Industry Outlook: Online Grocery A report by Sellwin Consulting May 2021 Industry Outlook: Online Grocery
1. A Look at the Landscape
2. Industry Winners
3. Retailers and Trends to Watch 01 A Look at the Landscape U.S. shoppers learned new behaviors during the pandemic
US Grocery Ecommerce Sales, 2019-2024 Online grocery sales grew 54% in 2020 as billions and % total ecommerce sales consumers gravitated to the convenience and $200.0 30.0% $187.7 safety of online ordering. $180.0 28.0% 43% of consumers tried curbside pickup for the $159.3 26.0% $160.0 first time, highlighting the evolving role of brick-
$135.2 24.0% and-mortar stores in the omnichannel approach $140.0 to commerce. 22.0% $120.0 $112.9 20.0% As consumers continue shopping for groceries $100.0 $95.8 18.0% online, brands are scrambling to reprioritize $80.0 channel strategies into digital stores and $62.2 16.0% marketplaces. With online grocery projected to $60.0 14.0% be over $187B by 2024, investment in 13.9% $40.0 13.4% 12.9% 12.0% advertising is essential to stand out among 12.0% 12.4% competitors. $20.0 10.0% 10.4% $- 8.0% 2019 2020 2021 2022 2023 2024
Grocery ecommerce sales % of ttl ecommerce sales
Sources: eMarketer, March 2021; CommerceNext and CassarCo Strategy and Analytics, July 2020 Half of shoppers are likely to continue online grocery shopping, especially Gen Z, Millennials, and Gen X
How likely are you to purchase at least some groceries online post-pandemic?
Very Likely Somewhat likely Not very likely Not at all likely
Silent 12% 18% 22% 49%
Boomers 17% 19% 20% 44%
Gen X 25% 28% 24% 23%
Milennials 38% 33% 14% 15%
Gen Z 19% 36% 29% 16%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Morning Brew – Harris Poll, March 2021 A customer-centric approach is essential
• Omnichannel Strategy: Retailers and brands must cater to omnichannel with both retail operations and advertising to ensure that customers have every purchasing option available.
• Reduce Friction: Out-of-stock notices, high service fees, and long delivery times can tarnish a customer’s experience and dissuade them from using online services in the future. The ultimate challenge: supply chain operations
There’s no leniency now that 2-day shipping has become a standard in American homes. Customers want groceries immediately within short delivery ranges, putting a strain on supply chains that were not prepared for speedy last-mile delivery.
The pandemic proved that customers shift loyalty from trusted retailers with lagging delivery times or stock issues and move to new providers who can fulfill their needs.
Traditional grocery already has challenges that comes with the business: low profit margins, antiquated technologies across retailers and brands, data transparency from in-store to online, and storage. The last-mile hurdle for online businesses is an added obstacle. Back-end operations are evolving to combat last-mile challenges:
▪ Investment in just-in-time data tools to meet customer demand
▪ Robotic solutions embedded within store operations (replacing store shoppers)
▪ Multiple fulfillment and warehousing solutions to meet omnichannel needs:
• Click and collect
• Dark warehouses
• Micro Fulfillment Centers (MFC)
• Automated Fulfillment Centers (AFC) DTC brands have an additional problem to solve: cold storage
National brands in grocery chains have an advantage of relying on the grocer’s store or warehousing as local storage and fulfillment options. For smaller brands and start-ups though, relying on third- party logistics providers (3PLs) who excel in grocery cold storage is a great option. DTCs often have smaller initial storage quantities and unpredictable demand compared to established brands, which makes the search for a 3PL difficult.
DTC brands must consider the following when choosing the right 3PL:
- Established ecommerce storage and distribution (ability to store single unit SKUs vs. pallets and cases)
- Regulatory compliance for cold storage, meeting retailer requirements
- Advanced data and technological capabilities 02 Industry Winners Marketers must focus digital strategies on retailers and marketplaces with growing media portfolios, powered with grocery-centric data.
