Online Grocery Shopping – Why it’s not working

Online grocery shopping

China arguably leads the world in online grocery shopping with some categories seeing more than 40% of sales online. When asked why this might be, a small group of Chinese online grocery shoppers offered a number of opinions: “It’s convenient,” said one, “I don’t have to drive to the store, I shop before I leave work and groceries are delivered soon after”. “It’s easier to get what I want,” said another, “in regular shops I often can’t find the right product”. A third said. “I hate going to regular stores, they’re dirty and uncomfortable, my mum used to shop in a market for us when we were kids, but that’s not for me”. For these shoppers, online grocery shopping offers a significantly better experience than they get in the real world.

Elsewhere though shoppers clearly don’t seem to agree. Rumor has it for instance that when Tesco launched online shopping in Malaysia, they only managed to secure 35 transactions a week. Even in the UK, arguably the world’s most developed e-commerce market, only 5% of grocery sales are online. Why is this? Not having completed an in-depth survey, I can only offer hypotheses, but I can suggest three reasons why I think many shoppers still prefer to buy groceries in the real world.

Online Grocery Shopping is not intuitive

Online sales have taken off in the entertainment industry because the product is so simple; if you like a song or a movie, you search for it, and there it is. There may be a few versions knocking around but it only takes a few seconds to find the one you’re looking for. Grocery products aren’t like that, categories might include hundreds of individual products, categorized into different segments, differentiated by brands and then further broken down into variants, pack types and pack sizes.

In the physical world, grocery shoppers have developed intuitive coping strategies to deal with this, filtering out the extraneous and focusing in on just the product they’re looking for. When the precise product isn’t there, they switch to a substitute. Equally shoppers in the real world are rarely as specific about what they want as they need to be in the online world: How often have you found yourself putting ‘beef’ or ‘veggies’ on your list knowing that you’ll choose what looks good when you get there?

Online grocery shopping is different, you’re required to know what you want and all but a few search systems are intuitive enough to help a lost shopper. As a result many shoppers may prefer to stay with the store they habitually visit rather than change.

Online grocery shopping is not trustworthy

I suspect that online grocery shoppers hold web-stores to a far higher standard than they do regular ones. In the real world, it’s not uncommon to find lines out-of-stock; one audit of Asda we did in the UK found 12% of lines off-sale. Real-world shoppers have learnt in many cases to cope with this reality and to substitute or go elsewhere.

However, I believe that online grocery shoppers have an automatic assumption of availability. I’m guessing this is born largely out of their experience of shopping for other products online: When you buy a track in ITunes, it’s delivered immediately; if you buy a book at Amazon, it’s dispatched in days. I’m guessing that since many online grocery shoppers’ first experience online was like this, they feel let down when the product they want isn’t available in the online grocery store.

Further, when grocery products that have been ordered online don’t turn up, shoppers get even more frustrated. I’m pretty sure that for many this sort of experience leads them back to doing things the old way.

Online grocery shopping isn’t ‘social’

My third hypothesis is that that many offline grocery shoppers who don’t make the switch online, choose to continue shopping in stores because ‘it gets them out of the house’. For many, going out to shop is a social occasion which can’t be easily replaced online.

In research we’ve done, shoppers often rate the availability of help and information third only to convenience and range when it comes to selecting a grocery store. For many shoppers, the absence of a personal contact, may frustrate those seeking a hard-to-find product let alone those seeking input or advice.

Making online grocery shopping work better

If any of these hypotheses were proven true, this would give some valuable insights to the grocery trade on how to elevate the performance of their online stores. Such insight might lead to more personalized and better curated online environments which satisfy the needs of shoppers better. Equally this might enable web-stores to improve their product availability in more targeted ways (and enhance their forecasting capability). Lastly, learning what turns shoppers off online grocery environments would help create more engaging customer service experiences.

It occurs to me, however that very little of this insight exists today, and if it does exist, it’s not being published. So perhaps it’s time we addressed this. If you have information that might shed light on why so few shoppers go online, or would like to share other hypotheses, please get in touch.

Image from Wikipedia.

 

Can big retail win shoppers in the future?


big retailIt’s been an interesting week in the UK retail market. Just as February retail figures showed food discounts were dragging value from the market; Morrison’s a major British supermarket chain announced record losses. In the same week, Phil Clarke, the boss of the now-ailing Tesco, declared that future success is as simple as “putting the customers back at the heart of your business”. But is it that simple? I wonder, has the financial model of big retailers taken them too far away from the shopper?

