Over the past few years, “adapt or die” has been a common theme in the retail landscape. The convenience of ecommerce has forced brands to improve the customer experience in their physical locations. Those who don’t may find themselves on CB Insights’ timeline of retail bankruptcies. The same need for digital transformation has come for grocery brands.
Grocery shopping isn’t dead; people will always go to the supermarket. eMarketer projects that only 2.8% of food and beverage sales will take place online this year. But innovations from big players could accelerate that.
“Loyalty tends to be about convenience,” says Jim Cusson, president of Theory House, a retail marketing agency that works in the grocery space. “By integrating things like online shopping tools and free delivery, grocers are using technology to make a more convenient shopping experience. That’s what builds loyalty and creates more stickiness. If I wanted the cheapest prices, I’d just shop at Lidl every day.”
Grocery brands aren’t immune to the Amazon effect
The largest grocery chain in the U.S. (and the third largest retailer in the world), Kroger sold more than $105 billion last year. Digital sales grew 66% quarter over quarter, according to the company’s earnings report from Q1. Kroger’s investments in technology are also extraordinarily above average for the grocery sector. According to a June survey by Phononic and Regina Corso Consulting, 49% of grocery executives don’t think their industry is as tech-savvy as other retailers.
Kroger shoppers can buy groceries online and pick them up curbside. Thanks to a partnership with Instacart, Kroger also delivers. To improve the latter, Kroger also invested in British online supermarket Ocado with plans to use the company’s automation technology in warehouses.
Robotic warehouse pickers, where have we heard that before? Oh, right. Amazon. The Amazon effect has invaded the grocery store, especially since the ecommerce colossus acquired Whole Foods Market two years ago. Whole Foods gives Prime members—three-quarters of its customers—perks like two-hour delivery and discounts unavailable to non-members.
Groceries are also Amazon’s fastest-growing category. While that growth may hurt grocers, individual food and beverage brands have an opportunity to thrive.
“Grocery brands are definitely leaning in early and aggressively, but the smart brands in this space are those who are emerging or insurgent,” says Connor Folley, founder and CEO of Downstream, which specializes in helping brands boost their Amazon ROI. Folley, a former Amazon marketing manager himself, offers up Ainsworth Pet Nutrition and Amplify Brands—acquired by Smucker’s and Hershey’s, respectively—as examples.
“CPG is devoid of meaningful research and development, so they typically acquire innovation,” he continues. “Amazon search advertising presents shelving exposure that has never been available with enough ad budget that you can get your products front and center to more than 30 million customers.”
Better apps and delivery options
For the grocers to flourish in the same way, they have to match Amazon in terms of convenience. Delivery options could be key there. According to a March survey by courier service disruptor Dropoff, 64% of U.S. Internet users want same-day grocery delivery.
In addition to its own online grocery delivery, Walmart has Postmates partnerships in seven cities. Target shoppers also have access to same-day delivery, thanks to the brand’s acquisition of Shipt.
Apps, an area where Cusson increasingly sees grocers investing, also play a big role in the perception of convenience. In May, Market Force Information found that 44% of consumers had used a grocery app this year, up from 39% in 2017. Beyond purchasing, apps provide several ways to streamline the shopping experience, with obtaining coupons being the most common.
“A good grocery app has a lot of mapping,” says Cusson. “Cost of entry used to be products and prices, but with advances in technology, we’re seeing other benefits being laid on top. Ultimately, ease and access to product and pricing has to be paramount. Bells and whistles can make life easier, but they have to be based on a shopper’s need. If not, the opportunity for use decreases dramatically.”