“The uptick in online grocery shopping driven by COVID-19 is here to stay. But expectations around the level of service e-grocery provides and how that intersects with brick-and-mortar retail is quickly evolving. We recently chatted with Jason Goldberg, chief commerce strategy officer with Publicis Groupe – a multinational advertising and public relations company – about creating the optimal omnichannel experience, the importance of personalization and what grocers should pay attention to when it comes to digital. The interview has been edited for clarity and length.
It had a lot of impact. E-commerce grocery exploded during the pandemic, as with all other e-commerce. A lot of other categories regressed to pre-pandemic levels, but grocery is one of the outliers that mostly did not. We’re continuing to see elevated levels of e-commerce purchases in North America for groceries, and that has a pretty profound effect on the ecosystem. When a shopper buys groceries online, impulse purchases become a lot harder. We don’t stand at the cash and stare at the gum or grab a cold drink, we don’t walk by the cookie aisle on the way to the milk. There’s a lot less discovery happening when shopping online. Also, e-commerce grocery is more expensive to the retailer than in-store grocery shopping because they usually have to provide the labour to pick the goods off the shelf, whereas in the old model the consumer did it. The margins and the profitability are more challenging in digital grocery. You’re seeing a lot of changes to bolster that profitability as a higher percentage of sales are happening online.
The easiest way to improve margins is through better suggestive selling, through better personalization, through better discovery experiences. But, there are also ways to reduce the cost of fulfilling that order and those things are being tackled. The downside of some of those initiatives is they can be capital intensive. You start looking at things like more efficient picking with a micro-fulfilment centre or more efficient software for human pickers that can help reduce the cost of each order, but they’re expensive to acquire and set up.
In-store sales are increasing, but we’re not seeing a significant decline in online sales. It turns out those aren’t two different cohorts. It’s the same customer that wants to go in-store sometimes and online other times. The most important thing to hold onto that customer is to have a seamless experience across both platforms. When I’m shopping online and you’re recommending products to me based on what I bought in the past, you better not just recommend things to me based on what I bought online. You better recommend things to me based on what I bought in your store. Grocers need to mirror the data from both channels to give the customer a better experience. When customers were forced to use digital during the pandemic, grocers could get away with imperfect shopping experiences. Every online shopper will tell you horror stories of bad product substitutions, but if the alternative to those bad substitutions was risking my life to go to a grocery store, I’m going to live with those bad substitutions. Today, if I get bad substitutions, I’m firing that retailer and trying another retailer – customers are less sticky.
Well, it depends on where you’re coming from. I would say some grocers are more ahead in their digital evolution than others. You’re seeing less of those silos than you used to. I would say the state of play, now, is some grocers have gotten better at taking the silos of the customer experience down, but they still have the back of house silos. They still have siloed KPIs between the VP of e-commerce and the VP of stores. We’re in an evolution on this. And, obviously, there are grocers that leaned into digital more than others and are a little further along, but it’s still the first inning for everybody. I’m pretty confident when we get out the time machine five years from now and look at how people are grocery shopping, it’s going to look a lot different than it does this year.
Yeah, I should have never said that! The truth is, I don’t know but the reality is that a lot of my replenishment is probably a lot more seamless. Today, I run out of toilet paper and I have to do a bunch of overt things to make sure I get toilet paper back in my house before I need it. Or, I run out of milk and I have to do a bunch of things before I can serve my kids breakfast tomorrow morning. Those things cause a lot of stress and friction for busy time-strapped families. Increasingly, grocers are going to get better at using the data they have. They’re going to get more data about how consumers are using products at home.
The boring replenishment stuff that we know we just always want in our pantry, our favourite variety of peanut butter or whatever, that stuff is just all going to show up. We’re going to pay for those groceries like we pay for our monthly utility bill, and we’re never going to have to think about it or make a list or worry about running out at an inopportune time. Then, the discretionary side of groceries is going to be about the surprise and delight moment, the meal planning for special family meals or date night or these kinds of things. A special trip to plan the Christmas menu. Discovering new products and getting inspiration to do something new is going to be what differentiates the grocers of the future.
