Online Grocery Spiked During COVID-19. What Now?

Online Grocery spiked during COVID-19. What now?

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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

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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

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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 in the face of the change. COVID-19 has pushed pushed grocery grocery executives into unchartered territory with organization-wide impact as executives into they are faced with changing consumer preferences, supply chain disruption, unchartered territory with and unprecedented demand planning. Linking back-end digital enablement organization-wide and go-to-market strategy across all functions is critical to evolving with impact as they are faced with the customer and maximizing growth. Understanding that stores are still an changing consumer important part of the equation and being able to strategically determine what preferences, supply chain can be operationalized in store is a necessary extension. While historically digital disruption, and initiatives have been outsourced and considered an added benefit to customer unprecedented demand planning. experiences, it is critical that digital is prioritized now as an essential business channel -- a necessary step for leaders to invest in and advance their business across the enterprise even though it does not reap the same revenue goals. New models – such as Ocado’s partnerships with Sobey’s, Kroger’s digitally-based ways to shop, and Whole Foods’ move to convert their New York and Los Angeles stores to dark stores – are New models – such as Ocado’s partnerships with capitalizing on technology to increase capacity and Sobey’s, Kroger’s digitally-based ways to shop, and meet demand12. Whole Foods’ move to convert their New York and Los Angeles stores to dark stores – are capitalizing on technology to increase capacity and meet demand.

12. Dark stores are the future of post-pandemic retail, Forbes, April 25, 2020, https://www.forbes.com/sites/blakemorgan/2020/04/25/dark-stores-are-the-future-of-post-pandemic-retail/#77f582178264

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Companies now need to find anew type of leader to grow their businesses Customer-centric leaders that are driven by a growth agenda have 4 distinctive traits: They are pragmatic thinkers by nature but know precisely when to take a risk. And, they are people persons that build strong teams.

PRAGMATIC THINKERS RISK TAKERS Customer-driven growth leaders are Customer-driven growth leaders notably logical and organized in their drive their business process through thinking compared to their C-Suite the lens of opportunity. Contrary to counterparts. They consider the big other C-Suite executives, they don’t picture before seing goals and are hesitate to take the initiative and skillful at translating complex push forward even amidst challenge. information into actionable steps. They are action oriented, thrive in Compared to their peers, they are pressure ﬁlled situations and are exceedingly calculated and comfortable playing in “grey areas.” structured in their thinking and approach to problem solving.

RELATIONSHIP BUILDERS TEAM PLAYERS Customer-driven growth leaders are Customer-driven growth leaders authentic by nature and inﬂuential diﬀer from their C-Suite counterparts through their inspirational approach in their authentic and unwavering to interacting with and engaging support for inclusivity and autonomy others. in their teams. They are keenly astute Contrary to other C-Suite executives, at reading others and establish a they desire to establish real and dynamic of trust and mutual meaningful connections. Their collaboration. They also have a political savvy and comfort within stead-fast belief that the strength of the social context ensures that they their networks and the authenticity of are well positioned and well their connections with others is respected within an organization. directly proportional to their success.

Source: RRA Psychometric Assessments for 280 executives identiﬁed as CAG leaders

COVID-19 has placed significant pressure on the grocery business models, structures, and leadership. The unlimited access to digital tools is enabling customers to be steps ahead of companies and in turn, more in control of the purchasing funnel. While core technology platforms have underpinned While core technology organizations, they have been disconnected from the front-end go-to-market platforms have underpinned functions. To effectively adapt grocers need not only to activate for their customer, organizations, they have been disconnected from the but also align technology enablement and go-to-market functions across the front-end go-to-market entire organization. As a result, leadership capabilities and roles must be realigned functions. To eﬀectively to meet the needs of today’s in charge consumer by shifting to a customer-centric adapt grocers need not only model. These new leaders, driven by a growth agenda, must be pragmatic thinkers, to activate for their relationship builders, risk takers and team players who can gain alignment customer, but also align internally in order to enable the company to be more disruptive externally. As technology enablement and go-to-market functions grocers seek to adapt to this new landscape, it is imperative for leaders to readjust across the entire their organizations across talent, culture, and strategy to be prepared for this organization. imminent shift to a customer-driven, digital world.

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AUTHORS ELIZABETH BROWN is a member of Russell Reynolds CAITLIN MACNAMARA is a member of Russell Reynolds Associates’ Consumer sector. She is based in San Associates’ Consumer sector, and co-leads the firm’s Francisco. Retail Practice in the Americas. She is based in Toronto.

GREG HODGE leads Russell Reynolds Associates’ KATELYN SCHOENHOLTZ is a member of Russell Consumer sector Knowledge team. He is based in Reynolds Associates’ Consumer sector Knowledge team. London. She is based in New York.

About Russell Reynolds Associates Russell Reynolds Associates is a global leadership advisory and search firm. Our 470+ consultants in 46 offices work with public, private and nonprofit organizations across all industries and regions. We help our clients build teams of transformational leaders who can meet today’s challenges and anticipate the digital, economic and political trends that are reshaping the global business environment. From helping boards with their structure, culture and effectiveness to identifying, assessing and defining the best leadership for organizations, our teams bring their decades of expertise to help clients address their most complex leadership issues. We exist to improve the way the world is led.

www.russellreynolds.com

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