After months of habit-forming behaviors, many shoppers have acclimated to shopping online. Breaking old habits and becoming confident in the use of a new channel are often perceived to be the largest barriers to online grocery adoption.
Why did ecommerce adoption come slowly to the grocery business? How did the coronavirus pandemic change that? What nation has the highest online grocery penetration in the world? How is automation being used to change the economics of ecommerce grocery delivery? What foods top the list of online orders? What timeframe constitutes high-velocity service? And what will the grocery store of the future look like?
Max Pedro, co-founder and president at Takeoff Technologies, is one of the executives on the front lines of revolution in grocery shopping and fulfillment.
How is grocery performing as an ecommerce category?
Historically, grocery has been a relatively slow category to move online. Unlike other retail products, grocery products are difficult to pick and deliver. They have slim margins, and manual picking erodes profits quickly. It is also a difficult category to automate. Grocery products vary in size and weight, are delicate, are low value, perishable, and require storage at a variety of different temperatures. Due to the complexity of grocery products, many retailers have been struggling to find a viable, sustainable solution that can manage all of these challenges. However, in the early days of the pandemic, grocery ecommerce skyrocketed to one of the top categories in retail, due to an overwhelming and, until then, unprecedented demand. Online grocery is now in a very promising moment. That said, grocers need to be investing in the right strategies due to the aforementioned challenges.
Did the pandemic change the game for grocers?
Absolutely. The pandemic accelerated online grocery by at least five years, creating somewhat of a “domino effect” that we expect will continue far beyond the coronavirus pandemic. We observed a similar phenomenon in the South Korean grocery market at the turn of the 21st century. In 2003, the SARS outbreak forced shoppers in South Korea to start buying groceries online during quarantine. South Korea remains the country with the highest online grocery penetration in the world. We expect much of the same to happen today as a result of COVID-19. After months of habit-forming behaviors, many shoppers have acclimated to shopping online. Breaking old habits and becoming confident in the use of a new channel are often perceived to be the largest barriers to online grocery adoption.
How is automation advancing the use of ecommerce for grocers?
Most of the top grocery retail players are using automated solutions currently, because manual fulfillment has two major problems: it is expensive, and it is slow. Unless grocers charge shoppers very high premiums (on average $12 per order), manual fulfillment will dramatically erode their profits; and these premiums can represent a significant deterrent for shoppers. Increasingly, online fulfillment is moving toward high-velocity service, less than one day or in some cases, as little as two hours. This is especially the case for grocery, where shoppers are accustomed to immediacy. This is why automation is so important for grocery ecommerce.
What size orders are most common, and what food or food-type sells most via ecommerce?
The average online order is between $70 to $90, higher than physical shopping. We observed the following trends:
- Product categories that had spikes in units demanded per order and then a return to normal levels: vegetables, paper products (toilet paper and paper towels), dry beans, household cleaning products, packaged water, canned tomatoes and frozen vegetables.
- Product categories that had a spike in units demanded per order and demand maintained at a higher level compared to pre-pandemic levels were frozen pizza, pasta, pasta sauces, fresh bread, prepared foods such as macaroni-and-cheese, canned soup and canned vegetables.
What kind of innovation is expected during the next five to 10 years?
The rapid changes we are observing in grocery are not limited to ecommerce. The store itself is changing. We imagine that the grocery store of the future will be a hybrid between physical and automated online shopping — essentially, a traditional brick and mortar store, where the center shelves are automated. Shoppers care primarily about hand-picking produce, deli, and other “fresh” categories. But when it comes to pre-packaged products that live in the “center aisles” (such as canned goods, soda, cereal and toilet paper) fulfillment could easily, affordably and quickly be assembled by an automated micro-fulfillment center in the back of a store.