The supermarket guide to online grocery competition Where it’s coming from and how it stacks up May 2016 By Brick Meets Click Bringing the future of food retail into focus. MyWebGrocer supported the publication of this report. THE SUPERMARKET GUIDE TO ONLINE GROCERY COMPETITION 2 EXECUTIVE SUMMARY Who competes with multichannel supermarkets for online grocery? >>> There are 2 main types of competition: Direct competitors, and what we call Basket Bandits. The first will steal your customer, the second siphons off sales, shrinking their basket size. Direct competitors offer the full spectrum of supermarket products, Basket Bandits only a portion of them. >>> Basket Bandits are the primary competition for multichannel SHARE OF TOTAL ONLINE GROCERY TRIPS supermarkets today. They dominate on all dimensions: number of sites, reach, share of trips and share of spending (p.7). Basket Bandits include Amazon, a host of other online-only retailers (including meal kits), and the online “stores” of mass and club retailers (p.12). >>> Amazon is the single biggest player in online grocery, even with AmazonFresh in limited rollout. It attracts 48% of all online grocery trips (p.6); its share of spending already equals that of multichannel supermarkets at 32% (p.14); and its share of grocery trips goes up significantly as households increase the number of online trips they make in a month (p.15). >>> Good news: One-stop grocery shopping clearly has a role to play in the online landscape. Multichannel supermarkets win a significant share of the online business once they get established in a market, and so do their direct competitors (p.9). Absent strong online supermarket services, shoppers lean heavily on Basket Bandits – in those Basket Bandits markets, Basket Bandits capture 25% to 50% more spending. Amazon = 48% Non-Amazon = 21% >>> Bottom line: Consumers are beginning to change where and how they buy groceries. If Mass & Club = 15% multichannel supermarkets don’t move to meet these emerging needs, spending will continue to shift online to direct competitors and Basket Bandits (Amazon chief among them). Local market conditions will determine the size of the shift and where the spending goes. www.brickmeetsclick.com © 2016 Brick Meets Click THE SUPERMARKET GUIDE TO ONLINE GROCERY COMPETITION 3 Contents Executive Summary Contents Introduction PART 1 – FRAMEWORK 5 ABOUT THE STUDY: The research on which this report is based was Who are the competitors? conducted in the fourth quarter of 2015 • The landscape from 40,000 feet and involved surveys of 12,000 US • Sites, trips, reach, and market share shoppers who are digitally connected to their food retailer in the Northeast, • Market-by-market spending Midwest, and West. The findings • Satisfaction levels provide solid new insights into how the competitive landscape for online PART 2 – COMPETITORS 11 grocery is developing. Direct Competitors FOR MORE INFORMATION about Basket Bandits how the data from this or other Brick • Amazon! Meets Click research studies can help • Non-Amazon sites you grow your business, contact Steve • Multichannel Mass and Club Bishop at [email protected]. CONCLUSION 21 Note: As a courtesy to the retailers who Appendix partnered with us for the surveys, we are not disclosing specific retailer names or markets. Contact Information www.brickmeetsclick.com © 2016 Brick Meets Click THE SUPERMARKET GUIDE TO ONLINE GROCERY COMPETITION 4 Introduction The different online grocery executions, like click-and-collect and third-party providers, attract plenty of attention from the media and shoppers, but we feel it’s time for an evidence-based, 360˚ assessment of the competitive landscape for online grocery. Based on a survey of more than 12,000 digitally connected grocery shoppers across the US, this study: • Identifies and classifies the different types of online competition facing supermarkets. • Describes how they are currently sharing the market. • Evaluates the strengths and weaknesses of these competitors in comparison with multichannel supermarkets. These findings will help grocery and food retailers make both short-term and long-term decisions about how to: • Protect current business and acquire new business from competitors who are slow to respond to changes in consumer behavior. • Develop a vision of how to win sales as consumers change the way they buy food and groceries. The data in this study was collected from three regional markets. The averages that result from combining the data provide an understanding of the overall competitive landscape that is evolving, but it’s important to recognize that the progress of online grocery will not be uniform. Therefore, this report also includes information about the differences among markets in the presence and penetration of the main types of competitors. These variations can provide insight into how the competition may unfold in a given market. Bill Bishop, Chief Architect, Brick Meets Click www.brickmeetsclick.com © 2016 Brick Meets Click THE SUPERMARKET GUIDE TO ONLINE GROCERY COMPETITION 5 PART 1: FRAMEWORK Who are the competitors? The competitive landscape for online grocery is big and diverse. The 12,000 consumers surveyed for this study visited a total of 158 different online sites to shop for groceries in the past 30 days. Clearly grocery shoppers have lots of choices. We organized the players into three categories: multichannel supermarkets, direct competitors, and Basket Bandits. 