THE ONLINE STORE OF THE FUTURE HOW TO PREPARE YOUR BUSINESS AND WIN Introduction We track retail innovation around the world and one of the most fascinating areas to follow has been the rapid development of online shopping. However, we Contents think the biggest transformation is still to come thanks to factors like artificial intelligence, smart homes, 5G and the next wave of young e-shoppers. Executive summary p3 That’s why we’ve followed up last year’s physical store Change or fail p4-7 of the future report with our vision for the online store. What will it look like and how will it This report transports you five years ahead to reveal be used p8-13 the digital store you need to start planning for now and gives you advice on where to build your business Preparing for this future p14-21 capabilities. Next steps p22 We are very grateful to all the experts globally that have contributed. I do hope it helps to prepare you for a very different future and to win. Joanne Denney-Finch OBE Chief Executive, IGD Research approach In this report we answer three questions. In the next We also conducted an industry survey to test our vision five years: and understand levels of preparation. We had 223 respondents from 42 different markets, from senior 1. What will the online store of the future look like? roles, including CEOs, vice presidents and directors. 2. How do you prepare for the future? We’ve drawn on the knowledge of IGD’s global team of experts in online shopper insight, online, 3. What are the future considerations for your technology and supply chain. business? The IGD team travel the globe from our offices in We offer our view of the future, a benchmark of London, Singapore and Vancouver to meet with capability and an action plan to help you prepare. retailers and manufacturers, and to see best practice in action. We’ve accessed this innovation tracker to To explore these questions, IGD has interviewed illustrate the report with examples and case studies global heads of ecommerce at grocery manufacturers from around the world. and some of the world’s leading online retailers. 2 Introduction Executive summary Online stores will evolve rapidly to meet shoppers’ changing expectations, enabled by transformative technologies. The online store of the future will contain five key features: 1 2 3 4 5 It will be a It will act as a smart It will be more It will help give It will at times be shopper’s personal personal assistant, efficient for shoppers a invisible, with micro store with connecting with shoppers, easier frictionless shoppers buying individualised various devices, and quicker to combined products from and online- preventing shoppers order products. offline and shoppable digital exclusive products, from running out They’ll incur less online shopping content. In the personalised of products and food waste, as meal experience. It will future, people can promotions, supporting their planners help with provide extensive be shopping at any recommendations, lifestyle goals. ordering quantities. information time. advertising and Fulfilment levels wherever people loyalty schemes. will improve, and in shop, bring * cities, deliveries will personalisation to * 71% be very quick and the physical store 53% * think some retailers convenient. and help shoppers say they are 77% will provide a service find and pay for prioritising the think almost to use the data products. development all digital from connected * of omnichannel communication to devices to provide 82% marketing solutions consumers will be personalised dietary think grocery * throughout the personal recommendations service levels will be 53% shopper journey significantly better say they haven’t or than today have just started to fully integrate their online and offline teams Most CPG companies Ten focus areas are not prepared for 1. Understanding shoppers 6. Omnichannel marketing this future. 54% of * 2. Omnichannel structure 7. Financial management and KPIs respondents in our and processes 54% 8. Leadership and agile culture industry survey are only 3. Flexible supply chain just starting to prepare. 9. Competition and new routes 4. People and skills to market 5. Range and choice 10. Future technology *respondents to our industry survey Executive summary 3 Change or fail Grocery retail is seeing an unprecedented amount of change, driven by changing shopper expectations that can be met using transformative technologies. Grocery retail is undergoing a revolution, driven by Societal shifts and transformative technology in rising shopper expectations. Longstanding needs can particular, will shape the online store of the future: now be met in new ways thanks to new technologies. Societal shifts Shopper expectations • Health consciousness continues to rise. Online Shoppers seek many things, but above all: stores must be able to offer a wide range of healthy products, and make them easier to find. • value (combining price with quality) • choice • Populations in most developed countries are • convenience aging, so online stores will need to provide