Winning CPG Strategies in Online Grocery · optimization, supply chain, procurement and eCommerce...

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Winning Strategies in Online Grocery Retail Council of Canada STORE 2016 Conference June 2016 Randy Burt & Vishwa Chandra

Transcript of Winning CPG Strategies in Online Grocery · optimization, supply chain, procurement and eCommerce...

Page 1: Winning CPG Strategies in Online Grocery · optimization, supply chain, procurement and eCommerce in the food, drug, mass retail and CPG industries •Prior experience with Nielsen

Winning Strategies in Online Grocery

Retail Council of Canada STORE 2016 Conference

June 2016

Randy Burt & Vishwa Chandra

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Introductions

Randy Burt

Partner, A.T. Kearney

• Focused on retail and channel strategy, merchandising and trade promotion optimization, supply chain, procurement and eCommerce in the food, drug, mass retail and CPG industries

• Prior experience with Nielsen leading consumer market research functions

Vishwa Chandra

Partner , A.T. Kearney / Former VP of Retail, Instacart

• At A.T. Kearney working with leading retailers and consumer product companies with a focus on merchandising and supply chain operations

• At Instacart focused on partnering with new retailers on the platform and working with 100+ retailers to expand into new markets and grow sales

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Changing Consumer Behavior

Growing urbanization

Technology & Convenience

Changing demographics

Growth is set to take off in Online Grocery

3.5%3.0%

12-16.0%

2019E

8-11.0%

2014 2013 2023

U.S. Online Grocery Share 2013-2023 Forecast

Sources: Brick Meets Click, Packaged Facts, 2014, A.T. Kearney analysis; Packaged Facts, 2014

CAGR 15-18%

+17%

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1. Removed illogic responses (e.g., all shopping methods listed as “most frequent”) and erroneous question entries (e.g., shopping in stores listed as both “least used” and “frequently used”) Source: A.T. Kearney

Respondents

• 1,341 primary grocery shoppers

• 90% female

• 34% urban area / 54% suburban / 12% rural

• Average HH size = 2.9 people

Objectives

•Understand the online consumer

•Analyze online shopping preferences

•Derive strategic recommendations for grocery retailers

Methodology •Online survey

•Statistically relevant sample size (1,341 total respondents)

•All ages, income levels, geographies, and genders

Overview of A.T. Kearney’s 2015 Online Grocery Survey

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Key Findings

Source: A.T. Kearney 2015 Online Grocery Survey

Consumer Profile

•Usage increased across all demographics

•Highly penetrated segments are attractive

– 25-34 year olds: ~40%

– Urbanites: ~40%

– Those earning over $75K: over 40%

•Websites remain relevant while mobile usage grows – social not material yet

•Non-perishable categories lead

•Freshness and cost still perceived as barriers

•More customers are willing to pay for home delivery than pick-up

•Customers want savings:

– Coupons (71%)

– Price comparison (67%)

– Earn loyalty points (65%)

Channels & Categories Consumer Preferences

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Myth #1: Baby boomers won’t adopt online grocery

28%

7%

35-44 18-24

+29

> 65

25%

7%

55-64

32%

6%

45-54

7%

34%

25-34

37%

5%

11%

36%

+20

+26

+26

+18

+29

Respondents by Age Group who Bought Groceries Online

2015 2014 Source: A.T. Kearney 2015 Online Grocery Survey

Consumer Profile

Penetration is growing across age segments

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Myth #2: Online grocery only works in urban areas

Rural Urban

27%

Suburban

33%

41%

Source: A.T. Kearney 2015 Online Grocery Survey

41%

48%

44%

$75K - $100K

$100K - $150K

29%

$25K - $50K

$0 - $25K

31%

$50K - $75K

33%

$150K+

By Area

34% 2015 online penetration for all consumers

Consumer Profile

By Income

Respondents who Bought Groceries Online

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Myth #3: Fresh products won’t be bought online

Avg, Perishables Personal Care

52% 53%

Beauty Items Baby

19% 14%

31%

Packaged Food

Non-perishable

Online grocery penetration by category1

Source: A.T. Kearney 2015 Online Grocery Survey 1. (% Respondents who have purchased products online in past 6 months)

Channels & Categories

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Myth #4: Customers prefer click & collect

Fulfillment Preferences – Online customers

Willingness to Pay1

Customers prefer home delivery and are more willing to pay for it

71%

17%

12%

Delivery

100%

Other

Click & Collect

12%8%11%

11%

23%

13%

15% 21%

26%23%

28%

21%59%

45%38%

18%

6%

18%

3%

Pickup in store same day

$3.99

$1.99

$5.99

$9.99 or more

Home Delivery w/i 2 days

Home Delivery same day

$0

Pickup in store w/i 2 hours

3%

1. Note that responses to question are in regards to a regular “stock-up” trip Source: A.T. Kearney 2015 Online Grocery Survey

41%

55% 62% 82%

Consumer Preferences

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Myth #5: Online will dilute margins and cannibalize sales

First mover advantage is hard to sustain

Incremental sales decrease and cannibalization rises as online grocery grows

Competition drives down delivery fees

Diseconomies of scale in fulfillment, e.g. dark stores

Note: Thrifty Foods and IGA are banners of Sobey’s, Save on Foods is a banner of Overwaitea Food Group

