How should grocers respond to Amazon?
Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty-marketing publishing, education and research since 1990.
Will delivering omnichannel shopping experiences be enough for traditional grocers to offset the threat of Amazon across food categories?
Speaking at the Food Marketing Institute’s FMI Connect conference in Chicago, Anastasia Voronkova, business analyst at retail technology firm Grid Dynamics, believes so but adds that the trick is for grocers to leverage both their brick-and-mortar advantages and the best practices of online retailers. For example, meal planning is a great service to offer in-store, Ms. Voronkova said, and grocers can set themselves apart with their online sites by offering more help planning meals, creating shopping lists and offering comprehensive product information.
Among the ways to continue making in-store shopping appealing:
- Looking for new ways to offer great in-store-only services;
- Enhancing the experience via features on the grocer’s mobile app;
- Sending customized, up-to-the-minute offers and notifications;
- Encouraging shoppers to order their staples on the store’s online site and then shopping for more experiential items such as produce and seafood in-store.
Source: shop.safeway.com
As for online offerings, traditional grocers need not feel like they must offer a full-scale e-commerce site. Instead, Ms. Voronkova said, a limited effort helps the retailer stay competitive as it builds out. She suggests starting with basic online features such as browse and search, a limited product catalogue, the ability to place an order and pick up in store. That much alone would put a grocer ahead of many of its peers, she said.
Other ways to set the online grocery experience apart include:
- Providing substantial product information and meal-planning help, and creating discounts on cooking recipe bundles for specific dishes;
- Sending shoppers personalized marketing, offers and promotions;
- Considering a limited home delivery option to certain areas, customers or other specifications.
Finally, said Ms. Voronkova, grocers should remember that many shoppers say they feel better informed when shopping online, and they rely heavily on social media to make their decisions. Shrewd food retailers that satisfy shoppers’ desire to be informed and stay socially connected will find that they continue to get the chance to fill shoppers baskets — online and in their stores.
Discussion Questions
What advantages do traditional grocers have against Amazon and vice versa? How should traditional grocers respond to Amazon and other online grocers?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Gajendra Ratnavel
CEO, L Squared Digital Signage
I don’t think Amazon is the big problem here. Aldi and Lidl are. They’re coming into the U.S. strong, and are going to disrupt the market here just like they have in the E.U.
Amazon still has the same problem it has had for years. It has to find a way to make money. Grocery is an unlikely candidate.
Traditional grocers have the following potential advantages over pure-play online grocers: theater, fresh, friendly, local and convenience (access and speed). Note, I said potential advantages.
I am a strong proponent of click-and-collect. Shopping online followed up with a visit to the store will free up consumers to shop enhanced and exciting perishable departments, then proceed to a designated area and have their online purchases placed into their vehicles. It not only serves as a convenient option for customers, but it also increases spending by increasing the probability of bringing a customer into the store. Tesco in the U.K. discovered that the combination of online and in-store food shopping resulted in spending two times more than in-store only. However, whether customers come into the store is still a function of how well traditional grocers take advantage of their noted potential advantages.
Traditional retailers need to know that it is not about channels. It is about your customers and how they interact and access your products and services. It’s not about online versus brick-and-mortar. It’s about a combination of the two that allows customers to chose when, where and how they shop. It’s about making all interactions seamless, efficient and effective.
The key for traditional grocers is to do those strategic and tactical things that online either cannot or will not do. Use the store as an offensive as well as a defensive. Don’t try to be like Amazon and their ilk. Instead, provide the differential advantage that makes shoppers want to shop your banner regardless of the channel selected.
The one clear and real advantage that any traditional grocery will have over Amazon (in the foreseeable future!) is a human touch with their shopper’s emotions and senses. Being able to connect on a human and experiential level is invaluable to any brick-and-mortar retailer. Leveraging those attributes in a relevant and contextual manner will always give the physical world the advantage. The challenge is to provide a valued experience from your shopper’s perspective — not yours!
