Industry analysts call it “The Amazon Effect” – when a retail behemoth makes an unexpected move into the shopping market, making waves throughout the industry. However, shoppers are not the only ones being affected. Retail establishments, vendors and manufacturers are also seeing major shifts in the way they do business. These changes are likely to accelerate throughout the coming years as the mix of online and local shopping options continue to rise.
Findings from a recent survey conducted by Food Marketing Institute and Nielsen project that 70% of shoppers will be grocery shopping online within 5-7 years. Online shopping has grown rapidly amongst the time-starved 18-35 age group, in particular. Up to 43% of Millennials shop online for groceries at least occasionally, a dramatic shift from only 18 months ago. Overall, online grocery is one of the fastest-growing segments in the retail landscape, and it is driving some considerable changes in basket size and frequency.
Online Grocery: Current State
The growth in online grocery sales is staggering: industry experts anticipate that U.S. sales will exceed $29.7 billion by 2021. Even more interesting is that there is a difference between the type of products purchased and their frequency between online and local retail grocery establishments. Americans are most likely to purchase snacks, cereals and canned goods online, while pre-made meals, dairy and meats are typically purchased in-store.
According to a recent study by Food Insight, shoppers purchase groceries online about 30% of the time. To better understand online shopping habits, it’s also helpful to know which groups are buying groceries online.
The US Online Grocery Consumer Survey found that shoppers ages 30-44 are more likely to shop online (28.3%) compared to other age groups. Moreover, minority shoppers are nearly 10% more likely to shop online than those who identify as white. College education has little impact on their online purchase behavior as 31% of non-college shoppers and 28% of college shoppers choose to shop online most of the time.
The Changing Basket Size
Along with shifts in what is being purchased, there are significant differences in how many of the items are making it into baskets based on channels and delivery methods. As reported in the consumer survey, the average basket size for general online grocery orders was $90.61 over a 12-month period. For click-and-collect grocery orders – in which shoppers order online and pick up in store – the average basket size was $71.76. This online shopping method – which is growing among Millennials – was 30% higher than the basket size for physical grocery stores ($55.18), which presents an opportunity for grocery retailers.
As online shoppers shift to full-basket grocery “trips” – primarily driven by Walmart and Kroger – local retailers must find ways to increase their basket size by providing online services. They should also consider incorporating in-store features that contain a digital crossover such as handheld scanners, mobile coupons or self-service checkouts. A global Nielsen study notes that shoppers are increasingly willing to utilize online self-service options while in a physical store.
Online Shopping Frequency
Although the average online basket size has grown 11% in the past year, order frequency remained fairly unchanged, according to a new shopper research report by Brick Meets Click. In fact, the average monthly orders among active online shoppers increased by only 1% from 2017 to 2018. The slow growth may be attributed to the fact that online shoppers often make bulk purchases to qualify for free delivery or to justify the delivery charges, reducing the need to make frequent grocery trips. This is especially true for shoppers ages 30-44 who are more willing to plan grocery shops ahead of time due to their busy schedules, and in turn, place the largest online grocery orders.
Conversely, 32% of shoppers bought groceries in-store 2-3 times per week in 2017. But although in-store grocery trips occur more frequently than online grocery orders, 85% of the additional trips are from shoppers leaving the store with smaller baskets. As people turn to online channels, more shoppers are visiting stores to buy pre-made foods that are convenient and closer to consumption rather than to stock up their pantries.
Adapting to the Retail Shift
Brick-and-mortar stores are quickly adjusting to account for the differences in shopping habits, with the primary driver being convenience. One way that local retailers can capture more of the online grocery market share is to provide delivery options. Home delivery remains the most popular way for online shoppers to retrieve their groceries, and many retailers are partnering with services such as Instacart and Postmates to offer same-day and sometimes one- or two-hour delivery. Alternatively, click-and-collect is becoming more popular among online grocery shoppers who don’t want to wait for deliveries or choose to forego the charges.
Local retailers can also introduce new in-store experiences to attract online shoppers. Publix is one of the retailers testing new store concepts. Its GreenWise Markets provide healthy, natural and organic products, and they’re designed for shoppers who need to make a quick stop for ready-to-eat meals. Shoppers can find premade burrito bowls, Mediterranean pizza, sushi and smoked wings, as well as attend wine and cheese tastings – transforming the grocery trip into an in-store dining experience.
Although the majority of shoppers still visit physical stores to purchase groceries, offline basket sizes are decreasing while the average online basket size is increasing rapidly among active online shoppers. Retailers can attract these online shoppers by leveraging home delivery and click-and-collect choices, and testing new store formats that better serve shoppers’ in-store preferences. Transforming the shopping experience to include convenient online services will ensure your store remains abreast of the evolving industry trends.