Growing your eGrocery business depends on examining 3 strategic questions

COVID-19 was not only a catalyst for swift and significant changes in the U.S. grocery industry, it has also shaped a new set of realities that will impact how companies can grow more effectively going forward.

It’s understandable that much of the recent attention around and about the industry has focused on the explosive gains since late March 2020 as the US market experienced the equivalent of five-years’ growth in only a few months.

Moving forward, however, retailers need to focus on their future growth strategy – and specifically on three questions that will frame up the opportunities.

Strengthen your future growth strategy

So here are those questions, along with some valuable insights to help frame specific actions to implement and execute.

Q1: How will you attract more online customers?

During August 2020, 37.5 million US households placed one or more online grocery orders for delivery or pickup, according to the most recent Brick Meets Click/Mercatus Grocery Shopping Survey .  At that level, the US had 21.4 million more monthly active users than it did  in August 2019, raising a question about where companies will acquire new online customers.

For the brick-and-mortar grocer, this means attracting people who already shop online for groceries, but not from them – or in ways that they don’t service, like orders shipped via a common or contract parcel carrier. One customer segment that grocers will want to target first is re-engaging the lapsed online shoppers.

Analyzing online grocery shopping behaviors since March 2020, Brick Meets Click estimates that 23.6 million households fall into this lapsed customer segment, which is comprised of customers who received one or more grocery delivery or pickup orders since March 2020 but none during the month of August 2020.

There are others segments; however, identifying the ones that matter most will vary by company and current competitive position.

Q2: How can you drive up spending per online grocery order?

It’s easy to ignore or dismiss this question when we have reported that the average order value in August 2020 increased by 32% versus a year ago. However, it is evident that growing sales per order will become more challenging, and this means that companies need to sharpen their merchandising and promotional tactics to counteract these impending headwinds.

There are two variables affecting future sales growth among the active user base: customer mix and spending levels across the different customer groups.

Looking at the customer mix, 56% of monthly active users have completed four or more online orders within the past three months with a specific grocery or mass service provider as compared to 43% during August 2019, while first-time customers declined from 25% to 23% over the same time period.

The challenge that comes with a shopper mix that consists of more-established customers is that spending per order doesn't continue to grow as it does with newer customers who are still getting familiar with shopping this way. We’ve documented that customers completing their first order with a specific grocery or mass provider spent $76 on average per order. And, that spending grew by 20% for those completing their second order, another 7% for those on their third, and 4% on their fourth, for an average order total of $101. After the fourth order, average spending leveled off.

So, these two variables will create stiffer headwinds for growing top-line sales via increases in the average order value. This suggests that cross-, suggestive, and up-selling will play an even more important role going forward.

Q3: How can you improve your customer experience?

A larger share of households is becoming more familiar and comfortable with online shopping to satisfy even more of their essential grocery needs. The August 2020 Brick Meets Click/Mercatus survey found that 34% of all monthly active users received grocery orders via two or more methods (ship-to-home, home delivery, or store pickup) during the month, up from 15% from a year earlier based on a separate 2019 Brick Meets Click survey.

At the same time, the share of households shopping online across retail channels is growing. In fact, one in five monthly active users of a grocery service also used a mass service during the same time period, compared to one in seven during August 2019.

As a result, grocery retailers need to recognize that improvements to the ship-to-home experience and/or extremely positive and seamless experiences (such as extremely low wait time with mass providers), will frame expectations for those same customers when they choose to use a grocer's service.

While ensuring the shopping experience is acceptable for all customers is critical to boosting a customer’s lifetime value for the company, grocers need to focus even more intensely on the first-order customer, aka first-timer, as it represents a significant opportunity. Consider this insight from our August 2020 survey: A customer who placed their first order with a service had a 52% chance of completing another order versus 84% for someone who completed their third order.

“Despite the new realities of online grocery shopping, the customer experience remains a key driver of grocery retailers’ success,” said Sylvain Perrier, president and CEO of Mercatus, in a recent press release. “To sustain and grow online brand affinity, grocers must ensure that the digital channel complements retailers’ overall brand strategy and physical retail channels to create a consistent and seamless experience in line with what consumers want today.”

Action Steps

While there are likely more than these three strategic questions, the real point is that companies need to be looking at their business and asking questions like these.

And, to do that most effectively, a provider needs a better understanding of who the online grocery customer is and how its offering is positioned and differentiated versus rivals.