Retail Council of Canada STORE 2016 Conference
Winning Strategies in Online Grocery
June 2016
Randy Burt & Vishwa Chandra
Introductions
Randy Burt
Partner, A.T. Kearney
• Focused on retail and channel strategy, merchandising and trade promotion
optimization, supply chain, procurement and eCommerce in the food, drug,
mass retail and CPG industries
• Prior experience with Nielsen leading consumer market research functions
Vishwa Chandra
Partner , A.T. Kearney / Former VP of Retail, Instacart
• At A.T. Kearney working with leading retailers and consumer product
companies with a focus on merchandising and supply chain operations
• At Instacart focused on partnering with new retailers on the platform and
working with 100+ retailers to expand into new markets and grow sales
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Growth is set to take off in Online Grocery
Technology
& Convenience
Changing
demographics
U.S. Online Grocery Share
2013-2023 Forecast
Growing
urbanization
12-16.0%
CAGR 15-18%
8-11.0%
+17%
3.0%
3.5%
2013
2014
Changing
Consumer
Behavior
2019E
2023
Sources: Brick Meets Click, Packaged Facts, 2014, A.T. Kearney analysis; Packaged Facts, 2014
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Overview of A.T. Kearney’s 2015 Online Grocery Survey
Objectives
Respondents
•Understand the online
consumer
•Analyze online shopping
preferences
•Derive strategic
recommendations for
grocery retailers
• 1,341 primary grocery shoppers
• 90% female
• 34% urban area / 54% suburban / 12%
rural
• Average HH size = 2.9 people
Methodology
• Online survey
• Statistically relevant sample size (1,341 total respondents)
• All ages, income levels, geographies, and genders
1. Removed illogic responses (e.g., all shopping methods listed as “most frequent”) and erroneous question entries (e.g., shopping in stores listed as both “least used” and “frequently used”)
Source: A.T. Kearney
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Key Findings
Consumer Profile
Channels & Categories
Consumer Preferences
• Usage increased across all
demographics
• Websites remain relevant while
mobile usage grows – social not
material yet
• More customers are willing to pay
for home delivery than pick-up
• Highly penetrated segments are
attractive
– 25-34 year olds: ~40%
– Urbanites: ~40%
• Non-perishable categories lead
• Freshness and cost still
perceived as barriers
• Customers want savings:
– Coupons (71%)
– Price comparison (67%)
– Earn loyalty points (65%)
– Those earning over $75K: over
40%
Source: A.T. Kearney 2015 Online Grocery Survey
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Consumer Profile
Myth #1: Baby boomers won’t adopt online grocery
Penetration is growing across age segments
Respondents by Age Group who Bought Groceries Online
+29
+26
37%
36%
+29
34%
+26
+20
32%
28%
+18
25%
11%
7%
18-24
2014
5%
25-34
35-44
7%
45-54
6%
55-64
7%
> 65
2015
Source: A.T. Kearney 2015 Online Grocery Survey
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Consumer Profile
Myth #2: Online grocery only works in urban areas
Respondents who Bought Groceries Online
By Area
By Income
41%
48%
33%
34% 2015 online penetration for
all consumers
27%
Urban
Suburban
Source: A.T. Kearney 2015 Online Grocery Survey
Rural
31%
44%
41%
33%
29%
$0 - $25K $25K $50K
$50K $75K
$75K $100K
$100K - $150K+
$150K
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Channels & Categories
Myth #3: Fresh products won’t be bought online
Online grocery penetration by category1
Non-perishable
53%
52%
31%
19%
14%
Personal Care
Source: A.T. Kearney 2015 Online Grocery Survey
1. (% Respondents who have purchased products online in past 6 months)
Beauty Items
Packaged Food
Baby
Avg, Perishables
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Consumer Preferences
Myth #4: Customers prefer click & collect
Customers prefer home delivery and are more willing to pay for it
Fulfillment Preferences – Online
customers
Willingness to Pay1
100%
Other
12%
Click & Collect
17%
18%
38%
45%
$0
21%
59%
28%
26%
23%
Delivery
71%
$1.99
$3.99
$5.99
$9.99 or more
18%
13%
8%
3%
Pickup in store
same day
1. Note that responses to question are in regards to a regular “stock-up” trip
Source: A.T. Kearney 2015 Online Grocery Survey
55%
62%
82%
21%
23%
6%
11%
3%
12%
Pickup in store
w/i 2 hours
Home Delivery
w/i 2 days
Home Delivery
same day
41%
15%
11%
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Consumer Preferences
Myth #5: Online will dilute margins and cannibalize sales
Historical view…
 First mover advantage is hard to sustain
 Incremental sales decrease and
cannibalization rises as online grocery grows
…reality
New Customers…
…with higher baskets…
 Competition drives down delivery fees
 Diseconomies of scale in fulfillment, e.g.