Retail used to be governed by a relatively simple model – increase sales by enhancing shopper loyalty and seek to maximise operational efficiency, reducing cost. The net-outcome was a shopper-centric business that delivered profitable grow.

Todays’ big retailers seem to be working a different business model. Today’s mega-retailers have huge balance sheets, with assets that include huge amounts of property and inventory. With so much capital at stake seeking optimum returns on this capital seems to have become an overwhelming priority.

You might conclude that big retail is no longer in business to sell stuff to shoppers but rather to make money from real estate and stock.

Four ways to win in big retail

If increasing returns on capital employed is your key outcome as a retailer, then operationally your goals become much more focussed on generating cash and your strategies become more structured around optimising returns on inventory. There are practical four ways to achieve this:

  1. Drive bigger margins – The first sure-fire strategy to win in big retail is to secure a bigger margin. If margins can be consistently increased, even standing still in sales terms can deliver yield improved return so big retail constantly seeks ways of enhancing margins.
  2. Pay slower – The second way to drive better returns on inventory is to hang on to cash for longer. Slower payment terms keep cash in the business, covering short-term costs and creating the potential for investment income.
  3. Buy less inventory – The third way to enhance returns is to invest less in the key component of retail working capital. Whilst this might lead to greater efficiency it can also lead to reduced availability which actually works against customer service
  4. Sell faster – The fourth but most risky way of driving returns is to drive sales. Encouraging greater numbers of shoppers to the store, more often and getting them to buy more was at the core of most retailers’ strategies in the 90’s. But today’s hyper competitive environments make this harder and more risky. Its perhaps because of this that price has become so important. There’s an overarching big retail belief that lower prices drive traffic and sales. Since most suppliers will pay for discounts, this is a cheap way of securing better returns.

None of these levers requires the retailer to be more “shopper centric” and perhaps, this is why so many big retailers are struggling.

Online retailers win shoppers because they use simpler model.

As traditional retail is coming under pressure from online, it’s worth noting that online retailers do hold to a simpler, more profit-led model: drive shopper loyalty and keep costs to a minimum. For example Amazon’s found Jeff Bezo’s has been quoted as saying, “We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.” Much of big retailer’s woes are now tied up in the difficulties they have in competing with this model and many are failing.

Can big retail win shoppers again?

Possibly yes, but, there has been a tendency over the last few years to put more emphasis on tried and tested financial strategies rather than to innovate in the shopper space. These retailers need to have more faith in their shoppers and more understanding about what they want. They also have to believe in themselves a little more. There’s plenty of talk about enhancing customer experience, and precious little investment against this in either retail stores or retail brands.

Big retail continues to try to be all things to everyone in a big box, when more agile competitors are winning by being more specifically targeted. Too many retailers are ignoring the opportunity to sell-down some real-estate in favour of having a leaner more shopper-centric models and, despite the talk of multi-channel, too many retail managers would have their cake and it by maintaining physical stores which are now surplus to shopper requirement.

Future success will therefore require some major re-engineering.

What does this mean for manufacturers?

In a nutshell, retail is at a turning point. It would appear that no retailer is too big to fail and a number of global players have stumbled in the past years. This is an opportunity for brands: as the way we shop changes, the structure of retail will follow. Manufacturers should be thinking ahead to how and where their future shoppers will interact with their brands. Phil Clark is right in his conclusion that the shopper-centric retailers will win so manufacturers need to identify these retailers and work proactively with them. This creates the opportunity to re-balance customer portfolios and to restructure investment and support accordingly.

Taking steps now to learn about changes in shopper behaviour and the potential growth customers of the future is likely to reap rewards. We specialise in supporting companies going through this process and would be happy to offer support. Please get in touch with me if you need help.

Why Are Grocery Stores So Dull?

Why are grocery stores so dull?I’ve been spending a lot of time in grocery stores recently. Over the last six months I’ve visited supermarkets and hypermarkets in two continents and in seven different countries.  You’d think that in such a diverse world, with so many cultural differences, that our grocery stores would reflect our diversity and differences, wouldn’t you?

