Digital transformation – the future for online grocery shopping

The growth of digital has been one of the more positive outcomes of the recent COVID crisis. Recently the Microsoft CEO, Satya Nadella announced that the pandemic has driven “two years’ worth of digital transformation in two months”. The switch to digital has been widespread; large numbers of employees have worked and connected with colleagues from home, doctors have assessed patients using online video meetings and governments have planned their responses using online technology.

We have seen similar trends across the retail world, with reports of double-digit and triple-digit growth in online shopping across markets. According to Adobe Analytics, US online sales increased 49% in April vs. the previous year. The growth is understandable, online shopping fulfils the customer need for hygienic and convenient shopping; customers are able to shop safely from the comfort of their own homes, minimising the risk of virus exposure.

This has been great news for pure play online and omni-channel retailers, who have been able to continue serving customers affected by lockdown restrictions during the crisis. In contrast, retailers who rely entirely on bricks and mortar retailing have been more exposed. See how these changes could redefine the role of online shopping.

Growing online shopping capacity

To take advantage of the growth in customer demand, retailers have rapidly expanded their online offers and capacity:

  • Walmart recently announced the introduction of Express Delivery in the US, an enhanced online service, where anything in the supercentre would be delivered in under 2 hours
  • In the UK, Tesco is expanding digital retailing capacity with a doubling of the number delivery slots from 600k to 1.2m per week
  • With online order fulfilment such a challenge, Countdown in New Zealand temporarily closed 6 stores to provide additional dark store capacity.

Will shoppers bounce back to bricks-and-mortar?

As lockdown conditions start to ease across markets, the extent of the bounce-back to store is still uncertain. Will shoppers crave that normality of the pre-Covid grocery shop? Or will newly converted online shoppers continue to buy digitally into the future? The online shopping experience will never match up to the experience of being able to physically see and feel products when shopping in-store, but for some customers, this will be an acceptable trade-off in light of the added convenience and hygiene benefits.

In the short term, while concerns over the virus remain, we expect the preference and demand for online shopping to remain high. As a result, retailers are working hard to deliver to their new online shoppers by extending capacity and focusing fulfilment efforts on the most important items to online shoppers.

Understanding the online shopper

Retailers with online customer transaction data are well placed to quickly understand and respond to the evolving needs of their online shoppers. There are a number of key questions to answer:

  • How does the COVID online shopper compare to pre-COVID online shoppers?
  • How does the online basket and purchase frequency compare to the instore equivalents?
  • What are the most important categories and products for online shoppers?
  • Which categories are driving growth for the online channel? How does this vary pre and post COVID?

Armed with these insights, category managers and digital analysts can shape the online shopping experience to take advantage of emerging trends. For example, if online purchasing is infrequent, providing incentives for shoppers to return more quickly or applying minimum spend criteria to online purchases to drive basket spend.

Online infrastructure and panic buying

During the recent COVID crisis, many markets encountered panic buying, product shortages and a scramble to quickly expand their digital capacity. This is in stark contrast to the experience in South Korea, which is one of the most advanced markets for digital shopping and ranked third in the global rankings for online retail sales.

South Korea was largely able to fulfil customer demand, sustain on shelf product availability and continue with the next day deliveries of online orders. With online shopping already well established in market and a strong online retailing infrastructure in place, they were well positioned and trusted to fulfil online orders.

As explained in this video, the lack of panic buying was in part due to the collectivist culture in South Korea, but equally the strength of online infrastructure and capacity, partnered with shopper trust in retailers, certainly helped to reduce the levels of stockpiling in market.

As the growth in online grocery retailing is projected to continue, it is critical for retailers and analysts to understand the nature of the online shop and how shopper needs change over time. In doing so, retailers and CPGs will be able to better shape the offer to meet the needs of the online shopper. This understanding might not protect from panic buying in store, but it should certainly better prepare the online channel ahead of any future crises.

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