convenient ordering and fulfilment plus This remains constant, yet shoppers’ expectations of appropriate pack sizes. how these needs should be met continually evolve. • Globally, the population is urbanising. Kitchens At IGD we’ve developed a STAR framework to are getting smaller, with less storage space. The categorise the forces of change. online store must cater for new missions, offer faster fulfilment and new services. Transformative technology Societal Shifts Transformative • Artificial intelligence (AI) is rapidly advancing Ageing population, Technology which will enable the online store of the future to urbanisation, time Artificial intelligence, be more personalised and to anticipate demand. poverty, health and big data, Internet of wellbeing Things and robotics • We are increasingly surrounded by a network of smart, interconnected devices. It means shoppers will be able to access the store whenever and wherever they want, through screen-based or STAR model voice-activated devices. • Developments in robotics, such as the picking of products, drones and autonomous vehicles means the online store can provide more convenient, Altering Resource efficient fulfilment. Authorities Resilience Data regulation, Efficiency, future The shopper of the future will therefore expect more big business and workforce and choice, convenience, inspiration, personalisation and start-ups skills gaps transparency. Online stores will play an essential part in meeting these needs. Change or fail 5 Intensity of competition Reasons to prioritise online stores Digital commerce brings new, innovative competitors We sometimes hear people say that online retail is not and greater price transparency. Our industry survey a priority for their business because sales are too low showed: and costs too high. This is a risky position for three main reasons. Competition on price 78% of respondents think 1. Across the world, online is one of the fastest- shoppers will use online price growing grocery channels. 78% comparison services more regularly to switch to the cheapest retailer 2. Online and offline grocery shopping are merging, and an online store will be increasingly vital to complement the physical store. Competition from specialists 3. The digital world evolves faster than the physical 67% of respondents think world. Online stores will become increasingly shoppers will be able to use a 67% wide range of specialist online compelling. New generations of shoppers will be retailers supported by a common less set in their ways and more likely to view online and consistent delivery service ordering as the norm. In 2017, Walmart stated that shoppers purchasing online as well as Competition from manufacturers in-store, spend nearly twice as much 75% of respondents think as those that don’t shop online 75% many more manufacturers will x2 be using digital to sell directly to consumers Alibaba’s executive chairman, Jack Ma, has said... New services are exploring focused opportunities, e.g. using online marketplaces to smooth cross- border commerce, home meal delivery and meal The boundary box providers. In China, consumer-to-consumer commerce is growing and taking sales from retailers. between offline and online commerce “ disappears as we focus on fulfilling the personalised needs of each customer “ 6 Change or fail UK’s online grocery market The US online will grow by 48% grocery market by 2022 and will grow by account for 7.5% China’s online 129% by 2022 of the total UK grocery market and account for grocery market will grow by 2% of the total US 286% by 2022 grocery market and account for 11.1% of the total Chinese grocery market Our experts’ views North America Europe Asia Stewart Samuel Simon Maynew Shirley Zhu Program Director Online Retail Programme Director IGD Canada Insight Manager IGD Asia “On-demand delivery platforms “UK, France and the Netherlands “South Korea, China and Japan such as Instacart and Shipt have a remain the centres of innovation are the leaders in ecommerce major role in the channel, enabling in Europe and we’re seeing in Asia. Mobile plays a key role several retailers to scale up quickly. developments in personalisation, in connecting the online and Home delivery has become a rapid delivery and voice ordering. offline worlds. growing focus as retailers aim to provide consumers with more Retailers are executing omni- “Ecommerce and social media convenient options. channel strategies and creating giants are driving the development a frictionless online and offline with their vast ecosystems. As “Several retailers have also been shopping experience.” they expand beyond borders, we investing in their online digital expect to see fast growth in other marketing capabilities, developing Asian countries.” platforms to enable their trading partners to better target their marketing dollars.” Change or fail 7 What will it look like and how will it be used? We’ve identified five key features of the online store of the future: personalisation, personal assistance, efficiency, a frictionless experience and invisibility.