Instacart Walmart Amazon Projected Ecommerce Channel Ad Ecommerce ad spend is projected to Spend $50.0 20.0% $46.0 be $23.9B by end of 2021, and $45.0 $41.3 Instacart, Walmart, and Amazon are $40.0 $36.4 quickly adapting to capture grocery $35.0 $30.2 $30.0 audiences and ad dollars. $25.0 $23.9 15.1% 14.8% $20.0 $18.7 14.6%
Here’s what you should know about each of the 13.7% $15.0 industry winners and how marketers can help clients $10.0 12.5% with their digital grocery strategy. 12.3% $5.0
$0.0 10.0% 2020 2021 2022 2023 2024 2025
Ecommerce channel ad spending % of digital ad spending Sources: eMarketer, March 2021 Instacart
Over 500M products and 600 retailers are listed on Instacart, covering 8% of all US online consumer goods. One game changer for Instacart is alcohol delivery operating in 24 states and counting; a booming and seemingly pandemic-proof business that Walmart and Amazon have yet to crack within their own platforms.
Instacart has also developed two revenue-generating streams: Instacart Express and self-service advertising (launched May 2020). Instacart Express is the annual membership solution for customers ($99 annually for $9.99/monthly) and offers many benefits including reduced or no fees on delivery, service and peak hour pricing. While Instacart does not release the number of subscribers to this program, this membership will be powerful and loyal audience for advertisers on the platform.
Sources: Jungletopp.com, August 2020; Instacart, March 2021 Instacart Media Portfolio
The platform is a second-price auction system; Featured Products is keyword-based and exact match only.
Featured Products Delivery Promotions Coupons Hero Banner Email
14
On Site Off Site What to watch for Instacart in 2021
Aspirational mid-to-upper funnel activations: The company is quickly broadening its media portfolio beyond standard commerce advertising, eyeing video, OTT and more. Marketers must react quickly as ad products come to market.
Hot stock: Instacart was slated to IPO early 2020, but with new VC funding, may pursue a direct listing instead later this year
Expansion outside of grocery: Partnerships with Sephora, Best Buy, and more recently Michaels allow Instacart to expand its regional footprint and product portfolio
Customer Loyalty: Instacart is quietly building up its Express membership program, creating long-term recurring revenue and a platform-loyal audience Walmart
It made headlines last summer when news broke that Walmart had officially surpassed Amazon as the top online grocer (although Amazon disputed that study data). Walmart’s grocery business had two main leads going into the pandemic: 1. Combining Walmart Grocery and the Walmart ecommerce app under one experience 2. Adjusting 3600 stores and growing to allow click-and collect capabilities (out of 4748 TTL US stores) Walmart is increasingly pushing an omnichannel approach (even launching its own loyalty program in 2020, Walmart+), which creates an interesting advantage for brands, advertisers, and ultimately customers. Stores were recently redesigned with an ecommerce mindset and now allow customers to easily navigate through aisles with bold typeface signage, self-checkout kiosks, and contactless payment solutions such as Walmart Pay.
Source: Grocery Dive, August 2020Walmart overtakes Amazon as No. 1…”, Aug 2020 Walmart Media Portfolio
Walmart uses a first-price bid auction for keywords, with min and max bid levels on manual and automatic campaigns:
On Site
Sponsored Products: Search In-Grid, Brand Amplifier, Product Carousel, Buy Box
Display: Walmart.com, Pick-up and delivery, Walmart apps
Off-Site
Display: Web, Social Media What to watch for Walmart in 2021
In-store experience: Walmart is testing ghost kitchens across Canada and offering pick-up and delivery services of meals through delivery partners like Uber Eats
Addition of micro-fulfillment centers: These automated fulfillment centers will include technology from various partners such as Fabric, Dematic, and Alert innovation, focusing on automation and pick retrieval
Beyond commerce: With additions into health insurance and fintech, Walmart is rolling out much-needed services for its customers beyond traditional retail
The Trade Desk: Walmart partnering with TTD and rebranding of its media group to Walmart Connect show intent to be one of the largest ad platforms in the US, connecting a massive retail audience to advertisers Amazon
Amazon had a confusing start to grocery, but after acquiring Whole Foods and simplifying its services, the company is now a true competitor in the vertical. Customers are noticing too; in the dunnhumby Retailer Performance Index, Amazon came out as #1 for the top US grocery retailer in 2021 in terms of perception, fueled by strong COVID-19 performance and momentum. The foray into physical grocery is interesting. Amazon Fresh products and stores are much more competitive in price with mass grocers (vs. Whole Foods) and are built to accommodate online shopping with designated order pickup and staging areas. Ways to shop groceries through Amazon: • Fresh and Whole Foods online, Prime Now - availability is regional and for Prime members only • Amazon.com – non-perishables and household items • Physical stores – Fresh (11 stores and growing) and Go Grocery (28 stores + compact convenience), Whole Foods (500 stores) Amazon Media Portfolio The platform is a second-price auction system; bidding includes exact and broad match types. Understanding product PPM (pure product margin) will be key for margin-sensitive grocery products as advertisers launch campaigns.
