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The New Normal: Implications of the Long-Term Tectonic Shift to Online Grocery Shopping

By Cheryl Sullivan, President, DemandTec

Until recently, grocery shoppers were relatively slow to adopt online and mobile app options. Even those who had long since moved to online in other retail sectors often wanted to peruse in-store offers, select their own produce, eyeball the fresh and prepared options, and physically eyeball shelves for new gourmet salsas, craft beers, or other indulgences. Many older shoppers enjoyed making frequent trips to their local store as a form of an outing, and home cooks often opted to decide on that night’s dinner menu at the last minute and shop accordingly.

Online grocery

With the lightning-fast spread of COVID-19 that pattern was abruptly and fundamentally altered. Bain & Company research finds that online grocery in the U.S. rocketed from 3-4% of grocery spending pre-pandemic to 10% to 15%, and it continues to grow. For many shoppers, their earlier tentative forays, if any, into online or app-based grocery shopping turned into full-fledged channel shifts:

1.    Older shoppers particularly reluctant to embrace online options are a demographic most vulnerable to complications from COVID-19. Following health and safety guidelines, many rapidly switched to 100% home delivery or curbside pickup fulfillment.

2.    Parents who formerly had the opportunity to get to a grocery while kids were in school or daycare suddenly found themselves with homebound offspring unable to visit playgrounds or friends, needing hands-on attention and supervision for remote learning. With no time to slip out to the grocery, they have turned to online shopping.

3.    The severe economic contraction and the continuing cloud of uncertainty, combined with a commitment to minimizing contact outside the home, means people are doubling down on economic meals prepared at home. Even as the economy begins to recover, shoppers’ behavior will remain forever changed. They will remain very cost-conscious and price-sensitive for years to come. The rhythm of ordering online for a one- to two-week supply of groceries and the convenience of home delivery or curbside pickup will settle into a habit.

4.    Shopper loyalty will be forever changed. Those retailers who made shoppers’ lives more convenient and less disruptive during a time that was filled with panic and uncertainty will no doubt have a leg up on those didn’t. Loyalty will strengthen for those retailers who were quick to offer online with home delivery or curbside, who were quick to replenish their shelves, and who offer optimal pricing to their shoppers. They will be remembered as the new normal begins to set in and competition becomes more fierce as retailers strive for a share of an even smaller wallet.

5.    Shoppers of any kind find the current in-store experience unsettling – queuing outside in facemask and gloves at pre-marked distances of six feet apart, taking a basket being wiped down with sanitary wipes by a masked and gloved grocery associate, navigating directional aisles to maintain social distancing, greeting a checker behind a sneeze guard. The online experience increasingly feels like a preferred rather than a second-class alternative.

As all these shopper segments gain fluency and confidence in online and mobile channels, and as weeks drag into months in the current state of the pandemic, the training wheels on these channels will come off once and for all. In short, what now seems an anomaly will be the new normal.

What does the permanent shift toward online and mobile mean for grocers, and how can they successfully navigate in this transformed landscape?

1.    Online, prices are more transparent and visible than ever to shoppers.
Particularly given current shortages of formerly plentiful items – toilet paper, wipes, hand sanitizer, and now meat – shoppers have become accustomed to surfing multiple groceries to source what they need in the quantities and prices they want. More than ever, grocers need science-based price optimization capabilities to understand what competitive prices are at any moment on the items that matter most to shoppers, along with real-time price recommendations that enable them to respond with agility to changing customer price sensitivities.

2.    Brand loyalty is out the window. 
Shopper loyalty had been receding in the rearview mirror for a while, and the current shift to the convenience of online-only heightens that trend. And recent research from a Shopkick survey of 26,000 consumers found that a full 85% say brand names do not matter in a time of crisis. Grocers need in-depth real-time AI-based pricing to get accurate insights into demand signals as shoppers shift to private-label and economic options to long-preferred brands. These insights are critical to enabling grocers to better adjust their assortment and manage their supply chain to respond with sufficient agility to keep their shoppers engaged.

3.    Shoppers’ confidence in a grocer’s pricing fairness is more important now than ever.
Any perception that retailers are hiking prices in a time of crisis leaves a bitter taste and can drive shoppers away – permanently. With what-if scenario planning and accurate elasticity and sensitivity insights, grocers can ensure that they present shoppers with fair and non-arbitrary prices on the items that matter most to them, yet recover margin elsewhere to ensure a healthy, sustainable business.

4.    Grocers need full life-cycle pricing approaches from base to promotional to clearance, across all channels.
As assortment, brand, and basket mix preferences evolve, grocers need to get prices right at every phase in every channel or risk losing shoppers. The merchant and pricing teams now must turn to science to understand what offers in which vehicles and channels will resonate with shoppers and for insights into affinity to help build a market basket and cannibalization to avoid promotions that ultimately sabotage margin targets. And as assortments evolve and grocers remove some existing items to make room for new ones, they need science-driven markdowns to know exactly what marks to take when to profitably clear their merchandise by those outdates Historical data and the tried-and-true tactics grocers have used to support their desired price perception are now woefully irrelevant. The good news is that grocers who embrace AI-based price optimization and fully leverage its science can structure using analysis that looks at the recent and real-time market, competitive and shopper indicators to yield accurate, timely insights and gives recommendations that enable grocers to align with price perception strategies and give shoppers the prices they want on the items they care about, all while sustaining margins in the overall mix for long-term business health.