With online accounting for only 4.8% of all U.S. food and grocery spend, it is easy to dismiss the rise of services like click-and-collect and home delivery.
However, the magnitude of the rise of online tells a different story. Back in 2007, only 3.9% of Americans had done at least some of their grocery shopping online. By 2012, that number had risen to 14.3%. Last year, it was 23.4%.
The number of people trying online food ordering continues to rise. So too does the proportion of internet users who shop online. Both of these trends mean that by 2020, some 7.4% of grocery spend will be digital. By 2025, the proportion will be over 10%.
Grocery retailers and CPG firms should not underestimate the disruption this shift will create. The drive to online isn’t merely changing where money is spent; it is also transforming the dynamics of food shopping and the relationships between consumers and brands.
Here’s what the rise of online grocery means for today’s CPG firms.
Digital discovery is difficult.
Consumer mindsets and behaviors are different online than they are in stores.
In grocery shops, consumers are prone to browsing all the brands and offers available to them. Even a quick glance down an aisle gives a brand a chance to capture a consumer’s attention.
This exposure makes things like packaging design and messaging, point of sale material, and in-store promotions critical. With these tools, brands can generate loyalty, break habitual behavior and encourage switching.
These dynamics change online. Internet food shoppers are far less likely to browse and look at new products or brands. Indeed, the majority find trawling through pages and pages of items tedious.
Given that the average online food shopper buys 39 items at a time and their primary motivations are convenience and speed, it is hardly surprising that they don’t want to spend much time choosing each product.
When searches do occur, they tend to be based on finding the lowest price, which is easier to do online than in store. This is particularly dangerous for national brands, as retailer owned-labels are often the most competitive tier of a grocery offer.
The net result is that online food shoppers tend to be habitual. They are far more likely to stick with the brand they regularly buy than to switch to a new one. And when they do switch, it is much more likely to be to a retailer owned-label or a low-priced brand.
Online impacts offline.
The rise of online shopping has also had an impact on physical grocery stores.
One of the most interesting trends is the decline in traffic and spend in the center of the shop – the aisles where commodities like laundry detergent, canned goods and household products are sold.
Retailers’ response to this trend has been to invest more in edge-of-store concepts like deli and hot food counters. Some retailers, like Target, are shifting to smaller store concepts that are more focused on takeaway food and convenience items.
All of this reduces the significance of the middle part of the store. And with it, the ability of CPG brands to expose themselves, their promotions, and their innovations to customers is weakened. Because of this, the threat of online to CPG brands is amplified way beyond the challenges online shopping poses.
Online criticisms present opportunities.
Although internet grocery shopping is becoming more popular, it is not without issues. It is true that consumers love the convenience, but there are plenty of things they dislike when purchasing food online.
Foremost among these is a lack of product detail, which includes precise identification of simple information like pack sizes, ingredients and nutritional data. Next comes unclear images, followed by inconsistencies in the type and quality of information across products.
Arguably, helping to remedy these problems by having accurate listing page content is one of the starting points for CPG brands wanting to develop a stronger online presence.
However, there are other things CPG brands can do to strengthen their hand in the digital era of grocery retailing.
What can brands do?
To respond effectively to the challenges of online, there are several areas on which CPG brands need to focus.
The first is online marketing. This includes both general digital advertising and paid product placement and promotion on retailers’ websites. This is especially important when it comes to influencing younger shoppers, who are less likely to absorb marketing through channels like television, print media and radio. Without these efforts, traditional brands risk being forgotten, and new brands risk remaining undiscovered.
The second is directly engaging and creating strong emotional connections with consumers. Having historically used remote communication via mediums like packaging design and third-party advertising, this is something many traditional CPG brands aren’t used to. However, as innocent drinks has shown, communicating directly via social media gives a brand personality and improves its visibility, even in a crowded digital ecosystem.
The third is ensuring that search rankings are optimized, both on general search engines such as Google and on retailers’ websites. Much of this comes down to having accurate information, engaging content, and ensuring that appropriate keywords are used. Without these efforts, brands run the risk of falling down the rankings, which negatively affects visibility and sales.
Mindshare, not market share
Many of the things brands need to look at in the digital era are about creating presence. This highlights a fundamental shift in thinking that needs to take place.
For years, brands have focused on growing and sustaining market share. While this is still ultimately the goal, achieving it in an online environment that has reduced visibility and leveled the playing field between large and small brands has become much more challenging.
As such, brands should now focus on growing and sustaining mindshare. Those brands that are top of mind among consumers have a much better chance of being sought out and found in a crowded, competitive online marketplace.
Accurate information, compelling content, direct engagement, brand personality, innovative products, and creative digital marketing are the keys to growing mindshare. Success in these areas is what will characterize the power brands of the future.
Neil Saunders is a retail analyst and consultant. He currently serves as Managing Director of the research firm GlobalData, where he oversees the development of the company’s retail proposition and its research output. He also works with clients to help them understand the retail, shopper and market landscape.
Neil is a founding partner of Prasentia, a firm that works with clients to help them communicate more effectively. Outside of work, Neil is an advisory board member for the faculty of business and law at the University of Southampton, an Honorary Lecturer at the University of New Hampshire, and a Visiting Fellow at the University of Surrey.