dark stores
…who shop online and in store
If you don’t cannibalize store sales with online grocery, someone else will do it for you
Note: Thrifty Foods and IGA are banners of Sobey’s, Save on Foods is a banner of Overwaitea Food Group
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Consumer Preferences
Myth #6: Convenience alone will drive online adoption
Shoppers expect value across multiple areas
Most or Very Likely to Return Due to:
Savings
Convenience / Speed
Unique Online Features
68%
60%
34%
Source: A.T. Kearney 2015 Online Grocery Survey
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Canadian online grocery market is just getting started…
Online and In-store Grocery Retail Sales by Country
(USD1 Billion, 2015)
Online Grocery
In-store Grocery
Online Grocery
$594
3.0%
In-store Grocery
97.0%
2015
Canada: 1%
online
penetration
$101
1.0%
99.0%
Online Grocery
$258
4.4%
In-store Grocery
95.6%
UK: 4.4%
online
penetration
2015
2015
US: 3%
online
penetration
1. Converted to USD using 12/31/15 exchange rate.
Source: Syndy State of Online Grocery Retail July 2015, Euromonitor 2016, Profitero, BMO Capital Markets
Online Grocery
In-store Grocery
$252
3.6%
France:
3.6% online
penetration
96.4%
2015
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…due to challenges specific to Canadian retailers and
consumers…
• Consumers are spread out, adding to logistics costs for delivery
• Limited, outside of Toronto, Vancouver, and Montreal, creating
potential barriers to scale
Geography
Content
• Brick-and-mortar retailers have evolving capabilities, e.g. content
rich websites providing information on food recipes1
Key
Challenges
Service
Awareness
1.
2.
3.
ComScore
BMO Capital Markets
Mintel
• Perception on consumer preferences e.g., on perishable goods
• Consumers not willing to to wait for groceries to be delivered2
• Customers are not as widely accustomed to grocery delivery
• As of 2015, 88% of Canadian grocery shoppers have never tried
online ordering3
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…Retailers have started to enter the Canadian online
grocery market via the largest metro areas
Province (% of Canadian grocery share)
Cities2 and metro populations
Yukon
Territories
Northwest
Territories
British
Columbia
(16%)1
Vancouver
2.5 mil
Atlantic
Provinces
(7%)
Nunavut
Alberta
(14%)
Edmonton
1.4 mil
Calgary Saskatchewan
(3%)
1.5 mil
Quebec
(24%)
Manitoba
(4%)
Ontario
(32%)
Montreal
4 mil
Ottawa
1.3 mil
Toronto
6 mil
1. BC % share includes Yukon Territories, NWT, Nunavut
2. Includes all cities with metro area population >1MM
Source: StatCan, S&P Capital IQ, Euromonitor, Canadian Grocer, company websites
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Key Success Factors for Retailers in Online Grocery in
Canada
How can Retailers win?
Define value
proposition
• Develop offerings such as same-day delivery and click & collect
• Create competitive price and value with in-store offerings
Deploy to customer
needs
• Target specific customer segments, e.g. new parents, back-to-school shoppers
• Offer personalized promotional strategies and pricing based on past purchases
Integrate with brick
& mortar
• Create a seamless, integrated experience for every shopper
• Encourage users to move between channels through offerings
Establish enabling
capabilities
• Invest in IT to build digital presence via website, mobile app, and social media
• Build infrastructure to enable economies of scale
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Clearly defined grocery digital value proposition
Success Factors
Convenience
Flexibility
Quality
Pricing
Key Examples & Opportunities
• Last mile delivery for growing population
• Click-and-collect or pick up kiosks
• Plan orders in advance or get delivery in <30 minutes
• Pay online or when goods are delivered to the door
• Extended assortment found online
• Guarantee freshness of items
• Source high-quality, locally produced farm-fresh
produce and meats
• Price parity across channels, low delivery fees
• Guaranteed money back if customers aren’t satisfied
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Tools and services personalized to the individual
Success Factors
Digital Layout
Personalization
Digital Engagement
Key Examples & Opportunities
• Digital management as an emerging capability distinct
from traditional merchant function
• Established dynamic environment – one to one vs. one
to many
• Customized, merchandising (pricing, promotion,
assortment)
• Digital path to purchase – influence customers at
different points
• Meal planning and buying tools targeted to consumers
• Engage with customers during and post shop
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Integrated offering across channels
Success Factors
Selection
Cross Channel
Engagement
Access
Key Examples & Opportunities
• Consistency in assortment with store with targeted
expansion – distinct layout and grouping online
• Distinct focus on making stores a destination (move from
HAVE to WANT to visit the store)
• Ensure consistency in messaging across channels
• Embed digital engagement in store
• Customize offering by customer segments
• Allow customers to seamlessly switch between available
stores and channels within a specific region
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Digital capabilities to enable online grocery
Success Factors
Partnerships
Investment
Scale
Key Examples & Opportunities
• Partner with 3rd party providers to gain access to more
channels, customers and offerings
• Develop multiple platforms (website, applications) with
layout designed around user experience
• Leverage existing brick-and-mortar locations for delivery
and pick-up
• Consider adding warehouses or dark stores as scale is
expanded
• Micro density requirements
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Thank you
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