There are better, more valuable and consistent ways to leverage mobile devices rather than apps. Mobile apps just don’t work, yet retailers and brands continue to create them thinking they’re accomplishing something. Your interactive team and/or agency will stay busy spending time and treasure but it’s not resonating with shoppers.
There are technologies that offer real-time, relevant and valued content to a shopper’s mobile device — seek them out and test the results.
Stop being traditional. Traditional grocers have a lot more to worry about than Amazon. It won’t be Amazon that puts the traditional grocery out of business. We just finished a project in Hawaii. There I found that Amazon has quite a market share on some of the less populated islands. So go where traditional and non-traditional grocers can’t go. Maybe look at Cuba next.
Traditional grocers have multiple advantages over Amazon, but that won’t last indefinitely.
One is inertia. A good number of consumers still enjoy going to the bazaar. It is a multiple time per-week experience in which they can comfortably spend coinage on the things they feel they need for life nourishment.
Two is familiarity. Some 90-plus trips are taken to the store each year to shop for groceries. Consumers know how to navigate it efficiently and effectively. Think of it as the comfort level of the shopper compared to an inexperienced jewelry shopper, or an in-market car buyer stepping into a showroom.
Three is cost stability. Of course there is inflation, but add to that issue the fact that the U.S. food supply chain, from farm to producer to grocer, has become a model of efficiency. Costs have been driven out in putting food in our mouths over the past century. The U.S. consumer devotes a smaller portion of their household income to food necessities than at anytime in our history. At the same time, our grocery costs are typically lower, while we still have greater selection and quality opportunities here.
Consider a half gallon of milk. Call it $2 in the U.S., costs $4 in Moscow or $5 in Taiwan. Ground Beef runs $3 per pound here, $5 per pound in Germany and about $11 per pound in Paris (unless you want to eat horse meat at about 7 bucks). Your morning cup of Joe is now about $9 per pound of beans here. In London, you’ll be looking at $18 per pound.
Four is the balance of demand/supply. Based on the Prosper Monthly Consumer Survey, the consumer is clearly in an omnichannel pattern for some 10 different merchandising categories. Grocery is not one of those at this point. It is growing slowly among Millennials, but currently adults 18 and older say that in the past 30 days, 86.1 percent have shopped in a physical store, 5.2 percent have shopped at an online site (desktop/laptop), and 2.7 percent have shopped at a mobile site (smartphone or tablet).
With these advantages and others, grocers should continue to experiment, experiment, experiment, continuously keeping the consumer in mind.
If Amazon is successful, it is because people want groceries delivered and don’t want to go to the store. That is what the traditional retailer must understand and attack. The answer is simple: deliver groceries and provide your customers alternatives so they don’t have to go to the store.
All the other suggestions are merely fluff.
It isn’t about whether or not a delivery service like Amazon will succeed versus “traditional” supermarkets, but rather about making a seamless and “channel agnostic” shopping experience for the customer. Sometimes they might want delivery, other times it might be click & collect (and the collect might be the store or it might be another point that the customer chooses). But to do nothing is only to invite disaster, whether from Amazon or the myriad of other options available and emerging today.
Should they respond? That’s easy. Absolutely. Keep up or quietly disappear.
What can they do? That is a much more difficult issue. For larger chains, this is fairly straight forward. Up your game on the online space. Can just copy what works at the shops in the lead. The grocery game is not going to change that quickly that copying is a reasonable/safe strategy.
This is potentially a huge problem for smaller grocery stores as people move towards convenience. This is not just about delivery, but technology as a whole. The smaller businesses are going to have trouble keeping up. They need to leverage loyalty and their location, and do those small things that they can to not fall behind too much.
I’m surprised there wasn’t more focus on mobile in this article.