And yet when I compare grocery stores in Spain and Singapore, Udine and Udon Thani, Dublin and Driotwich I’m often faced with exactly the same picture: aisle after aisle of uniformly presented shelves full of evenly stacked and ubiquitous products. The similarity between the places we shop in is striking and at the same time it’s stultifying!

Do  grocery stores have to be so dull?

On a recent trip to Ireland, I got to spend some time with Ken Hughes from Glacier Consulting, and it was that meeting that got me thinking about this. Ken is a behavioral economist, which means he’s interested in how our behaviors influence the economic choices we make. He applies this expertise when looking at the way we shop. He has watched shoppers, measured their brain waves, even tracked the speed at which trolleys are pushed through stores and all of his research leads to a singular conclusion – when we shop, we do so on auto-pilot.

Studies time and again bear this out; as grocery shoppers we pay little attention to our environment, only seeking out the products we actually want in a category most of the time. Ken likens this to using the grocery store as an extension to our pantries – we just reach into stores and grab what we want, without really thinking about it.  So of course we find shopping dull – for many of us it’s dead time.

But does the in-store environment of grocery stores we shop in need to be dull?

Dull environments sustain habits

Ironically, a dull environment may be exactly what we need. A dull environment may not be sexy but it is extremely predictable.  Predictability supports habits.

We actually buy a relatively limited range of grocery products every year and we tend to buy from portfolios of brands we trust – in effect many of us buy grocery products habitually. Many shoppers habitually go to the same store every week for their groceries and many of us will be familiar with the sensation when go shopping that we can’t really remember where we’ve been in the store and how our carts managed to get so full. The conclusion that shopping is habitual for many people is therefore unavoidable.

Retailers and manufacturers like this. For good reasons: it helps them plan; predictable habits support accurate forecasting which leads to effective inventory, logistics and production planning, all of which keeps costs down.

So dull, predictable environments are good for manufacturers and retailers, right? Well, no!

In order to grow, habits need to change

You don’t have to be a student of physics to have heard Einstein’s definition of insanity: “Doing the same thing over and over again and expecting different results.” This should be invoked often in the world of consumer goods marketing, because whilst the industry craves predictability, it needs growth to thrive. Unfortunately, the only way to grow is to encourage shoppers’ behavior to change, either by getting people who don’t buy to buy or buy getting those who do buy, to buy more, more often.

To do this, shopping environments need to be dynamic.

Creating a dynamic shopping environment

One of the coolest things about online retail environments is they have the potential to be in permanent flux. As my needs change and develop, Amazon’s offer (for instance) changes to reflect my changing behavior. Bricks and mortar stores are not so flexible, so creating a dynamic in-store environment  of grocery stores is a much bigger ask. It requires a much higher level of collaboration between manufacturers and retailers to be successful. Together they need to:

  1. Identify the shopper behavior they want – do manufacturers and retailers want shoppers to trade-up, buy in greater volumes, join the category for the first time or (yes) stick to what they’ve always done?
  2. Ensure that the store can deliver – store operators (and their suppliers) need to be honest about what can be achieved in a grocery outlet. Will shoppers notice the new bigger idea? Are they prepared to take the extra time to learn about the category? Will they be upset if you mess with their habits?
  3. Define what needs to happen to change behavior – behaviors change as a result of stimuli – if you provide the right stimuli, behaviors will change. So together, retailers and manufacturers need to learn what stimuli really work.
  4. Make change a habit – shoppers will adapt to changes in retail environments quickly, so what was once an innovation rapidly becomes wall-paper and new habits get formed. To continue growing, marketers and merchants have to consistently innovate.

At engage we’ve made it our mission to help consumer goods companies to improve their engagement with consumers, shoppers and retail customers. If you are facing a growth challenge, contact us, to learn how we can help.

Is Retail Dead?

I was recently invited to speak to a group of entrepreneurs in Singapore, and searching for a topic that might be of more general interest, I decided to ask the question of whether retail is dead? I broke my presentation into three parts: the case against retail; the case for retail; and the implications of the new reality of retail – you can access the slides here.

Why traditional retail might be dead

Given the massive volume of words written weekly on the subject of digital, e-commerce and mobile, you could easily be forgiven for thinking that the blogosphere has decided that bricks and mortar retail is dead. Here in Asia there is loads of evidence suggesting we love online shopping.  Asians want to shop online – a recent survey by Nielsen suggested that intent to shop online in the next three months ran at over 30% for apparel and travel and more than 25% intended to buy phones, food and beauty products online in the near future. In China, T-Malls’ recent Singles Day promotion overwhelmed couriers all over the country as more than US$3 billion dollars of sales were recorded in a single day.

