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Is online grocery shopping the new frontier of Global e-commerce?

Insights 16 ago 2018

Is online grocery shopping the new frontier of Global e-commerce?

by Daniel D’Andrea and Rafael D’Andrea

Online grocery shopping is slowly but surely grabbing impressive chunks of the food retail business. This phenomenon includes products that are usually offered in supermarkets, such as fresh foods and other grocery items. Beyond the obvious increase in web access, or smartphone penetration, three other factors might explain the surprisingly recent consumer behaviour change towards online grocery shopping, these are:

  • the adoption of shared-economy business models as platform of new start-ups in the sector
  • the arrival of new generations of consumers
  • the use of non-cash means of payment, such as e-wallets, virtual currencies, PayPal, etc.

In many sectors, the adoption of an “uber-like” business model is becoming ever more frequent. Indeed it is currently a global trend for companies that do not intend to keep either idle assets nor full time employees.

This trend is growing stronger and stronger and has even been adopted by certain retail giants, such as Wholefoods Inc. The US-based supermarket chain has entered into a partnership with instacart.com, which offers access to both shopping concierges, who would shop on the client’s behalf and delivery boys, based on the same principles that Uber uses with its drivers. By doing that, Wholefoods can assure its clients that their fresh food order will arrive at its clients homes in just a few hours.

According to recent research from Nielsen International, 30 % of people are already shopping for groceries online. And around 20% of them have signed up for some sort of re-ordering service to resupply their consumer goods automatically. Additionally, part of those clients already use virtual supermarkets.

The use of new payment technologies have made it easier and more convenient for people to shop for food online. The one-click-payment has allowed the payment process to be more intuitive for shoppers who use their smartphones to make online transactions.

Online grocery shopping experience has to overcome three known barriers before it can become as widespread as other categories of online shopping. These barriers are:

  • Selection barrier: the ability to select good fresh food and groceries in a good state of conservation – a typical human activity that is often a highly subjective matter.
  • Delivery time: same day delivery is mandatory in online grocery shopping.
  • And finally the price barrier. Proprietary supermarket websites that do not benefit from the gains of the shared economy could often become pricy.

According to the latest McKinsey research with online consumers from different countries; besides price, agility to deliver in a reliable way is a key success factor for online grocery retailers. 27% of interviewees said that delivery time can be a impediment to conducting online grocery shopping. However, the adoption of online grocery shopping has been growing in many geographic and demographic cohorts. Chart number 1 shows the number of shoppers using or intending to use online grocery shopping options that are willing to keep a subscription to a replenishing system for consumer goods that are purchased on a repetitive basis.

Chart number 2 shows the percentage of people that are using or intend to use online grocery shopping and use alternative solutions to pick up their merchandising from vendors.

New shopping behaviors are allowing different selling/delivery models to emerge, including in grocery shopping online. In fact, Amazon.com has just launched Amazon Go, as an experimental physical store that allows its customers to shop in a real store without the disturbance of having to go through the check out area. Amazon’s secret weapons are sensors that are spread around the retail environment that are able to detect when a product is taken from the shelf. When the customer leaves the store, the amount due is added to her payment bill and later charged on the previously registered means of payment of that particular client at Amazon Go. Amazon Go then sends the client a receipt.

Table 1 (below) shows different grocery shopping business models from all over the world and their peculiar specifications.

Table 2 brings the reference companies for each business model and our interpretation of their value proposition for clients:

Traditional food retailers have been struggling to improve their value propositions for their clients; to date, few of them have had any success in competing with authentic online business models. The use of “uber-like” business models, personalization technologies, and easier payment solutions may be the key to finally making online grocery shopping achieve its true potential.

New app-based-businesses such as honestbee.co.sg (which uses paid concierges -$40 per hour), has no assets, no merchandise (you choose from your favourite stores), and great customer service seems to be the “next big thing” in online grocery shopping.

However, there is still one final issue to be solved by the industry; namely shopper experience. Maybe it is the final barrier for the whole sector. The challenge is to make the online food shopping experience equal or better than the real-life experience in. Forget virtual reality and shopping lists, they are just not intuitive enough. It seems to us that, just like in real supermarkets, the standardization of navigation across platforms and vendors is the best alternative to create familiarity with the whole process. If shoppers are able to quickly locate, de-select and choose products from online shelves the process will be a success. For that matter, using standard images, clear category labels, in-context category adjacencies and branded visual cues will give shoppers enough similarity to make it intuitive, and ultimately painless to shop for groceries in virtual environments. That is certainly the next leap in Category Management.

We believe that by offering the next answer required for the development of online grocery shopping, online category management (OCM) will soon become as common as it is in the bricks-and-mortar world.

Special thanks to EMCCC16J, Insead Singapore, and Professor Leandro Guissoni, FGV Brazil.

Authors:

Daniel D’Andrea is partner of ConexãoAIX, a consulting company based in São Paulo, Brazil, that is specialized in private label means of payment for retail chains. He has a Masters Degree in Business Models from Mackenzie University (São Paulo) and 20 years of experience in service marketing.

Rafael D’Andrea is partner of The Toolbox Group (thetoolboxgroup.com.br), a shopper marketing insights/knowledge/ideas consulting company based in São Paulo, Brazil. Rafael has a Masters degree in Organization and Human Development from Insead Singapore/France. He is a international speaker and author of books about trade and shopper marketing for emerging countries.

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