First it was Walmart’s brick-and-mortar presence that brought challenges for regional grocers in the grocery space. Now, the low-price market leader is continuing to challenge regional grocers in the digital space.
Regional grocers who operate their own e-commerce sites and/or mobile apps will likely face a tougher fight online against Walmart going forward, digital grocery solution provider Mercatus revealed Wednesday in its new report entitled Pricing’s Potential Roles for Improving Online Grocery Performance for Regional Grocers.
The low-price market leader enjoys an average 15% price advantage online based on a large basket of groceries in the U.S., Mercatus reported. These findings and others are prompting the call that regional grocers should reassess the role and relationship that various elements of pricing can have in creating a win-win outcome for customers and retailers alike, Mercatus said.
Mercatus said Walmart relies very little on service fees to support the cost of pickup operations; and it generates over eight times more net revenue from retail media per online order compared to some regional grocers.
And those advantages will only continue to increase for Walmart in the coming years as retail media monies are projected to climb at least 20% annually, according to Mercatus. Simultaneously, automation will lower the cost to fulfill online grocery orders even further.
“A key takeaway of this research initiative is that regional grocers need to consider pursuing a different path forward for online pricing because they typically have less ability to cover the incremental costs of these value-added services than Walmart,” said Sylvain Perrier, president and CEO of Mercatus, in a statement. “We recognize that grocers may view pricing as a third-rail topic, but the rationale and evidence for adopting a new online pricing paradigm continues to strengthen, and we want to help grocers navigate how they adapt to these competitive realities.”
In fact, this new online pricing paradigm shift also more aligns with why customers choose to buy from a regional grocer and points to a more sustainable path to competing online.
Last year, Mercatus found that most customers shop with a regional grocer because it is “conveniently located.” For 2023, Mercatus quantified what this means—four in 10 customers who say a regional is their primary grocery store indicated that it is the closest store to home. In contrast, nearly half of those who say Walmart is their primary grocery store drive past two or more rival stores to shop at the mass discounter.
Even though “conveniently located” largely relates to in-store shopping, it can also apply to online shoppers who receive their orders via pickup since this requires a trip to the store.
As for the differences between regional grocers and Walmart, the trade-off between cost and convenience are what customers consider when selecting where to shop.
The new report offers an outline of how regional grocers can help customers save money when shopping online under the new pricing paradigm. For instance, grocers can benefit from leveraging a variable fee structure that flexes up or down based on when the customer wants to receive the online order.
Mercatus said this approach empowers the customer to choose whether “speed” or “fee” is more important to them. It also creates more opportunities for the retailer to realize labor savings by batching together orders during the pick and pack operation.
The report, based on a recent pricing study performed by Brick Meets Click, analyzed how eight banners in one market implemented online pricing strategies versus in-store. The retailers included in the research: Aldi, Costco, HEB, Kroger, MarketStreet, Target, TomThumb and Walmart.
“Regional grocers are well positioned to help their customers save time, and they can also offer customers additional ways to save money based on how they want to shop,” said David Bishop, partner at Brick Meets Click, in a statement. “Strategies like having lower prices compared to third-party marketplaces, price protecting ad items, offering digital coupons and offering graduated fees based on pickup times are all ways grocers can help their customers save money when shopping online.”