On Site Off-Site
Sponsored Products for Amazon Fresh Fire Devices: OTT & Tablet
DSP: Display & Video Advertising DSP: Amazon Publisher Services (APS) & Third-Party Exchanges
Custom Display & Share-of-Voice Takeovers Audio / Voice
Physical Grocery Custom Solutions & OOH
Amazon Live cooking shows What to watch for Amazon in 2021
Real Estate- Amazon plans to open at least 84 Fresh stores and new 140K sq. ft grocery MFC’s in strategic markets, all enabled technology-enabled.
Private brand competition – Advertisers should be aware of Amazon’s grocery brands (Solimo, Happy Belly, Aplenty – new 2021 launch, etc.) as these products take over valuable digital shelf space that was once sponsored ad placement.
Amazon Advertising growth – With Amazon recently surpassing 10% of US digital ad share*, analysts predict that Amazon’s ad business can reach $85B by 2026, tripling current revenue within 5 years.
Evolving Grocery Tech – Amazon’s toolkit includes Just Walk Out, Alexa skills, the Dash cart, in-garage delivery and the newly released Amazon One palm payment.
Source: Wall Street Journal, April 2020es Amazon as No. 1…”, Aug 2020 Key fundamentals of advertising about each retailer portfolio
You can’t sell inventory you don’t Go back to basics: If you’re not Mid and upper-funnel budgets will have: paying, you’re not playing: grow to take advantage of each retailer’s rich 1P data: Pay attention to inventory trends and in- Amazon, Walmart and Instacart are pay- Prime, Fresh and Whole Foods audiences stock availability, as brands allocate to-play environments, and advertisers are available in the Amazon DSP, and goods across multiple retailers and their who are not using sponsored placements brands can leverage this rich data to reach respective online channels. in their media strategy are missing out on and drive them to custom single or multi- Inventory availability will become much a fundamental piece to owning a share of category landing pages, brand stores, or more segmented and complex as more shelf across each retailer. Brands must detail pages. retailers expand online channels and capitalize on high-performing keywords The announcement of Walmart’s introduce marketplaces. Each grocer has and provide a strong foundation for brand partnership with The Trade Desk is varying fulfillment methods (in-store defense as more competitors enter the another push to catch up to Amazon’s shopping, click-and-collect, and home online marketplace. Replicate winning advertising revenue, along with a rebrand delivery), making inventory planning strategies from established consoles like of Walmart Media Group to Walmart difficult. Demand planning teams will Amazon and Walmart across other Connect. What will set Walmart apart is serve advertisers with the knowledge of retailers and marketplaces. how measurement will be used to win where and when inventory will be in-stock share of mid-to-upper funnel and non- across key items and promoted products. endemic budgets. 03 Retailers and Trends to Watch The grocery landscape is quickly changing, and more retailers are expanding digital offerings
Here are our picks of retailers to watch in 2021, pushing boundaries with omnichannel ambitions and investments: Kroger
Kroger’s grocery business skyrocketed in 2020, entering the top 10 US ecommerce sites for the first time. To address this meteoric rise, Kroger is doubling down on omnichannel capabilities with an emphasis on ecommerce revenue and profitability growth:
• Adding more automated Customer Fulfillment Centers (CDC’s) in partnership with grocery technology company Ocado; servicing online grocery orders through machine learning and automation.
