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Online Grocery Spiked During COVID-19. What Now?

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Online Grocery Spiked During COVID-19. What Now? Online Grocery spiked during COVID-19. What now? rr-0172-006057 - Online Grocery.indd 1 29/06/2020 09:52:46 2 Over the past few months the COVID-19 pandemic has fractured consumer purchasing patterns and ignited a massive channel shift across industry. As the virus impacts communities and stay-at-home orders are enacted and extended, consumers are doing more of their shopping online and minimizing time in crowded, enclosed places. Since the outbreak, grocery stores have had more traffic online than in their physical stores and major supermarkets have been struggling to meet this surge of demand due to a lack of infrastructure, operational capacity, and platform sophistication. RAPID ADOPTION AND ADAPTATION This pandemic has ignited a sudden and significant shift of consumers to online channels. In a survey by RBC Capital Markets, 55 percent of respondents said they shopped for groceries online in the month of March – a 19 percent increase over all of 2018, with one-third of respondents being first-time users1. In the same survey, Instacart reported a Instacart reported a 300 percent YOY increase in consumer demand and has been 300 percent YOY hiring 300,000 additional “shoppers” to keep up with business efficiency. Target-owned increase in consumer demand and has been Shipt added more than 80,000 shoppers and by April 17th, cut their wait time in half2. hiring 300,000 In early April, Instacart also announced two new features: “Fast & Flexible,” allowing additional “shoppers” customers to choose to have their order delivered by the first available shopper as to keep up with opposed to selecting a specific delivery window, and “Order Ahead,” allowing customers business efficiency to place orders up to two weeks in advance. The addition of these new services has increased available delivery windows by 50 percent and overall speed of orders, such that 85 percent of orders are being delivered before their estimated time3. Digital adaptation is increasing rapidly to address the significant and immediate changes in how customers shop. GETTING CREATIVE TO PROTECT CUSTOMERS Companies are also putting in safeguards to protect seniors and Additionally, Aldi, Albertsons, Costco, vulnerable demographics, as well as thinking creatively about how to H.E.B, Publix, & keep all customers safe. For example, Walmart partnered with social Loblaw, to name a media channel Nextdoor and launched a program called Neighbors few, are all Helping Neighbors4. This program allows members of vulnerable implementing communities to coordinate the pick-up and delivery of items with “vulnerable shopper” a neighbor who is already planning a trip to a local Walmart store. hours to give those most susceptible to Additionally, Aldi, Albertsons, Costco, H.E.B, Publix, & Loblaw, to name a the virus a chance to few, are all implementing “vulnerable shopper” hours to give those most shop at a lower risk. susceptible to the virus a chance to shop at a lower risk. Taking it step 1. COVID-19 crisis sparks ‘inflection point’ for online grocery – and huge revenue for Amazon, GeekWire, April 2020, https://www.geekwire.com/2020/analyst-covid-19-crisis-sparks-inflection-point-online-grocery-huge-revenue-amazon/ 2. Shoppers buy more online compared with before the pandemic, DigitalCommerce360, June 8, 2020, https://www.digitalcommerce360.com/article/coronavirus-impact-online-retail/ 3. Instacart Launches New Customer Product Features to Speed up Service & Unlock More Delivery Windows as Demand for Online Grocery Continues to Surge, Cision PR Newswire, April 8, 2020, https://www.prnewswire.com/news-releases/instacart-launches-new-customer- product-features-to-speed-up-service--unlock-more-delivery-windows-as-demand-for-online-grocery-continues-to-surge-301037227.html 4. DigtalCommerce260, June 8, 2020 rr-0172-006057 - Online Grocery.indd 2 29/06/2020 09:52:47 3 further, H.E.B., through Favor Delivery, is giving seniors access to their own personal shopper to call to have essential products delivered5. Loblaws is also giving healthcare workers priority access to stores as it continues to limit store capacity to ensure social distancing6. IMMATURE INFRASTRUCTURE AND LOW MARGINS Traditionally, grocery is a very regionally focused and a notoriously low-margin industry. Players dominate by region, and this localization of stores has translated to a focus on enhancing the local in-store experience to increase loyalty. Given the high-entry costs, negative margins, and potential for negative customer experience from a poorly executed online strategy, most grocers have not proactively invested in a robust online platform. Additionally, since the majority of sales are generated in-store, omnichannel and