending in Operations
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.