• Doubling its vaccination capacity to 1 million doses a week, setting the grocer apart from its competitors with a leading edge on healthcare and pharmacy capabilities.
• Increasing efforts with Kroger Precision Marketing, to reach customers through personalization while maximizing marketers’ media investments.
Sources: Supermarket News, December 2020, March 2021 Target
It’s hard to mention online grocery without mentioning Target. It’s been a tumultuous few years struggling to keep up with Amazon and Walmart, but Target saw huge growth with its ecommerce channel in 2020 and Shipt played a major part.
Target acquired Shipt in 2017, boosting ecommerce capabilities and quietly building in same-day delivery capability to its main site. Customers are required to join Shipt as a member and to receive same-day delivery, must have a minimum cart of $35 (same as Walmart same-day).
Even with Shipt and a commitment to a multi-year, multi-billion dollar investment in digital, Target is continuing to optimize its store presence by doubling down on partnerships with Apple, Levi’s, and introducing Ulta into 100 stores in 2021. This omni- approach is positioning Target as a one-stop shop for customers. Albertsons
Albertsons owns the #4 rank of top grocery stores, with over 2200 stores nationally and its own media platform as well (Albertsons Performance Media, powered by Quotient). To prepare for long-term digital growth, Albertsons has made several strategic investments across fulfillment and technology:
Ecommerce fulfillment:
• 1400 locations and counting with curbside pick-up (Drive Up and Go) • Algorithmic approach to e-commerce back-end operations, from picking to slotting • MFC partnership with Takeoff Technologies (serving 6-10 stores each) Google partnership:
• Personalized grocery lists powered by Google Cloud AI • Building shoppable maps and information about online ordering through Google Maps • Enabling Google Business Messages to deliver essential vaccine information • Easy checkout with Google Pay
Sources: Food Industry.com, November 2020; Supermarket News, March 2021 GoPuff
Same-day delivery service GoPuff is hot off a recent $8.9B valuation and rapidly building a national delivery network. GoPuff offers a wide breadth of products and categories including grocery, alcohol, OTC medications and baby products, within 30 minutes or less 24 hours a day. Delivery fees are flat ($1.95/order) with a minimum of $10.95/order, significantly lower than the competition.
Physical footprint:
- 250+ micro-fulfillment centers, operating in 650+ cities nationwide
- Alcohol deliveries in select cities
- Acquired beverage retailer BevMo!, operating 161 stores on the West coast
Like its competitors, GoPuff has a loyalty program called GoPuff Fam, which waives all delivery fees for its monthly or annual subscription. This program will provide valuable insights as GoPuff is also developing retail media network, GoPuff Marketing Solutions, allowing brands to run media on and off GoPuff’s platform.
Sources: Grocery Dive, March 2021 04 What’s next in digital grocery Grocery purchases will truly become omnichannel with customers purchasing in-store and online interchangeably. Retailers and brands will invest heavily in data integrity and operational capabilities
Data quality will be a foundation for how quickly inventory moves through supply chain channels to the customer.
As costs go down from inventory optimization and elimination of food waste, we expect to see retailers reinvest dollars into data-driven personalization efforts. Consumers will benefit from the race for recurring revenue
Loyalty programs are valuable tools for stores to own key customer data, especially as Instacart and Amazon take a greater share of online grocery.
Stores will have to innovate faster with data-driven insights to include in-store benefits across restaurant partnerships, in-store meal-kits, healthcare services, and more. Customers demand sustainability from origin to last-mile Plastic substitutes, low-carbon footprints, food waste are just a few sustainability measures brands and retailers will promote to support their own environmental goals
Unique packaging Large scale retail Using AI to eliminate ingredients to replace distribution deals for food waste from demand plastic: mushroom root, vertical farming planning to dynamic end- beeswax, bamboo companies of-life pricing Thank you
linkedin.com/company/sellwin
@sellwin