2022 will be the year grocers make ecommerce work on their terms, using price and promotions to direct shopper behavior to store-supported channels.
Like others who work in the business of grocery retailing, my perspective on industry trends is two-fold. I know how my own shopping behavior and personal preferences are changing, especially the big lifestyle changes the past two years have brought. At the same time, I have a front-row seat to watch how things are playing out in the industry and how grocery retailers are responding. So, when I think about the new normal and where we go from here – as everyone is doing this time of year – I have many thoughts on the topic.
It would be a massive understatement to say that the pandemic changed consumer demand patterns. We’ve all gotten used to eating at home and buying more groceries than before. After my wife and I were fully vaccinated, one of the very first things we did was go out to dinner. It was wonderful to feel safe enough to dine in a restaurant again and to have someone else prepare us a meal.
However, over the course of the pandemic we’ve actually become pretty decent home cooks. We developed new cooking techniques, as well as a finer palate for things like very fresh produce and meats, and more exotic spices. While we used to do most of our grocery shopping in-store, we turned instead to the safety of curbside pickup. I don’t believe we are alone in these changes. Like many others, I am sure, we’ve grown accustomed to cooking for ourselves and have enjoyed the convenience of online grocery shopping.
Spread this behavior across the entire grocery retail vertical and I think we will see a continued customer reliance on grocers for produce and other fresh items moving forward. While we see people beginning to return to grocery stores one or more times a week, we can’t discount what ecommerce did to grocery – because it isn’t going away.
Looking to 2022, I think we’ll see retailers wrestle with the increased consumer use of online grocery ordering, which has several implications for pricing and promotions.
eCommerce has forever changed the grocery game
In terms of margin increase, transaction size and basket size, grocers are coming out of some of their best quarters in the last several decades. While experiencing such growth, they also had to compress 5 to 10 years’ worth of technology into a few months to get food into the hands of their customer base where in-store shopping wasn’t as safe.
To accomplish this, many partnered with established ecommerce players like Instacart, Shipt and others to deliver groceries to customers’ homes. Now grocers are asking themselves, “How can we keep this momentum going, but on our terms? How can I serve my customer base without giving up so much margin to the third-party delivery vendors?” I believe the answer is curbside pickup.
Curbside pickup is the “middle ground” of grocery ecommerce – a lower cost fulfillment option that is completely within the grocer’s control but still gives customers the ability to order easily and shop quickly. This control extends beyond a reduction in payments to third-party vendors. It provides assortment substitution around supply chain issues, better labor force management to fulfill orders, and even the selection of equivalent private label products over national brands. For instance, if national brand A is out of stock, a third party might go to the next best national brand when the retailer knows, due to the knowledge of the products, the local market and the ingredient mix, that a similarly tiered private label product is the better choice.
Walmart made curbside grocery pickup incredibly easy when it piloted the program back in 2013. But it took a pandemic for many other grocery retailers to get on board with offering it as a fulfillment channel. Curbside can be a significant part of the new normal in grocery, and grocery retailers must plan for pricing and promotions accordingly. Grocers can use price to incentivize curbside online orders over delivery, and I think we will see more and more grocers in 2022 trying to stop or, at least, reduce their dependence upon services like Instacart. In fact, we have already seen Aldi terminate their partnership with Deliveroo in the U.K., in order to focus more on Click & Collect.
Growth in grocery ecommerce adoption will at some point level out, perhaps within the next year, and then we’ll see what I’m calling my personal bell curve – the moment when grocers have officially embraced online ordering as a viable and legitimate option for shoppers who don’t want to come into the store. That “bell curve” moment will be when I see the industry embrace digital coupons exclusively for curbside orders. In other words, this will signal grocers saying, “Not only is curbside a necessity, but we will actually encourage this behavior.”
Online grocery trends require an assessment of pricing
There will always be reasons for shoppers to use grocery delivery services – perhaps for impulse buys or forgotten ingredients. But this coming year, I believe we’ll see shoppers move the big weekly stock-up trips away from delivery and more towards in-store or curbside channels.
The dynamics of online grocery beg the question, “What are your prices communicating to shoppers?” Whether you intend to or not, prices signal to a shopper what channel you as a retailer value most. And if that channel doesn’t quite fit the new shopping habits (or grocery budget, for that matter) of your customer base, you may start to notice a decline in transaction frequency or basket size.
If you want people to shop in-store, you likely have three general tiers set up for pricing: one for third-party online delivery, one for curbside ecommerce pickup, and the lowest price reserved for those who shop in-store. However, retailers must realize how problematic this could be moving forward. If a shopper becomes aware of the fact that a gallon of milk will cost them $0.25 more through curbside than if they got out of their car and walked inside, they’re justified to feel a little frustrated. They might still buy that milk today, but they may not be back.
This is why my recommendation to retailers is to offer the same price at curbside as you do in the store, or at least very similar. Furthermore, I’d suggest also offering promotions specifically for curbside to move shoppers away from your costly dependence on third-party delivery partners.
Customers are willing to pay a higher price if there is a perceived value addi. Meaning, most of the time they would rather pay a fee for the curbside service than an incremental price increase on the exact same products they can get inside. Just look at the popularity of home delivery this past year. Customers know they will pay more for the service but are willing to do so for the added value of convenience. That fee is not a barrier to use, as long as it is seen as fair to the customer.
Of course, there are nuances here in how different consumers may react to different pricing structures. The real key is to use data analytics to see how demand signals are impacted by price changes, and how elasticity varies on products online versus in-store. Then you can craft an online pricing approach that is truly catered to the needs of your customers,
Direct shopper behavior through strategic pricing decisions
Savvy grocers know how to use pricing to dictate a consumer’s behavior, whether it’s through a good base price or via a discount or promotion. So, decide what it is you want your customers to do in terms of this new normal in grocery, whether that’s shopping in-store or via your online channel for curbside pickup. With demand analytics and pricing optimization, you have the opportunity to direct their shopping behaviors using the new pathways to value that the pandemic accelerated – embrace it.
iUnderstanding Retail Customers’ Pricing Expectations and Tolerances, a Forrester Consulting study commissioned by Revionics, June 2017