Consumer

Online Grocery Spiked During COVID-19. What Now?

 



Over the past few months the COVID-19 pandemic has fractured consumer purchasing patterns and ignited a massive channel shift across the industry. As the virus impacts communities and stay-at-home orders are enacted and extended, consumers are doing more of their shopping online and minimizing time in crowded, enclosed places. Since the outbreak, grocery stores have had more traffic online than in their physical stores and major supermarkets have been struggling to meet this surge of demand due to a lack of infrastructure, operational capacity, and platform sophistication.

RAPID ADOPTION AND ADAPTATION

This pandemic has ignited a sudden and significant shift of consumers to online channels. In a survey by RBC Capital Markets, 55 percent of respondents said they shopped for groceries online in the month of March – a 19 percent increase over all of 2018, with one-third of respondents being first-time users1. In the same survey, Instacart reported a 300 percent YOY increase in consumer demand and has been hiring 300,000 additional “shoppers” to keep up with business efficiency. Target-owned Shipt added more than 80,000 shoppers and by April 17th, cut their wait time in half2. In early April, Instacart also announced two new features: “Fast & Flexible,” allowing customers to choose to have their order delivered by the first available shopper as opposed to selecting a specific delivery window, and “Order Ahead,” allowing customers to place orders up to two weeks in advance. The addition of these new services has increased available delivery windows by 50 percent and overall speed of orders, such that 85 percent of orders are being delivered before their estimated time3. Digital adaptation is increasing rapidly to address the significant and immediate changes in how customers shop

GETTING CREATIVE TO PROTECT CUSTOMERS

Companies are also putting in safeguards to protect seniors and vulnerable demographics, as well as thinking creatively about how to keep all customers safe. For example, Walmart partnered with social media channel Nextdoor and launched a program called Neighbors Helping Neighbors4. This program allows members of vulnerable communities to coordinate the pick-up and delivery of items with a neighbor who is already planning a trip to a local Walmart store. Additionally, Aldi, Albertsons, Costco, H.E.B, Publix, & Loblaw, to name a few, are all implementing “vulnerable shopper” hours to give those most susceptible to the virus a chance to shop at a lower risk. Taking it a step further, H.E.B., through Favor Delivery, is giving seniors access to their own personal shopper to call to have essential products delivered5. Loblaws is also giving healthcare workers priority access to stores as it continues to limit store capacity to ensure social distancing6.

IMMATURE INFRASTRUCTURE AND LOW MARGINS

Traditionally, grocery is a very regionally focused and a notoriously low-margin industry. Players dominate by region, and this localization of stores has translated to a focus on enhancing the local in-store experience to increase loyalty. Given the high-entry costs, negative margins, and potential for negative customer experience from a poorly executed online strategy, most grocers have not proactively invested in a robust online platform. Additionally, since the majority of sales are generated in-store, omnichannel and digital capabilities are often deprioritized. In fact, it was not until COVID-19 that leading online platform Instacart became profitable, years ahead of plan7. As the impact of the pandemic continues, grocers are attempting to be agile and adapt quickly in-house, but many companies are not ready for this surge in online traffic as infrastructure is still immature globally.

According to Kantar data, online grocery has had around a 3.1 percent penetration in the US. In the UK, generally considered a more progressive region for grocery, only 7.6 percent of groceries were purchased online before the outbreak8. Expectedly, businesses without online ordering or delivery capabilities must manage reduced traffic and consider associate/customer safety. More surprisingly, however, companies that have platforms already in place aren’t always a success story. Amazon temporarily stopped accepting new customers for grocery delivery in an effort to risk alienating current subscribers and alleviate stress on fulfillment centers. They are pushing back delivery times for non-essential items and are hiring an additional 75,000 new workers (in addition to the more than 100,000 hired since mid-March) in an attempt to release the strain on supply chain and keep current customers happy9. Additionally, the high degree of fine-tuned platform automation also wreaked havoc at Amazon, returning unhelpful results to online shoppers and generated a series of price gouging situations10. Beyond operational constraints, grocers are also actively managing the customer experience impacts from this surge. Marks and Spencer, a retailer in the UK, also temporarily stopped accepting new customer registrations as they are worried that those trying it for the first time will be turned off by the slow service and limited supply11. Executives are weighing how they can respond to such an uptick of demand without the proper resources. Yet even by ramping up hiring, distribution centers are struggling to meet demand which in turn impacts their fulfillment capacity.