1. MULTICHANNEL SUPERMARKETS Traditional, one-stop-shopping supermarkets that offer online grocery services to their customers. 2. DIRECT COMPETITORS Direct competitors have the potential to capture all of a supermarket customer’s business. They compete for the whole basket, offering the entire range of supermarket products, from fresh to frozen to shelf-stable foods and shampoo to cleaning supplies. These online-only supermarkets include Peapod, Fresh Direct, AmazonFresh, and similar sites. 3. BASKET BANDITS Basket Bandits create sales leakage – they have the ability to siphon off some, but not all of a supermarket customer’s business. They typically carry only some of the product categories that supermarkets carry. Basket Bandits include Amazon-branded sites, a variety of non-Amazon online-only retailers, the online “stores” of mass and club retailers, and meal kit sites. Their impact can be hard to see, but they represent significant incremental competition. www.brickmeetsclick.com © 2016 Brick Meets Click THE SUPERMARKET GUIDE TO ONLINE GROCERY COMPETITION 6 The online grocery landscape from 40,000 feet Multichannel supermarkets attract 10% of all online grocery trips, direct competitors attract 6% of trips, and Basket Bandit sites attract 84% of trips. WHO IS CAPTURING ONLINE GROCERY TRIPS TODAY? Share of total online grocery trips >>> Basket bandits dominate the market today. Basket Bandits also: • appeal to consumer interest in unique and specialized products • skim off higher margin items • create opportunities for subscription and other automatic replenishment services www.brickmeetsclick.com © 2016 Brick Meets Click THE SUPERMARKET GUIDE TO ONLINE GROCERY COMPETITION 7 Four perspectives: A scorecard on the competition Our analysis covered four important dimensions of the online grocery landscape: the sites shopped for groceries, the reach of those sites, share of trips, and share of spending. The scorecard below shows how the three types of competitors compare on these dimensions. ONLINE GROCERY – SITES, REACH, TRIPS, & DOLLARS >>> Basket Bandits dominate on every dimension. It is important to recognize them as the primary competition for multichannel supermarkets. >>> The strength of the Basket Bandits means CPG brands need to understand their appeal and decide which ones represent worthwhile routes for marketing to consumers. Share of Sites measures the availability of online grocery options. Reach measures the percentage of households using each type of site. Share of Trips measures of how frequently customers are going to each type of site. Share of Dollars shows where consumers are spending their grocery dollars online. www.brickmeetsclick.com © 2016 Brick Meets Click THE SUPERMARKET GUIDE TO ONLINE GROCERY COMPETITION 8 Bringing the landscape into focus Sites Reach Trips Dollars 6% mc supermarket 12% mc supermarket 10% mc supermarket 32% mc supermarket 3% direct competitors 9% direct competitors 6% direct competitors 9% direct competitors 91% Basket Bandits 79% Basket Bandits 84% Basket Bandits 59% Basket Bandits The strong appeal of Basket Share of spending numbers Only 9% of sites were When it comes to reach, Bandits is evident in their show the impact of the bigger operated by multichannel Basket Bandits still rule, but larger share of trips. basket sizes sold by multi- supermarkets and their direct not so much. channel supermarkets and competitors; 91% were direct competitors. operated by Basket Bandits. >>> Higher reach numbers for >>> Basket Bandits are the supermarkets and direct “on ramp” for consumers who >>> Expect market share for >>> Basket Bandits are a competitors compared to are beginning to shop online share of trips shows that one- supermarkets and their direct significant source of sales for groceries. It remains to be stop-shopping retailers still competitors to increase as leakage for supermarkets. seen whether business to have a role to play in online these services become Consumers are spreading these sites will decline as grocery. available in other markets. their shopping broadly across