What's really driving online grocery adoption?

With new online grocery platforms appearing almost monthly, the question is: How will shoppers respond when new online services come to a market? We’ve found that when any (or any combination) of three key drivers enters or appears in a market, it impacts how rapidly online grocery grows as percent of total grocery spending in that market.

Whether you start from a traditional or an online perspective, this framework helps explain consumer behavior when it comes to the adoption of online grocery shopping in a given market –and it also helps in identifying how much any new service will drive up the total share of spending online vs. simply taking share from anexisting online grocery service.

The big three

Key online grocery drivers boil down to the following:

• Affordability – How close is the cost of using the service compared to what consumers would pay if they were doing their own shopping in the store?  The lower the amount,the more affordable the service.
• Attractiveness – What advantages does the service offer that makes it easier or more convenient to shop for groceries?  A service that doesn’t provide additional advantages doesn’t broaden the pool of candidate shoppers.
• Acceptability – How many consumers are ready and willing to try or to use an online shopping service? This is where perception defines reality – if most consumers don’t see it as a viable option, then acceptability is low.

Where the rubber hits the road

These drivers stand in for the key questions consumers ask themselves as they evaluate and ultimately take these services for test drives.

Q1: How much is it worth?

Affordability is the easiest factor to measure, since it’s determined by the amount of the fees charged and the prices of the products purchased online. Whether online product prices are the same or higher than those charged in store will be a big deal for some shoppers. the potential to rapidly drive increased adoption of online shopping, but because it has a dollar impact on the retailer, it can be difficult to achieve. Asa result, affordability remains a significant barrier to the growth of online shopping because the majority of customers don’t see the added cost as something that they want to pay as a tradeoff for the service.

Products that shoppers need immediately are an exception. For these “on-demand” occasions,affordability is less of an issue; consumers are frequently willing to pay more of a premium because it’s worth it to them.

Q2: Does it make my life better/easier?

New features and options increase the attractiveness of online grocery services. They broaden the appeal and expand the customer candidate pool, thereby increasing the potential dollars spent in online services.  The two main types are(a) features that make shopping easier and more convenient and (b) features that make for a high-quality experience.

The features that make shopping easier and more convenient let customers shop the way they’ve always wanted to, but couldn’t until the service was offered.These include:

>Services that help the customer plan and shop the way they want to.

>Fulfillment options like home delivery, store pickup, or pickup at another convenient location.

>Breadth of offering: What items can be ordered online? Is it a limited online selection,an expanded online selection, or anything available in the store?

A high-quality online grocery experience includes accurate and up-to-date product images and rich information customers want to know about what they’re buying. High-quality experiences are fast, easy and intuitive. And, they are mobile friendly and permit and the shopper to share the experience with others.

New features and options are easy to see, but it can be difficult to learn how consumers value them. It’s worthwhile to survey consumers periodically to find out why some stay with the program while others drop out.

Q3: Do the pros outweigh the cons?

Acceptability is what determines whether consumers see the service as one they’re likely to try. In other words, is the risk of trying it regarded as “a good bet”? Will the selection of items fit their standards? Does it fit the picture they have of themselves as grocery shoppers?  Acceptability is the most challenging of the three drivers to measure, because it requires finding a way to prompt consumers to try something new.

We’ve seen two ways to activate this driver:

• Provide a financial incentive that reduces risk.

• Some incentives run as high as $20 off the price of the order, a significant savings.

• Others waive the service fee, sometimes for several shopping occasions, so consumers can buildenough experience see the full value of the service.

• Create positive word of mouth, so that “friends and family” encourage and oftenvalidate/reward people who use the service. This is difficult to achieve, butit’s also the most powerful way to drive trial. The validation of friends andfamily not only makes the shopper feel good about themselves, it alsoneutralizes potentially negative feelings about using the service (if you can’tmake your kids behave while grocery shopping you’re not a good mom, if youcan’t find the time to grocery shop you must not be very organized, etc.).

Looking ahead

We believe that understanding the impact of these three drivers (affordability, attractiveness, and acceptability) is important for several reasons. It helps explain consumer behavior when it comes to the adoption of online grocery shopping in a given market –and it also helps in identifying how much any new service willdrive up the total share of spending online vs. simply taking share from an existing online grocery service.

Last but not least, it provides a framework for retailers and investors who want to anticipate the potential impact of an online grocery offering, and for anyone who wants a glimpse into how this new dimension of grocery retail is evolving.