Maya Swedowsky, Associate Research Director and
Alex Burmaster, Communications Director, UK & EMEA, The Nielsen Company
SUMMARY: Four mega trends—convenience, Generation Y consumers becoming of age, increased broadband penetration and customization—have come together to fuel growth in the online grocery market. While the online channel is still small for the food and beverage sector, it is poised for growth. What are the key drivers behind the revitalized online grocery movement and how do consumers use the web, social media, and other online tools to plan purchases? Now is the time for retailers and manufacturers to maximize opportunities in this re-emerging market.
Since the early days of the Internet, companies have tried to capitalize on online grocery. Some have failed, some have held their own, but none have revolutionized the way consumers think about shopping for groceries. But now—almost a decade after the dot.com bubble burst—online grocery is beginning to show resurgence, powered not by venture capital dollars but by sustainable growth plans, broadband Internet and increasing consumer interest.
Online grocery shopping is poised for growth, currently at the intersection of four key mega trends:
Poised for growth
With approximately $3.75 billion in online sales in 2008, online is a small but expanding channel for the food and beverage industry. Even though the majority of grocery shopping occurs offline—online purchases accounted for less than 1% of all food and beverage sales in 2008—on average, shoppers tend to spend twice as much online as offline when making food and beverage purchases.
Three variables lead to bigger basket sizes:
Two key differences distinguish the current online grocery shopper from their offline counterpart: income and household size. Online grocery shopping skews to upper-income “established” adults ($100K income per household) residing in smaller households (1-2 members) with no children. These consumers are more willing to pay the shipping fees and premium prices typically associated with online grocery shopping in exchange for the convenience and other benefits of online.
Time-starved large households, on the other hand, represent an untapped opportunity. Online grocers need to ensure that the process is easy and convenient enough to address the hectic lifestyles of large families.
Convenience drives satisfaction
While the majority (70%) of online shoppers reported having a positive shopping experience when purchasing groceries online, some attributes weigh more heavily than others as important drivers of satisfaction, as reported in a March 2009 Nielsen survey. The research revealed three key motivating factors that entice consumers to shop for groceries online: convenience, product selection and pricing.
Convenience—consumers like the ease of filling up a grocery cart with a click of a button any time of day, from any location. Online shoppers can stock up on staples without carrying heavy packages. Many online grocers offer automatic replenishment options so the consumer never runs out. Finally, online grocery shoppers avoid commuting, crowds, waiting in line, and inclement weather.
Product selection—virtual shelf space allows grocers to offer a wider product selection and in-depth product information, which is especially helpful for shoppers with dietary restrictions.
Pricing—comparisons are easier to do online, and running shopping-cart tallies help buyers stick to a budget and avoid impulse buys.
Frustrating fees and wait times
While shopping online has clear benefits, there are some barriers that impede acceptance. In the Nielsen survey, 65% of respondents indicated that the cost of shipping was the biggest barrier to purchasing groceries online. Additionally, a lack of control concerns some shoppers. Not only can shoppers not personally choose products, but waiting for the delivery can be perceived as countering the time-savings and flexibility of shopping online. Forty percent of consumers cited waiting for delivery as an obstacle. Other obstacles include issues with security/privacy (35%), not being able to use coupons (30%) and a perception of online as more expensive (30%).
Despite the clear benefits, many still consider online grocery shopping an indulgence—some who enjoy it seem a bit embarrassed, characterizing their decision to shop online as a form of “laziness.” As the market matures however, this perception should fade. And while most people are not accustomed to buying groceries online, this too will erode over time as Generation Y reaches grocery-buying age.
Lessons from abroad
The online grocery shopping market in the United Kingdom is more mature than that in the United States. Almost one-fifth (16%) of all British households have purchased groceries online in 2008—double that of American households. Similar to the U.S., online grocery shoppers in the U.K. tend to be more affluent. However, unlike the U.S., British buyers have larger, younger households.
Over the last three years, apprehension about online grocery shopping in the U.K. has shifted from fear of the unknown to practical matters. In 2006, the biggest barrier for British shoppers was not being able to personally choose products. This fear has decreased dramatically, and by 2009, the percentage dropped 15 points from 29% to 14%, providing a window of hope that U.S. shoppers will follow suit as the market matures. Similar to the U.S, the main concerns of British shoppers today include delivery charges and delivery time.
There are a number of initiatives that have worked successfully to boost the online grocery market in the U.K. One of the reasons online grocery shopping is more popular in the U.K. is the strong competitive market and heavy marketing support that is driven by four major national chains. Unlike in the U.S., British grocers use traditional media to promote their online shopping services—even creating ads that focus on a particular aspect of the shopping services, such as flexible delivery times.
Additionally, U.K. grocers are national chains as opposed to the mainly regional chains in the U.S., which facilitates ‘national’ pricing and makes it less confusing and easer to compete. Price wars between Tesco and Asda, for example, have driven price down and interest up. Another method used effectively includes the “switch and save” offer. Consumers are presented with similar product pop-ups offering much cheaper alternatives (usually private label brands), which have been known to achieve 40% click-through rates.
Importantly, distribution networks and availability of products have been greatly improved. British grocers are using online shopping to fill in regions where they have less brick and mortar stores. For example, Asda (owned by Walmart) has fewer stores in the southeast region and uses online shopping to fill the gap. Finally, customer service in the U.K. is strong, offering free delivery, allowing customers to choose delivery time slots, and using fewer bags to be environmentally friendly.
The digital platform provides grocers with the unique ability to connect with and engage shoppers—value is not limited to grocers selling products online. From product selection to meal prep, shoppers are using the Internet as both an informational and inspirational tool. Online grocery shoppers are more than twice as likely as the average Internet user to read and post product reviews, download coupons, search for recipes online, and access the Internet through their phone.
Grocers can use their website to support the in-store experience by providing digital coupons, shopping lists, recipe ideas, advanced filtering by dietary needs, automated re-ordering and store availability searches. Mobile presents grocers with an additional touch point to engage shoppers via mobile coupons and grocery lists. Grocers need not be responsible for all content on the Web site; they can enlist manufacturers to maintain branded or sponsored sections of the web site. For example, a health-oriented brand could power a calorie counter on the grocer’s site, or an ingredient manufacturer might sponsor podcasts with celebrity chefs.
The bottom line is that online grocery represents a largely unrealized opportunity, but grocers must work to build awareness and establish the value proposition. The process needs to be easy and convenient, and online grocers must educate shoppers about the benefits in simple terms: buying groceries online saves time and money—two considerations that every shopper is looking for.
Download: Nielsen Online Grocery Report [pdf]