Traditional grocery stores offering e-commerce should emphasize price over speed to best play to their strengths in a market-share battle with Amazon, a new report asserts.
The study, commissioned by microfulfillment technology company Takeoff Technologies, examines the balance between “cost to serve” and “willingness to pay,” finding that price is the most important driver for online grocery adoption; expansive variety has limited value to the customer; and speed is the least important variable, provided groceries are available same day.
The analysis of more than 1,000 Americans, who are the primary grocery shoppers for their households, further found that “a curated selection offered for same-day curbside pickup at a 5% discount could grab a significant share. But, we also discovered that over a third of our respondents would still prefer to continue going to the store rather than switch to an online model,” writes Timothy Laseter, a professor at the University of Virginia and author of the “How to Win in Grocery” report.
To explore the potential levers for driving higher and lasting online adoption by grocery shoppers, the study classified grocery shoppers surveyed into six segments that cover two broad categories: “traditionalists” and “online adopters.”
The traditionalist group, it explains, makes up just under 45% of shoppers and breaks into two segments based upon the frequency they go to the grocery store. A similar number of shoppers, representing around 46%, actively shop online. This group was further broken into three segments. The remaining set of about 9% of shoppers rarely shop online or at the grocery store. This set was deemed unimportant to the bottom line.
A Closer Look at “Traditionalists”
- Traditional Shoppers represent 28% of primary household shoppers. They never shop online and go to the supermarket weekly.
- High Frequency Traditionalists represent 16% of primary household shoppers. Theygo to the grocery store more than once per week but still do not shop online.
- Transitioning Traditionalists represent 14% of those surveyed. Some of this segment has begun supplementing their weekly shopping trip with a monthly online order.
A Closer Look at “Online Adopters”
- High Frequency Omnichannel represents 23% of primary household shoppers. They shop for groceries multiple times per week with a mix of online and store trips.
- Online Loyalists represent 9% of responding shoppers. They have developed the new habit of shopping online multiple times per week. “Interestingly, this entire group continues to shop in stores as well and the vast majority of them go to the grocery store at least weekly,” says Laseter.
- Infrequent Shoppersalso represent 9% of those surveyed. They go to the store no more than once per month and have not achieved the multi-weekly online frequency to qualify as Online Loyalists.
The Male Shopper and Larger Households Make Good Customers
While Takeoff Technologies was unsurprised to learn that Traditional Shoppers tend to be older, it did not expect to find that “online loyalists” tend to be males who are the primary shopper for the household.
“While research shows that mothers remain the primary grocery shopper in most married households, a majority of married men and women believe that sharing household chores is very important to a successful marriage,” writes Laseter, who points to data from Pew Research. “These helpful husbands should be a target for any competitor seeking to expand in online grocery.”
Takeoff Technologies further discovered that household size is a bigger driver than household income in explaining a tendency to shop online. “While Infrequent Shoppers tend toward lower income and smaller households, the percentage of Traditionalists who do not shop online (Traditional Shoppers and High Frequency Traditionalists) generally accounts for around half of the respondents, independent of income,” Laseter explains. Households of four and five or more people have the highest percentage of online shoppers (68% and 71%, respectively).
Additionally, the survey found that 26% of four-person households are Online Loyalists and 30% of five-person households are High Frequency Omnichannel shoppers.
“While typical marketing research segments online shoppers by age and income, in the case of online grocery shopping, household size would be a more important characteristic in driving penetration,” remarks Laseter.
Price vs. Speed
Traditional Shoppers and High Frequency Traditionalists are most concerned with price (50%) and least concerned with speed (14%). However, the reverse is true among Online Loyalists. For them, price is less of a factor (with only 28% swayed by cost), while speed is more important to 24%. Both Traditionalists and Online Loyalists show similar preferences for delivery over curbside pickup, the study found.
“The growth to date in online penetration has been driven by shoppers with lower price sensitivity—a great match for the crowd-sourced, home delivery leader, Instacart,” says Laseter. “The low value placed on an expansive assortment in groceries also helps to explain why Amazon has not dominated groceries as it has in so many other categories.”
When it comes to delivery speed, while Takeoff Technologies finds the Online Loyalists have a strong preference for delivery over curbside pickup, they also emphasize the need for speed and have a negative view of next-day delivery.
In looking to the future, Laseter suggests the U.S. online grocery market may have much to learn from that market in the U.K., which developed earlier and faster than it has here at home. “Interestingly, the percentage of online shoppers in the U.K. peaked at 49% in 2016 and appears to have plateaued since. Perhaps the high cost to serve has met the limits of willingness to pay?”