Given the massive volume of words written weekly on the subject of digital, e-commerce and mobile, you could easily be forgiven for thinking that the blogosphere has decided that bricks and mortar retail is dead. Here in Asia there is loads of evidence suggesting we love online shopping.  Asians want to shop online – a recent survey by Nielsen suggested that intent to shop online in the next three months ran at over 30% for apparel and travel and more than 25% intended to buy phones, food and beauty products online in the near future. In China, T-Malls’ recent Singles Day promotion overwhelmed couriers all over the country as more than US$3 billion dollars of sales were recorded in a single day.

Is Retail Dead

With 44% of the world’s internet-connected population, and with the world’s largest and fastest growing middle class population, there’s no doubt that more and more Asians will shop online in the coming years. This is reshaping the Asian retail landscape, especially in China where brands like T-Mall, Yihaodian and 360Buy are vacuuming up larger shares of the market (and complicating brands’ e-retail strategies!). At a more micro-level opening an online retail site today is practically free, so more and more sole traders are moving to supply products this way. There is no doubt that this will hurt regular retailers – the demise of many retailers in US and Europe has proven this to an extent.

So IS retail as we know it dead?

You had better hope not! Retail is probably the biggest business on the planet; consider the following:

  • There are probably well over 65 million shops in the world
  • It is estimated that retail sales account for nearly 20% of global GDP
  • The world’s biggest retailers account for fully 7% of the total retail sales and have more than doubled in size in the last decade
  • Retail is the world’s largest private sector employer – Wal-Mart alone is the world’s 3rd largest employer after the US department of defense and China’s PLA and more than 3 million Americans are employed in independent retail alone.

It’s a stretch therefore to right-off this industry as being dead; especially when much shopping is done in physical stores. Forrester (the research company) reckon that 90% of all retail sales in the US are in regular stores and a tiny proportion of the world’s grocery sales are made online. In actual fact we love shopping in stores; here in Asia the volume of traffic in malls, hypermarkets and traditional wet markets is consistently high. In Asia grocery shopping online is tiny: a recent survey published by Bergent suggests that just 1% of Korean and Singaporean housewives shop for groceries online and that none do in Japan, Hong Kong or India.

So no, retail is not dead. But, it has changed!

A different way to shop

The biggest impact of the internet revolution on retailing is not so much where we shop but how we shop. It used to be possible to clearly define the aspects of the marketing mix that influence us as consumers of a product and those that affect our behavior as shoppers. Traditionally the former happened outside the shopping environment. But today, the use of connected devices runs through almost every aspect of our lives. This exposes us to millions of targeted messages that form and influence what we want to concern and how we will buy almost concurrently. Effectively we are always shopping!

The likely reality is that multichannel retail will become much more normal – a true combination of clicks and bricks. Some savvy retailers have already adopted this model: Debenhams, the UK-based department store has been tremendously successful in blending  a compelling in-store offer with an online one, and online players like Ebay have begun to capitalize on the love of retail space by using pop-up stores.

A new marketing model

With so many changes afoot, manufacturers could be caught napping and that could have some very negative impacts. This requires a change in the way we think about marketing. Today, marketers who have a superior understanding of the segments of consumers and the shoppers they are chasing get ahead of their competition. So these marketers have moved away from a singular focus on the consumer and now consider a more complete view of the world.

We call this broader view ‘Total Marketing’. This model looks at the relationships between consumers, shoppers and retailers to define the best way of driving growth efficiently. Our new book The Shopper Marketing Revolution explains why this new model is so important, introduces the key concepts that underpin it and provides a field guide to individuals who want to apply it. You can buy the The Shopper Marketing Revolution at Amazon  now.

Hunting For Retail Innovation In Barcelona

Hunting-for-Retail-Innovation-in-Barcelona-image

I recently returned from a relatively rare business trip to Barcelona, Spain. Excited to be back in the market after a few years, I persuaded my client to take me on a tour of nearby stores. Predictably, of course Carrefour was on the list of stores we would go to, but so were Eroski’s Spanish subsidiary Caprabo and Spain’s own Mercadona. [Read more…]