Today’s customer is taking advantage of the conveniences established by e-commerce. Whether it be clothing or sporting equipment, the consumer today appreciates the ability to purchase from the comfort of their living room. Buying groceries used to be an exception, but those days are numbered. With the advent of online only grocers and brick and mortar grocers providing delivery, customers are getting used to buying their broccoli without stepping out. In this article, I will explore the growing e-commerce trend in the food industry and why food distributors and brick and mortar supermarkets should pay close attention.
According to a report from market research firm, IBISWorld, online grocery sales grew at an annual rate of 14.1 percent over the last five years and are expected to increase 9.5 percent to potentially become a $9.4 billion dollar industry in 2017. Companies such as Amazon and Fresh Direct, both “online only” leaders, are continuing to expand their digital capabilities for selling food and beverages to meet this growing interest in home delivery services. Food distributors and brick and mortar supermarkets, however, may be better positioned to meet this growing demand and realize returns than the e-commerce companies that don’t necessarily have all the warehousing and physical networks already in place.
Infrastructure creates an advantage
An e-commerce transformation requires innovative solutions that ensure the logistical process is cost effective and the advantages of an online sales channel are leveraged as much as possible. For continued growth with online grocery shopping the costs of home delivery must be lowered, the delivery must be punctual, and in store pick up options must be expanded. The food distributors and brick-and-mortar supermarkets are actually better equipped to meet these challenges than online only sellers who singularly ship directly from distribution/fulfillment centers. Retailers gain the competitive advantage of having more channels available to service customers by having an existing brick-and-mortar retail footprint in addition to working with their distribution partners. Specifically, retailers that can cooperate closely with their distributors by putting joint effort into warehouse operations, including inventory management, order management, and fulfillment, are more equipped to welcome the growing demand of online grocery sales.
An online presence will boost overall sales
With e-commerce only trending upwards, the availability of online shopping plays a major role in consumers’ perception of a retailer. According to Forbes, 71 percent of customers expect to view in-store inventory online, and 50 percent expect the ability to buy online and pick-up in-store. Although these numbers may not hold true today specifically for customers looking to purchase food items, the market is trending in this direction. When this infrastructure isn’t in place, there’s the real possibility of a lost sale or general downgrade in the perception a consumer has with that seller’s brand. An online footprint will provide an opportunity for grocers to retain their current customer base as they adapt to changing consumer expectations and behavior, as well as attract a new customer base.
Global trends and maturing digital natives
According to an e-commerce report by global information, data, and measurement company, Nielsen, in which they surveyed 30,000 respondents in 60 countries, 25% of respondents said they are currently ordering grocery online, and more than half (55%) are willing to do so in the future. Only about 15% of Americans currently buy groceries online, but with the digitally native millennials and generation Z maturing, food distributors and brick and mortar supermarkets would be wise to take the bet on the already continued growth in online grocery sales. The Cowen group, a research and investing information company, has stated that as millennials become a greater portion of American grocery shoppers, the trend of customers valuing lower prices over delivery of online grocery will change. In a study by leading global management consulting firm, Oliver Wyman, online grocers have already captured 6% of the market in the UK (compared to <2% in the US), largely driven by online offerings from all major brick and mortar players. Foreign market success in combination with maturing generations who are likely to change trends in consumer behavior are some of the indicators food distributors and brick and mortar supermarkets should pay attention to when exploring e-commerce solutions.
Where does this leave us?
Digital commerce is here to stay and the food industry will not be an exception for long. Large retailers are investing in customer options for the future, ranging from drive thru locations to pick up grocery, to delivering fresh produce to customers in a timely fashion. It remains to be seen how the brick and mortar grocery companies react to the new age customer. If history is any reference, it is high time these companies start paying attention to the customer needs.