Tightly aligning with local market preferences key to online grocery success, experts say

By Hank Schultz contact

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Tightly aligning with local market preferences key to online grocery success, experts say
Paying close attention to local market dynamics is the key to success in the online grocery marketplace, according to a webinar put on yesterday by consulting firm Profitero, which specialized in e-commerce insights. Food categories are underrepresented online as compared to brick and mortar sales, meaning there is a huge opportunity, the presenters said.

Presented by Victoria Gustafson, senior vice president of corporate strategy at IRI and Keith Anderson vice president strategy and insights for Profitero, the webinar focused on the key metrics of online grocery sales and offered a business case study of cereal sales, as well as one in household cleaning products.

Anderson said the competitive landscape is rapidly evolving. E-commerce in grocery sales is still in its infancy, but is growing rapidly, he said.

“The number of markets served in the US has almost tripled since 2010,”​ Anderson said. “Food categories under index online, they are biggest categories overall, thus presenting a huge opportunity.

“We truly are at an inflection point and the momentum is building very quickly. E-commerce for CPG looks like a one-five-ten future. It’s only 1% of the market now, over the medium term we will get to a 5% share and by the end of the decade as much as 10% of the overall CPG landscape will move online,”​ Anderson said.

Selling less of more

Having success in the sphere involves understanding the different market dynamics, Anderson said.  Stores, even vast suburban super centers, are inherently limited.  Inventory online is limited only by back end fulfillment and warehouse concerns.

“Offline is all about selling a lot more of less, that is fewer products. Even in a super center we are talking about 60,000 products at most. Online, it’s about selling less of more. It’s a willingness to turn a sku much less frequently. Then you have local click and collect delivery models, which are something of a hybrid. The unit economics of local online grocery are really still evolving and are distinct form the Amazon long tail national e-commerce model,”​ Anderson said.

Having a detailed understanding of local markets is the key to online grocery success, Gustafson said.  To illustrate her point, she offered a look at the differences between Truckee, CA and Austin, TX.  The Truckee market skews older, with more empty nester households, and sits on a lower rung on the demographic scale.  Austin is a city for upwardly mobile singles and young marrieds, she said.  And there are physical differences, too;  Truckee is far less dense from a retail footprint perspective. Having the right products turn up in search would be a key to both markets, she said.

“Our research shows that there are three things that are key to take into account when developing a local delivery strategy.  Those are: customer, competition, and consumption.  Truckee over indexes with Boomers, and Austin is the place to be for singles.  In Truckee they are looking for vitamins, pet supplies and incontinence products. In Austin, it’s beauty products, baby supplies and vitamins, and for vitamins, in Austin they prefer chewable forms. So you also need to look into very granular things such as dosage form,” ​Gustafson said.

Building a online offering

The case study on cereal sales in Brooklyn, NY offered a detailed look at how a major category translates into online sales.  Except that it hasn’t really yet, at least not in the US, Anderson said.

“More than 9 in 10 US households bought a box of cereal in 2014. It’s a staple of the US that hasn’t migrated to online the way categories like health and personal care have. Just 3% of US households buy cereal online and just 1% of cereal purchases were made online,” ​he said.

Anderson said it’s critical that the search results match the local product preferences, and that those results show up in a logical order.  Research shows that the e-commerce landscape has evolved to the point where almost no one looks past the first page. And for individual brands, it’s critical where they appear on that first page.

“Online its all about search and category ranking. Offline it’s about being at eye level on the shelf or in a more prominent location such as end caps,”​ he said.

The appearance of the product page itself is also key, he said.  The online experience affords the opportunity to adorn this page with endless bangs and whistles, but Anderson said clear images of the product and a clear, no-nonsense title are far and away the most influential elements in a shopper’s buying decision. Keep it simple, in other words.

“Shoppers need to have the right information to make a decision and instantly see you have the right products to mee their needs. When searching they need to find the brands and products that are aligned with local preferences,”​ he said.

Cereal is a great basket builder, Gustafson said, and here is where local preferences are key.  The Brooklyn market is 60% Hispanic, so additional products offerings keyed to that cereal purchases need to take that into account. Hispanics are more likely to be looking for Mexican and other ethnic foods such as Italian, and are looking for refrigerated juices and frozen breakfast foods.  They’re less likely to be seeking frozen entrees, chocolate, coffee or shelf stable vegetables.

“There are some great cross promotion opportunities, but when developing a basket builder strategy, it has to be based on those local insights,”​ she said.

For more information on the webinar, click here​.

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