Digital grocery sales dip slightly, as consumers start to trade down to private label
“What's happening with private brands today ... is not a new phenomenon. We see this every time there's an economic downturn of some sort, whether it be a recession or heavy impact of inflation, and that's ... how consumers continue to remain resilient,” said Doug Baker, VP of industry relations for FMI.
Digital consumers begin to respond to economic pressures
Though more consumers are heading back into the grocery store to do their shopping, many are still relying on digital tools for in-store pick-up and delivery. Recent Incisiv data shared in the webinar puts US digital grocery sales for the first quarter at $30bn, a 0.9% dip from the same quarter last year.
While the number of items in a digital grocery basket has remained flat, 63% of consumers are actively looking for deals, and “loyalty is becoming [easier] to lose and hard to win,” shared Gaurav Pant, chief insight officer at Incisiv. Grocery Doppio research has found that 73% of digital shoppers have shipped a private-label grocery brand since the start of the year, and only 17% are willing to pay a higher premium for their preferred national brand.
“This is probably one of the first few times we’ve seen a weakness in national brands, and we've only seen about four or five brands that shoppers say they're completely anchored to,” Pant said. “Everything else they're willing to engage in the conversation to having a trade-off with them, which leaves a huge opportunity for grocers.”
And as grocers look to capitalize on today's market, "private brands need to break away from that fast-follower mentality and really get into some white-space innovation," Baker said. These private label brands need to start listening to the customer wants and investing to deliver on them, he added.
"Retailers, in general, they're somewhat risk-averse. There's not a lot of margin that you can make a mistake and fail fast. But within this, you're going to treat your private label as a private brand, you need to start doing the things that the brands are doing."
Can smaller grocers catch up in digital?
When it comes to who's winning the digital grocery race, larger grocers are getting larger basket sizes and also more in-store pick-ups.
For the first quarter of 2023, grocers with over $10bn in sales saw the average digital basket come in at $149.13, as opposed to grocers with under $1bn in sales that had an average size of $34.89, according to Incisiv research. Additionally, larger grocery stores are more likely to use pickup over delivery (54.7% in pickups to 45.3% delivery) as opposed to the reverse for grocers making under $1bn (62.2% in delivery vs 37.8% in pickups).
“The larger national chains are going to outperform in terms of their market share, and that's a challenge for the smaller grocers because not only are they may be potentially behind the terms of that maturity or but also the market share over time it's [going to] be harder to [get] back,” said Barry Clogan, chief product officer at Wynshop.
However, grocers of all sizes need to think carefully about whether they lean on delivery or pick-up and what that means to their bottom line, Baker explained. Delivery can be cost prohibitive, so Baker encouraged brands to find creative ways to mix digital ordering and in-store pick-up, similar to how Domino’s ran a promotion where customers can pick up their pizza for a discount, he added.
“They're paying them $3 to come and pick up their pizza rather than have it delivered. And is that a worthwhile strategy if delivery is that unprofitable for retailers? Is there a way we would incentivize them to come and get their product through a monetary discount on their goods?”