30 September, 2022

How regional US-retailers are taking back power

Jez Collins
A new phase of the grocery industry was as hot a topic as the steaming surroundings during last week’s Grocery Shop conference in Nevada. The phase was defined as a point of no turning back as penetration, value share growth and customer satisfaction continue to hit new levels. It will be signposted by a clear shift in, or rather reigning in of retailers taking back the power of ownership with regards to the end-to-end shopper journey.

The Covid Impact

Looking back two years ago, Instacart provided a quick go-to-market solution for retailers, accelerating grocery digitization, but ultimately owning the customer digital journey which was a godsend at the time, but is now seen in a different light. In order to sustain business during turbulent financial periods, retailers are paying much closer attention to how customers want to be served, and while nothing happens overnight, new patterns are emerging.
The ‘Covid Years’ have forced US-based retailers to grow their competence in serving shoppers online and have been able to mobilise resources to cater to this part of their business. From training staff and hiring new talents to optimise the shop floor for online picking and building fulfilment centres. Of equal importance is getting the right technical solutions in place to handle the online multiple touch points of modern omnichannel shopping.

The Value of Omni-Channel Customers

We know that multi-channel shoppers are 2-3 times more profitable than in-store shoppers, however that profitability is only persisted if the retailer owns the online business. The profitable model is revealing itself to be offering same-day delivery or next day (managed in-house) and utilizing other providers to handle more specialised fulfilment e.g. quick commerce. Financially it is difficult and has a huge impact. Looking at the cost of picking, a 40-unit basket in a hybrid store with a dedicated picking area takes 20 minutes, whereas picking in normal stores takes 40% longer at 28 minutes resulting in a huge impact on already tight margins.
It looks like many US regional retailers like Raley’s, Giant Eagle, CUBs and Spartan Nash to name a few are in a similar position when looking to increase their control over online, and with that, improve their access to data, price perception and build long term shopper relationships. Looking closer at one regional US retailer and a presentation that Raley’s knowledgeable Head of E-commerce, Zachary Wilson did during Grocery Shop, he described what he sees as “this (online) is the future and the future is here”. So what is the future? Focus on increasing online orders. The below numbers simply show why that is of importance, again when considering the tight margins our sector work within (Basket size, based on distribution method):
  • Raley’s e-com: 42 units
  • Raley’s in-store: 5-10 units
  • Instacart: 20 units
  • Doordash: approx. 5 units

Looking Forwards

Looking at the above numbers, Zachary and this E-commerce team will probably work hard to remove all unnecessary blockers for choosing Raley’s e-commerce and not another way of distributing. Some of those blockers are;
  1. Fees (delivery, service)
  2. Steps in the user journey
  3. Brand perception and Connection to a brand; Instacart or Raley’s
Another well-known regional retailer that wants to remain anonymous spoke about “the need to activate the tech stack to be able to take over orders from other third parties” on their own. With these points in mind, we expect the following going forwards;
  1. Grocers will work hard to own the end-to-end experience with online shoppers
  2. Grocers will invest in technology that supports a fully integrated online shopping experience, such as meal plans, recipe shopping and personalised offers and meal suggestions
Finally quoting Zachary Wilson of Raley’s of what regional grocers are doing to move faster “look what the big players are doing but not necessarily do the same thing”. Working in this agile way will help smaller grocers to find new ways and win in their local markets.

About the author

Jez Collins