After housing and car expenses, grocery is the next largest expenditure for most households. You might be surprised to find that only 5% of American households regularly order groceries online. However, by 2019, over 80% of HH’s will have the ability to get same day delivery, and in 5 years, 1 in 5 shoppers will be shopping online for their groceries. To learn how these trends will disrupt the CPG category, BSTRO attended the first year of Grocery Shop – a conference that brought together over 2,200 grocery retailers, CPG brands, and emerging technologies to discuss the future of how we shop and how they will sell.
Shoppers see grocery shopping as inspirational and something that hasn’t been completely captured in a successful or meaningful e-commerce experience – yet! A regular trip to the grocery store includes seeing what is on sale, what is fresh and what is available. This is the challenge the grocery category has to overcome as it embraces digital – bringing the sense of joy to shopping online, with less friction and seamless delivery.
That isn’t to say that online isn’t impacting grocery shopping; over two-thirds of shopping trips have a digital touch point, be it a recipe, video, online review and research or coupon. And surprisingly, the use of coupons are increasing – with two-thirds of coupons already being digital.
Adding to the complications for food and beverage brands: flavor is still the number one driver of consumer choice. This is something that an online experience cannot offer.
Amazon + Whole Foods
The purchase of Whole Foods by Amazon was generally acknowledged as a wake-up call to the industry that you better have a strong digital strategy in place. Their purchase of Whole Foods was seen as their first major experiment to own the digital to in-person world. With the data it collects, Amazon is able to better understand how we shop and how we want the devices of the future to listen, respond, and problem solve as if they were other human beings.
The speakers at the conference gave a wide variety of answers of how they are starting to think about digital. That could include in-home or curb-side delivery, omnichannel retail, online sales, robotic automation, or proprietary brands or content. The other strong theme that emerged is that we are at the infancy of where this disruption will take us — as it was put – we’re in the Wild West of retailing and it’s only getting started.
Grocery sales has seen some of their sales siphoned off with direct-to-consumer brands like BOXED which sells club-like sizes of the basics like paper goods. BOXED was started 7 years ago (in a New Jersey garage) and is now valued at more than $600m. To counter this, grocery sees opportunity in leveraging their over 30,000 physical locations to offer what online can’t – enhanced shopping experience, curb pick-up or home delivery or unique store brands such as Publix Meal Kits by Apron or offering an established e-com brand like “Plated” who was purchased by Albertson’s and is now their house brand. Down the road, grocery may change the physical configuration of their stores to have 50% of products front-of-store where consumers can browse and discover and 50% a “pick and pack” warehouse in the back for orders picked up on the way home. Grocery sees their strength as being the closest to the consumer physically (thus cheaper delivery), with the best data and the ability to transition consumers from national to house brands to increase margins.
Traditional CPG Brands
Digital touchpoints are increasingly playing a role in influencing the consumers purchase journey. Kraft Foods has completely revamped their iconic Food and Family program to focus on content that helps consumers meal plan. Kraft has invested $100m in a new “incubator” team that develops new brands in only a few months vs a typical 2 to 3 years. Many direct-to-consumer e-commerce brands have becoming incubators for purchase by larger companies; which helps them launch an e-com presence faster or often in a defensive posture:
- Chewy’s purchased by Petsmart; Chewy’s now bigger than Petsmart
- Freshly: Acquired by Nestle and has benefited from Nestle’s state-of-the art logistics
- Dollar Shave Club: Now owned by Procter & Gamble and can deliver products in two days.
Direct-to-consumer Brands (DTC)
In-store retail is not going away. To significantly grow, DTC brands know they need to broaden into “omnichannel” retail. Harry’s razor’s started as an online brand 7 years ago and now is the #1 SKU at Target and closing in on #1 status at Walmart. Brands that start off as e-commerce can have an advantage over their conventional retail counterparts. Brands selling online direct to their consumers can iterate and shift direction faster than their larger competitors by quickly analyzing and optimizing their sales funnels, learning about their consumers and shopping behaviors and leveraging those data points in new product development and marketing. ELF Cosmetics started as a $1/item digital brand 15 years ago and now has major footprints in Target in addition to their 22 company stores. They leverage sales data to mutually grow their business with Target by identifying retail trends and best performing SKU’s. Consumer research is done by launching SKU’s into their retail stores and see what floats to the top – those products can then be launched online. This flips the conventional research model because it’s based on what consumers do; not what they say they will do.
Regardless of channel and brand specific channel strategies, Grocery Shop revealed a number of broad trends that applied universally across the board.
Purpose and Transparency
Consumers want to support brands that support their values. Social media is driving the push to transparency and the rise of the “conscious consumer” who wants to know who they are doing business with and how that business is conducted. Often companies are started because founders were dissatisfied with the status quo. They are often the “first customer” and believe starting with the problem leads to successful “customer-led” brands. Consumers, in turn, are not concerned just about cost but also what values the brand is fulfilling in their life. Beyond mission, consumers are demanding more transparency about supply chain and ingredients – something conventional big brands have not done in the past.
- Freshly: The founder was 30 pounds overweight and hated cooking so created Freshly to deliver home delivered full prepared meals. Plated was started by engineers who also didn’t like cooking.