Again, a lot of this comes down to data. CPGs and retailers are getting a lot more serious about sharing data and collaborating on marketing tactics. We talked earlier about how digital groceries are less profitable for retailers, so one of the ways retailers are trying to drive additional profit margin is through what we call retail media networks. They’re collecting more marketing and advertising dollars from brands, and those brands are wanting and expecting more collaboration in exchange for that additional money. It’s driving new data sharing arrangements and co-marketing campaigns and things like that. You are starting to see better collaboration, but I would also say there’s more competition between those two parties than ever before. I have a joke that every retailer is trying to become a brand and every brand is trying to become a retailer.
If you’re a grocer right now, you’re looking at a more value oriented consumer and you’re looking at your mix and saying, “The best thing I can do is be selling more of my own brands” Increasingly, the biggest success stories in the [private-label] category are these aspirational brands that are getting invented by retailers. By aspirational brands, I don’t mean private-label knockoffs of national products. I mean unique brands that have a competitive advantage.
Grocers are getting more serious about being product manufacturers and conversely, manufacturers are saying, “Shoot, I need a direct relationship with the customer. When I sell peanut butter to Loblaws, I have no idea how fast the consumer’s using that peanut butter. I want a direct relationship with the consumer.” That might be a DTC (direct-to-consumer) offering. It might mean when advertising on Facebook the brand partners with an instant delivery service to get those products to the consumer’s home. There’s lots of new collaboration between brands and retailers, but there’s also lots of new competition between brands and retailers.
The two most important things are removing friction – making it easier for an increasingly time-starved family – and, as we move into 2023, providing the best possible value and making customers feel like they’re stretching their grocery budget as far as possible. The grocers that are likely to win in 2023 are the ones that are good at doing both of those things digitally, even when a customer wants to shop in an omnichannel way.
Oh yeah. Everybody’s trying to figure out the digital version of impulse buying. Is it sampling? Is it more personalized, suggested selling? Is it knowing the customer’s home inventory better and recommending products based on what they want in their pantry? There are all kinds of interesting innovations happening in customer experience to build larger carts in digital. Then, of course, there’s a lot of innovations in operations to make it more profitable. Should we be filling orders from every store, or should we be investing in certain stores to be super-fulfilment centres? Should we have dark stores? How can we make curbside pickup more efficient? Can we use geolocation to know when a customer is near the parking lot and get that order ready faster to reduce wait time? Should we redesign the parking lot to make it easier for curbside pickup? All sorts of things like that are on the table, and every retailer is evolving their experience.
Well, that answer is probably evolving. It was probably ease and lack of friction during the pandemic. A lot of consumers were learning how to order – could you find the product, could you be confident the bananas would come the way you want them, could you find all the brands you were familiar with? It was a lot about the mechanics of shopping convenience. We are shifting to a more economically cautious consumer right now that’s shifting down to more value products. So, there is a latent fear on the part of most consumers that online grocery is more expensive to them than in-store grocery. Now, one of the big things that matters to consumers is that the value proposition is there and that they’re not paying extra for the convenience of digital grocery shopping.
All consumers need food. When we shift to value, we don’t stop buying calories, we change the calories we buy, and some calories are more profitable for a grocer to sell than others. When you look at grocery transactions on a transaction by transaction basis, you see one kind of profitability. But the long term, smart way to operate a grocery store is to understand the profitability of each customer, who sometimes is going to come in for a quart of milk, and another time is going to come in for a 60-item grocery order. In the pre-digital age, it was near impossible to know that customer well and understand the overall profitability of that customer and help cultivate the cohorts of customers that are most profitable and most valuable to a grocery store. But in the digital age, we can know all that. So, the success criteria from the store can start shifting from sales or transactional profitability to customer lifetime value and customer profitability. And that’s a pretty significant shift that we’re just starting to see.”
*This article is excerpted from Canadiangrocer.com website, published 06th March 2023