digital capabilities are often deprioritized. In fact, it was not until COVID-19 that leading online platform Instacart became profitable, years ahead of plan7. As the impact of the pandemic continues, grocers are attempting to be agile and adapt quickly in-house, but many companies are not ready for this surge in online traffic as infrastructure is still immature globally. According to Kantar data, online grocery has had around a 3.1 percent penetration in the US. In the UK, generally considered a Expectedly, businesses without online ordering or more progressive region for grocery, only 7.6 percent of groceries delivery capabilities must were purchased online before the outbreak8. Expectedly, manage reduced traffic and businesses without online ordering or delivery capabilities must consider associate/customer manage reduced traffic and consider associate/customer safety. safety. More surprisingly, More surprisingly, however, companies that have platforms however, companies that already in place aren’t always a success story. Amazon temporarily have platforms already in place aren’t always a success stopped accepting new customers for grocery delivery in an story. effort to risk alienating current subscribers and alleviate stress on fulfillment centers. They are pushing back delivery times for non-essential items and are hiring an additional 75,000 new workers (in addition to the more than 100,000 hired since mid-March) in an attempt to release the strain on supply chain and keep current customers happy9. Additionally, the high degree of fine-tuned platform automation also wreaked havoc at Amazon, returning unhelpful results to online shoppers and generated a series of price gouging situations10. Beyond operational constraints, grocers are also actively managing the customer experience impacts from this surge. Marks and Spencer, a retailer in the UK, also temporarily stopped accepting new customer registrations as they are worried that those trying it for the first time will be turned Hiring an additional 75,000 off by the slow service and limited supply11. Executives are weighing how they can new workers (in addition to respond to such an uptick of demand without the proper resources. Yet even by the more than 100,000 ramping up hiring, distribution centers are struggling to meet demand which in hired since mid-March) turn impacts their fulfillment capacity. 5. Tracking grocers’ response to the coronavirus, GroceryDive, May 31, 2020, https://www.grocerydive.com/news/tracking-grocers-response-to-the-coronavirus/574321/ 6. Loblaws says it will give healthcare workers priority access to its stores, CTV News Toronto, April 21, 2020, https://toronto.ctvnews.ca/loblaws-says-it-will-give-healthcare-workers-priority-access-to-its-stores-1.4904989 7. Report: Coronavirus grocery delivery has made Instacart profitable for the first time, Forbes, April 27, 2020, https://www.forbes.com/sites/krisholt/2020/04/27/coronavirus-grocery-delivery-instacart-profitable/#7158426371e2 8. Online Grocers are getting a preview of their future, The Wall Street Journal, March 27, 2020, https://www.wsj.com/articles/online-grocers-are-getting-a-preview-of-their-future-11585302760 9. Amazon isn’t accepting new grocery customers while it strains to meet current demand, Quartz, April 13, 2020 https://qz.com/1836912/amazon-stops-taking-new-grocery-customers-amid-covid-19-influx/ 10. Amazon’s Big Breakdown, The New York Times Magazine, May 27, 2020, https://qz.com/1836912/amazon-stops-taking-new-grocery-customers-amid-covid-19-influx/ 11. The Wall Street Journal, March 27, 2020 rr-0172-006057 - Online Grocery.indd 3 29/06/2020 09:52:47 4 A REFOCUSED LENS ON CUSTOMERCENTRICITY Grocery is a generally more conservative sector of retail, slow to adjust business models and strategies to deliver an omni-channel customer experience, given its lower margins and store orientation, with foot traffic serving as a key metric for success. Executives have been hesitant to invest in online platforms and integrate digital into their organizations: even despite recent online growth, in-store sales are still the primary driver of total sales. Efforts to keep up with demand during this pandemic are critical, but most companies are still orientated around the short- term. COVID-19 has acted as a catalyst for new behavior: in some markets and demographics, customers have no other option than to shop online, and businesses need to think long-term about how they can maintain customer loyalty when the virus subsides. As phased measures to “return to normal life” roll out, people will return to grocery stores, but online shopping habits will stick for some and companies need to have the proper strategy in place. A NEW KIND OF GROCERY LEADER As we enter a new era of customer behavior, organizations need to be agile COVID-19 has and remain customer-centric
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