- Winc Wine: Started because it’s hard to discover new wines. They use data to shift from “pushing out brands” to a consumer-driven brand. Data is leveraged to guide retailers like Whole Foods on what to buy which has led to significantly more in-store sales.
- Ritual Vitamins: A DTC vitamin company started by a founder frustrated with miserable retail shopping experiences and the desire for more transparency in the ingredients used. She also saw a need for a women’s specific formula and extensive ingredient information is shared on the website.
- Thrive: Founders were themselves “conscious consumers” who valued healthy products and transparency of both ingredients and supply chain. They have a membership model and input on new products is provided by the community.
- Boxed: The founder thought it was too hard to pick up bulky basics. They build loyalty through programs like removing the “pink tax” that charges more for women’s products. And, they’ve built a 100% robotic fulfillment center and advertising platform that helps them manage cost and data end-to-end.
- Fairway Markets: This northeastern chain of 15 stores has carved out a reputation as a foodies paradise. They use an omnichannel approach to showcase purity of ingredients and sourcing such as their selection of over 78 types of olive oil.
- Fulton Fish Market: This is the second largest fish market in the world. Showing consumers a responsibly-sourced supply chain is vital to their business and they can demonstrate everything about the 15 parties that touched your fish before it arrives at your doorstep in two days; which overcomes many of the concerns about shopping for a fresh product online.
Storytelling and Customization
Another trend noted at Grocery Shop is the idea of a “visual brand” that is irresistibly-instagrammable. Care Of created a personalized vitamin regimen based on taking a quiz that determines your unique mix. But the customization doesn’t stop with the vitamins – it also is carried through to packets with your name on them. The daily packet dispenser fits into any bathroom decor. And, the mobile app gives you prompts to take the vitamins which increases loyalty in this subscription-model business.
Function of Beauty offers a customized mix of shampoo and conditioners, again based on a quiz. And also customizes your product with your name. The packaging is clean, modern and beautiful and reinforce the good-for-your hair ingredients inside. DTC brands can start with a consumer need but also need to pay equal attention to the story they tell on social media and their website in order to evoke an additional layer of emotion and engagement.
Coca Cola said that “If content isn’t your second product, you’re in trouble” and significantly invests in video content. Hormel is embracing being in the content/lifestyle business and has an “always on”content approach which is a huge shift from annual plan marketing.
Another overall trend was “simplification” especially in the wellness and beauty space. Going to a store to get information from a clerk who knows no more than you do is a broken process. Both traditional and online retailers have the ability to talk directly to consumers and bring deep knowledge to aid consumer’s decision-making.
Successful brands are tapping into social media and user-generated content (most notably Instagram and Pinterest) as a means to influence consumers and market their product which allows consumers to share their story, and become part of the brand story.
Technology: The Hidden Layer
Technology was the thread running throughout all of Grocery Shop. A huge topic was around how to efficiently deliver the grocery order of the future which will start to break down into in-store shopping, curbside pick-up and direct home delivery. The complexity of a typical grocery order is daunting as it contains over 30 SKUs. And, while some consumers will pay for Instacart delivery fees, it was noted that the average HH will pay no more than a $2 upcharge for direct to home delivery.
First-party data was also another huge area of discussion. Online retailers can gather massive amounts of data about their customers; from shopping behavior to trends and personal preferences. This same level of data is not available to conventional retail stores and brands although retailers are catching up.
Voice search continues to grow and will continue to grow – with 22% of search already done with voice. With the data it collects, Amazon is able to better understand how we shop and how we want the devices of the future to listen, respond, and problem solve as if they were other human beings. Beyond Amazon, every brand needs to figure out how to incorporate voice search into their business – whether with simply optimizing your website for voice search or creating voice-friendly recipes. Lists are one of the most used feature in home assistants and making sure you get entered into that list, maybe with coupon incentives or recipe ideas, is going to be key as these smart devices do more auto ordering. Each of the primary voice ecosystems — Amazon, Apple, Google — will require retailers and brands to employ different strategies. The second most popular search engine is Google image search and this is projected to grow dramatically. The holy grail will be combining voice and visual search. Even today, Pinterest is influencing grocery shopping more than friends and family.
Dirty Lemon Beverages has been offering order-by-text since 2017 – with 90% of orders coming in via text. Their unique order system allows them to communicate directly to customers all day long.
Robotics that perform “pick and pack” activities is getting a huge amount of investment and focus. The UK is the most penetrated grocery market in the world and Orcado created pick-and-pack robotics along with a delivery system that can service almost the entire country.
BOXED build their own proprietary robotics and their warehouse in Dallas will be 100% robotics by 2019. The “robots” even take a selfie to show you that your order is on the way. They also built their own advertising platform so they control and optimize all ad dollars.
The “grocery” category is early in it’s digital disruption. The bottom line from Grocery Shop this year is that you need to embrace the JOMO vs the FOMO. You have to find the focus and solutions that work for your business and not chase everything while also embracing continual innovations and experiments in the spirit of fail fast, learn fast.
BSTRO applies our learnings to a growing list of CPG brands.
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