A REFOCUSED LENS ON CUSTOMER-CENTRICITY

Grocery is a generally more conservative sector of retail, slow to adjust business models and strategies to deliver an omni-channel customer experience, given its lower margins and store orientation, with foot traffic serving as a key metric for success. Executives have been hesitant to invest in online platforms and integrate digital into their organizations: even despite recent online growth, in-store sales are still the primary driver of total sales. Efforts to keep up with demand during this pandemic are critical, but most companies are still orientated around the short term. COVID-19 has acted as a catalyst for new behavior: i​n some markets and demographics, customers have no other option than to shop online, and businesses need to think long-term about how they can maintain customer loyalty when the virus subsides. As phased measures to “return to normal life” roll out, people will return to grocery stores, but online shopping habits will stick for some and companies need to have the proper strategy in place.

A NEW KIND OF GROCERY LEADER

As we enter a new era of customer behavior, organizations need to be agile and remain customer-centric in the face of the change. COVID-19 has pushed grocery executives into unchartered territory with organization-wide impact as they are faced with changing consumer preferences, supply chain disruption, and unprecedented demand planning. Linking back-end digital enablement and go-to-market strategy across all functions is critical to evolving with the customer and maximizing growth. Understanding that stores are still an important part of the equation and being able to strategically determine what can be operationalized in store is a necessary extension. While historically digital initiatives have been outsourced and considered an added benefit to customer experiences, it is critical that digital is prioritized now as an essential business channel -- a necessary step for leaders to invest in and advance their business across the enterprise even though it does not reap the same revenue goals. New models – such as Ocado’s partnerships with Sobey’s, Kroger’s digitally-based ways to shop, and Whole Foods’ move to convert their New York and Los Angeles stores to dark stores – are capitalizing on technology to increase capacity and meet demand12.

Companies now need to find a new type of leader to grow their businesses

Customer-centric leaders that are driven by a growth agenda have 4 distinctive traits: They are pragmatic thinkers by nature but know precisely when to take a risk. And, they are people persons that build strong teams.

  • PRAGMATIC THINKERS

    Customer-driven growth leaders are notably logical and organized in their thinking compared to their C-Suite counterparts. They consider the big picture before setting goals and are skillful at translating complex information into actionable steps. Compared to their peers, they are exceedingly calculated and structured in their thinking and approach to problem solving.

  • RISK TAKERS

    Customer-driven growth leaders drive their business process through the lens of opportunity. Contrary to other C-Suite executives, they don’t hesitate to take the initiative and push forward even amidst challenge. They are action ​oriented, thrive in pressure filled situations and are comfortable playing in “grey areas.”

  • RELATIONSHIP BUILDERS

    Customer-driven growth leaders are authentic by nature and influential through their inspirational approach to interacting with and engaging others.

    Contrary to other C-Suite executives, they desire to establish real and meaningful connections. Their political savvy and comfort within the social context ensures that they are well positioned and well respected within an organization.

  • TEAM PLAYERS

    Customer-driven growth leaders  differ from their C-Suite counterparts  in their authentic and unwavering support for inclusivity and autonomy in their teams. They are keenly astute at reading others and establish a dynamic of trust and mutual collaboration. They also have a stead-fast belief that the strength of their networks and the authenticity of their connections with others is directly proportional to their success.

  1. Source: RRA Psychometric Assessments for 280 executives identified as CAG leaders

COVID-19 has placed significant pressure on the grocery business models, structures, and leadership. The unlimited access to digital tools is enabling customers to be steps ahead of companies and in turn, more in control of the purchasing funnel. While core technology platforms have underpinned organizations, they have been disconnected from the front-end go-to-market functions. To effectively adapt grocers need not only to activate for their customer, but also align technology enablement and go-to-market functions across the entire organization. As a result, leadership capabilities and roles must be realigned to meet the needs of today’s in charge consumer by shifting to a customer-centric model. These new leaders, driven by a growth agenda, must be pragmatic thinkers, relationship builders, risk takers and team players who can gain alignment internally in order to enable the company to be more disruptive externally. As grocers seek to adapt to this new landscape, it is imperative for leaders to readjust their organizations across talent, culture, and strategy to be prepared for this imminent shift to a customer-driven, digital world.