Consumer Preferences

Historical view… …reality

If you don’t cannibalize store sales with online grocery, someone else will do it for you

…who shop online and in store

…with higher baskets…

New Customers…

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Myth #6: Convenience alone will drive online adoption

60%

34%

68%

Most or Very Likely to Return Due to:

Unique Online Features

Source: A.T. Kearney 2015 Online Grocery Survey

Savings Convenience / Speed

Consumer Preferences

Shoppers expect value across multiple areas

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Canadian online grocery market is just getting started…

Online and In-store Grocery Retail Sales by Country

(USD1 Billion, 2015)

1. Converted to USD using 12/31/15 exchange rate. Source: Syndy State of Online Grocery Retail July 2015, Euromonitor 2016, Profitero, BMO Capital Markets

US: 3% online

penetration 2015

$594 3.0%

97.0%

Online Grocery

In-store Grocery

UK: 4.4% online

penetration

2015

$258

In-store Grocery

Online Grocery

95.6%

4.4%

Canada: 1% online

penetration

2015

$101

Online Grocery

In-store Grocery 99.0%

1.0%

France: 3.6% online penetration

2015

$252

96.4%

3.6%

In-store Grocery

Online Grocery

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…due to challenges specific to Canadian retailers and consumers…

• Brick-and-mortar retailers have evolving capabilities, e.g. content rich websites providing information on food recipes1

• Customers are not as widely accustomed to grocery delivery

• As of 2015, 88% of Canadian grocery shoppers have never tried online ordering3

• Perception on consumer preferences e.g., on perishable goods

• Consumers not willing to to wait for groceries to be delivered2

• Consumers are spread out, adding to logistics costs for delivery

• Limited, outside of Toronto, Vancouver, and Montreal, creating potential barriers to scale

Key Challenges

Content

Awareness

Geography

Service

1. ComScore 2. BMO Capital Markets 3. Mintel

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Toronto

Ottawa

Montreal

Vancouver

Calgary

Edmonton

6 mil

4 mil

2.5 mil

1.5 mil

1.4 mil

1.3 mil

1. BC % share includes Yukon Territories, NWT, Nunavut 2. Includes all cities with metro area population >1MM Source: StatCan, S&P Capital IQ, Euromonitor, Canadian Grocer, company websites

Quebec (24%)

Ontario (32%)

Manitoba (4%)

Saskatchewan (3%)

Alberta (14%)

British

Columbia

(16%)1

Northwest Territories

Nunavut

Yukon Territories

…Retailers have started to enter the Canadian online grocery market via the largest metro areas

Atlantic Provinces

(7%)

Province (% of Canadian grocery share) Cities2 and metro populations

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Key Success Factors for Retailers in Online Grocery in Canada

Integrate with brick & mortar

• Create a seamless, integrated experience for every shopper

• Encourage users to move between channels through offerings

Deploy to customer needs

• Target specific customer segments, e.g. new parents, back-to-school shoppers

• Offer personalized promotional strategies and pricing based on past purchases

Establish enabling capabilities

• Invest in IT to build digital presence via website, mobile app, and social media

• Build infrastructure to enable economies of scale

How can Retailers win?

Define value proposition

• Develop offerings such as same-day delivery and click & collect

• Create competitive price and value with in-store offerings

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Success Factors Key Examples & Opportunities

Convenience • Last mile delivery for growing population

• Click-and-collect or pick up kiosks

Flexibility

• Plan orders in advance or get delivery in <30 minutes

• Pay online or when goods are delivered to the door

• Extended assortment found online

Quality

• Guarantee freshness of items

• Source high-quality, locally produced farm-fresh produce and meats

Pricing • Price parity across channels, low delivery fees

• Guaranteed money back if customers aren’t satisfied

Clearly defined grocery digital value proposition

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Success Factors Key Examples & Opportunities

Digital Layout

• Digital management as an emerging capability distinct from traditional merchant function

• Established dynamic environment – one to one vs. one to many

Personalization • Customized, merchandising (pricing, promotion, assortment)

Digital Engagement

• Digital path to purchase – influence customers at different points

• Meal planning and buying tools targeted to consumers

• Engage with customers during and post shop

Tools and services personalized to the individual

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Success Factors Key Examples & Opportunities

Selection • Consistency in assortment with store with targeted expansion – distinct layout and grouping online

Cross Channel

Engagement

• Distinct focus on making stores a destination (move from HAVE to WANT to visit the store)

• Ensure consistency in messaging across channels

• Embed digital engagement in store

Access

• Customize offering by customer segments

• Allow customers to seamlessly switch between available stores and channels within a specific region

Integrated offering across channels

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Success Factors Key Examples & Opportunities

Partnerships • Partner with 3rd party providers to gain access to more channels, customers and offerings

Investment • Develop multiple platforms (website, applications) with layout designed around user experience

Scale

• Leverage existing brick-and-mortar locations for delivery and pick-up

• Consider adding warehouses or dark stores as scale is expanded

• Micro density requirements

Digital capabilities to enable online grocery

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Thank you