If grocery sales were pounds of flesh, shoppers would be making cannibals of retailers.
They’re doing it both virtually and overnight, through demand for online groceries. With breathtaking speed, digital food sales have transformed from a “could-do” service to a “must-be-doing” staple for the nation’s biggest retail brands, from Kroger to Walmart. This is despite the risk that online sales will steal from the same retailer’s in-store purchases.
But even the biggest brands can no longer afford to be cautious. The online grocery business, at roughly $21 billion, is estimated to reach as much as $100 billion in annual sales by 2025, according to a January report from the Food Marketing Institute and Nielsen. That figure is based on a compounded growth rate of 20%.
Costco is the most recent merchant to join the ranks. In early October, the warehouse club began offering two-day delivery on shelf-stable foods and fresh-food delivery through Instacart. In an interview with The Wall Street Journal, Costco chief financial officer Richard Galanti addressed the reality of cannibalizing his in-store sales with this statement: “We would rather lose it to ourselves.”
He may as well have said, “We’d rather eat our own arms and legs than hand them over to you.”
However, Galanti’s statement is less a death wish than an observation of the stakes food merchants must wager to stay in the game. Yes, retailers can eat their own sales; the trick is portion control.
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Following are six ways retailers can survive cannibalism by managing the two channels together.
Combo deals: Some retailers, such as Walmart, offer online shoppers extra discounts if they pick up their orders in the store. Retailers also can send online shoppers coupons with better-than-average discounts on products when purchased in the store, and vice versa. This second part, of offering great discounts at the store for online purchases, should be geared to reward program members who are easily identified at the register. These point-of-purchase offers could entice online shoppers to drop by the store more often to see what other deals they can get.
Extra dessert: Another strategy tied to a retailer’s reward program, this would grant double points on all in-store purchases for chosen online shoppers on preselected dates. If the reward program is app-enabled and can track the shopper through an opt-in feature, the offer can be further personalized with surprise triple point offers on items the shopper has previously purchased, while the shopper is in the aisles. Re-purchased items can be recorded for future online-ordering promotions.
White tablecloths: Online invitations to in-store events provide retailers an opportunity to deliver a consistent brand experience in store and online. And heck, it’s just fun. Retailers can extend the invitations when shoppers reach specified spending milestones on their online purchases, perhaps a certain sum each quarter. The event can be a VIP sales day, a sneak peek at a new brand or a pre-tour of a new store location.
Carryout: Nearly half of retailers, 47%, have invested in in-store kiosks, but primarily for marketing. The next step is using them for ordering and pickup. Whole Foods uses them in its New York store to deliver prepared foods that are in high demand more quickly, and Walmart is installing kiosks called Pickup Towers where online shoppers can gather their orders at the store. In-store kiosks can also allow shoppers to order seasonal items in advance, or regional items from other markets where the chain operates, such as Wickles Pickles from Alabama or Skyline Chili in Cincinnati.
Food pairings: An advantage of online retailing is that it can extend the product mix to include brands only available online due to their specialty nature. By partnering with the retailer, these brands (including startups and local ventures) could be part of in-store tastings and similar events that introduce new flavors, product lines or formulations. In doing so, they build awareness of the product, so the shopper gets a chance to try online-only brands before committing to purchase.
Ask to be fed: Who better to tell a retailer how to improve its store than the shoppers it wants in the aisles? By asking regular online shoppers to provide feedback through digital surveys, retailers collect firsthand input on what shoppers most want in the store. Often, this simply comes down to value, easy-to-find products and a fast trip, but different shoppers define value and speed in different ways. It may mean putting grab-and-go food near the registers, or placing the kiosks at the curb rather than in the store. Some merchants, such as Kroger, operate regular feedback websites that can be hyperlinked through an online order page.
Shoppers are right to expect more from food retailers, and they will go to those that provide what they want in ways that meet their needs at the moment. It may cost the retailer some in-store sales to do this, but winning the shopper means playing the long game. Giving up a few yards in the process means little if the retailer cements long-term loyalty from the customer.