out one fifth of all grocery spending — a total of $100 billion — is expected to come from online shoppers by 2025, according to new statistics from the Food Marketing Institute and Nielsen.

The number represents the volume of shopping done at 3,900 grocery stores, according to FMI. Executives agreed: It’s time for some radical changes in the industry.

Benno Dorer, CEO of the Clorox Company, said this means grocery leaders have to relearn the business. The slow-to-change grocery space and the business models that executives honed decades ago are undergoing tectonic shifts. “We have to go from doing digital to being digital and know what that looks like,” Dorer said during a panel at FMI’s Midwinter Executive Conference in Scottsdale, AZ, during which these statistics were presented.

Becoming digital is increasingly a hot topic in the grocery industry, which has been slower to adapt to e-commerce than other forms of retail. While clothing and consumer goods have been perfecting their digital retail presence for decades, many consumers still go into the physical grocery store to do all their shopping.

That’s quickly changing. Today, according to FMI and Nielsen stats, about 30% of shoppers regularly shop online, and they do about 25% of their grocery shopping there.

In the next 10 years, the percentage of shoppers doing their grocery shopping online is expected to more than double. Nearly three-quarters of all shoppers — 72% — are projected to conduct 25% of their grocery shopping online by 2025. And 40% of all center-store shopping — nonperishable canned, boxed and bottled goods, as well as health and beauty items — is expected to come from online shoppers.

But as retailers scramble to meet the demands of the current and future digital customer, industry leaders said at the conference, it’s important to stay focused on the problem that grocery stores actually face.

“This is not a conversation about technology. It’s about the consumer,” Dorer said. “Companies are going to understand the consumer better. …To do so, manufacturers and retailers have to work together.”

Fundamental challenges

Executives agreed grocery needs to start making fundamental changes to address the shoppers who are moving online. But not everything is changing, according to Dave Bornmann, Publix Super Markets Inc.’s senior vice president of business development in grocery, customer service and fresh.

Even when 72% of consumers are doing a quarter of their grocery shopping online, more than 75% of shopping will still be done in-store, he said. This means that stores are going to have two different types of shoppers they need to cater to.

“It’s going to be a kind of progression you’re going to have to go through, with different ways to select products, then apply and focus that labor,” Bornmann said at the forum. “It’s a different way we’re not accustomed to.”

Just who are these digital shoppers? And what do they want?

There are few generalizations that can easily be made — except that what they probably like about digital shopping is its personalization. With more shopper data available from web clicks, shopper loyalty programs, interactions with mobile apps, past orders, and items consumers have been interested in, retailers have some of the information needed to personalize the shopping experience easily available. But with other data that can now be connected, retailers can get the bigger picture: They can find out which shoppers might go to the gym on a daily basis, what they post on social media, and more.

Chris Morley, president of Nielsen USA, recommended retailers invest in solutions and people that can take data that connects in-store behavior with the rest of a shopper’s life and measures it.

“From an analytics perspective, it’s extremely helpful,” Morley said to the panel.

Mark Baum, FMI’s senior vice president for industry relations and chief collaboration officer, advised retailers to recruit people who can do this kind of data work. He has seen and heard excitement through the industry about the possibilities that online grocery and personalization through data presents.

To better tackle the problem, Baum suggests more collaboration and sharing of best practices than the industry may be used to. Since research and decisions made right now impact profits and losses industry-wide, retailers and manufacturers should all work together.

“Let’s bring our resources together to understand the shopper, deliver that solution,” Baum said. “We should look at this as one integrated company.”

One of the places where collaboration is most necessary is setting up product information that offers a seamless experience. Product pictures and information should be the same on store shelves and online. Several industry experts said this is the kind of thing that sounds simple, but remains difficult to execute. Manufacturers could be very helpful, Bornmann said, in ensuring that the information that goes with each product and each size is standardized.

Consumers are key, he said. Retailers and manufacturers can work together with customers to make it easy to find products on the site. For example, a manufacturer or retailer may classify a product as something like a “beauty bar,” while a customer may want to find it by searching for “soap.”

Panelists suggested that customers do the heavy lifting of producing the descriptive “romance copy” for products. Consumers tend to talk about products on social media and in product reviews, and the descriptions they provide not only fit the way consumers look at the product, but they will use the keywords that can then be used as search terms.

Finding solutions

With the digital revolution transforming grocery, retailers are looking at a number of different solutions: Should retailers be offering delivery? Pick up? Should shelves be more interactive with shoppers? Are third-party contractors for picking and delivering products the answer?

Right now, there isn’t any one answer, panelists agreed. Baum said there are all sorts of experiments going on with retailers trying new things and seeing what works.

“At the end of the day, every retailer I’ve talked to says we’re going to do what they customer wants us to do… and do it profitably,” he said.

The new order of business is disruptive to the existing supply chain, Bornmann said. Many grocery stores are within a few miles of customers’ homes, so there’s a location network that retailers should take advantage of. But questions remain: Which items go to stores? Which items go to distribution centers for shipping? And how should employees be distributed?

“We have a lot of online shoppers who want their products the same day,” he said. “You have to think of the labor force that does this. It takes a lot of labor, and you have to look at ways to funnel the orders in to be more efficient.”

Then there is the question of cost and pricing. Grocers should charge extra for the convenience of online shopping; Bornmann said he has never been able to find a third party to do other household chores like dry cleaning or lawn care for free, for example. There are ways to make these services cost-efficient, he added, and they involve more partnership with CPG manufacturers.

Retailers should still try to get customers to come into the store, Dorer said. It’s where the greatest share of shopping will still take place, and it’s also the lowest cost option for digital convenience.

“There’s a big push to take out costs in packaging, data, and the supply chain,” he said. “There are plenty of ways of taking out costs in the back room that does not impact the consumer. You just have to figure out how to use the stores.”

With 40% of center-store purchases eventually coming from digital shoppers, Replenium CEO Tom Furphy told the panel that product replenishment and subscriptions are the key to the future. Furphy’s company works with Amazon, where he was previously vice president for consumables and Amazon Fresh. Most of Amazon’s grocery success has been with center-store products, some of which have come through the retailer’s “subscribe and save” program. Through the program, consumers can choose to get products they buy on a regular basis — ranging from cleaning products to diapers — sent to them regularly at a discount.

While this program is effective, it’s not without its flaws, Furphy said. But the idea of helping consumers automate some aspects of their regular shopping is lucrative.

“You should be leveraging the data that you have on those products,” he said. “Think of traditional product subscriptions as on the way out. Full-basket replenishment, that’s the next thing.”

Loyal online customers tend to spend more money than those who only use the services occasionally, according to Bornmann.

Automatic replenishment adds a degree of automation to the shopping process — which Furphy said is a good way to cut costs so they can be reinvested elsewhere in the business. He encouraged retailers to embrace automation.

However, panelists cautioned that while grocery stores need to change their business models, they also need to keep some core aspects the same. Despite the digital revolution, grocery retailers will need to keep doing what they do best: Staying close to the customer and providing them with a good and thoughtful shopping experience, delivering the products they need, introducing them to new things, and continuing to build trust.

“Whatever that medium is going to be, it’s all about service to the customer,” Baum said.

Source: Food Dive