What advantage do traditional grocers have? I’d say every advantage, for the simple reason that I don’t think online is ever going to be a large share of grocery. (I acknowledge David’s observation and am willing to cede Hawaii’s outer islands…heck, let’s throw in the Antarctic Research Stations and a few other exotic locales as well.) Traditional markets are a low-margin business in which the large (and largely uncontrollable) costs of delivery are already absorbed by the customer; I don’t see that changing, and I don’t see Amazon really bringing anything to the table…drones and other PR brouhaha notwithstanding.
Amazon can have an advantage over traditional grocers on packaged goods, but there are so many products that need to be experienced to insure quality. Traditional grocery stores aren’t going anywhere anytime soon, but they do need to fix a few issues to stay relevant. No one wants to stand in a long line and the “self checkout” lanes at some stores haven’t necessarily fixed this. Traditional grocery stores need to work on the checkout experience overall (make it faster and more pleasant) to keep shoppers in-store.
The move into groceries is going to rapidly expand Amazon’s need for property and intellectual personnel with experience. Add to this need a large portion of negatives as in very low impulse sales, slim margins and expanding delivery costs, and there is not much room for mistakes. Creating an offering to add value for the retailers might have been a better idea.
Interestingly, I’ve been planning an article on the unpleasant future that I see for supermarkets. Frankly, Ms. Voronkova’s thoughts expressed in this piece are the same old same old. It’s a lot of talk that offers no real differentiation or substantial benefit to consumers. They are obvious knee-jerk tactics to play catch-up to online merchants that creative new and/or innovative relationships with consumers.
As has been discussed here so many times, grocers and supermarkets must focus on a unique product assortment that fits their market/community and provide a level of service that makes BOPIS, same-day-delivery, etc. irrelevant, or they will be marginalized.
Traditional grocers have the convenience, touch, feel, and the quality experience advantage over Amazon. Most loyal customers buy from the local grocery store because they are assured of the quality, especially for fresh. Also, since grocery is a low margin business, it’s difficult to do home delivery of rather heavy grocery baskets and still be profitable.
As suggested above, ordering dry groceries online and picking up in store, and buying fresh in store could be a good value proposition encouraging customers to shop more.
Every purchase in the supermarket falls in one of two categories: 1. Surprise/Delight/NOW! 2. Routine/Autopilot/Angst.
Category one virtually belongs to the brick-and-mortar store and category two virtually belongs online. For the brick-and-mortar retailer, failure to provide their own efficient online service very well spells the death knell, in the long term, for their business.
Bear in mind that the “meeting of the minds” component of the sale can happen anywhere, but is BEST supported by a brick-and-mortar EXPERIENCE, that transcends the typical merchant-warehouseman/unpaid stock picker-shopper model of self-service retailing. Think someone like Trader Joe’s with a well-INTEGRATED online component of the brick-and-mortar store.
The real problem here is that even those with modestly successful click-and-collect businesses demonstrate an infantile approach to converging the two modalities of following up with the “meeting of the mind” component that can happen anywhere. The issue here is the DELIVERY of the purchased goods.
The shopper should always be enticed to take delivery INSIDE the brick-and-mortar store, in this order:
The point of all this is that the future of the brick-and-mortar retail requires a foundational Surprise/Delight/NOW! store, with perhaps four time as many locations of a quarter the size. But the future of brick-and-mortar retail ALSO requires multi-tiered transfer of merchandise (delivery) options that favor actually delivering from the inside of the store, but that will always come as far toward the shopper’s home or office as the shopper desires. But ALWAYS enticing, not forcing, the shopper to the store itself, and in EVERY case, gently upselling, not offensively, to the shopper. In EVERY case, the intelligent salesman NEVER STOPS SELLING! (Upselling. And that is not even beginning on the SALE after the sale. 😉
That’s the blueprint for the successful brick-and-mortar retailer of the future!
Watch closely. See if they can cherry pick elements to make a profitable venture out of it: specific products, specific markets, etc. Amazon provides great first mover information which can be taken advantage of.