Brick-and-Mortar Currently Winning Ecommerce Game

With recent news about Amazon bringing its ecommerce capabilities into brick-and-mortar stores and Walmart’s expansion into ecommerce, it seems that supermarkets are at a significant disadvantage in the online-ordering realm. But the reality is contrary: In the grocery ecommerce race, brick-and-mortar retailers actually are winning – at least for now.

That's a major finding from “Grocery eCommerce: Are You Playing to Win?” a June 27 webinar produced by Brick Meets Click, and presented by David Bishop, partner at the Barrington, Ill.-based retail consultancy. Progressive Grocer served as the exclusive media partner for the event.

“We can say this based on our research that looks at share of wallet in the U.S.,” Bishop said, “which shows supermarkets are capturing roughly 35 percent of the ecommerce share of wallet today.” Meanwhile, delivery platforms such as FreshDirect, Peapod and Amazon Fresh, are in second with a little under 25 percent of the business.

True, to win in the ecommerce race, grocers have to be in ecommerce to begin with, Bishop noted. Otherwise, grocery stores will only face stiffer headwinds by sitting on the sidelines as Brick Meets Click’s research revealed. And the longer grocers have been in ecommerce, the greater share of store sales they show in this sector, as their store-level analysis documented.

But how do supermarkets maintain this edge? Even though they’re ahead, grocers still have improvement opportunities when decomposing share of wallet into its three, component parts: spend, frequency and reach.

In spend, supermarkets are far and away ahead of Amazon, averaging about $175 per transaction, while Amazon averages around $30 when looking solely at grocery-related purchases, Bishop noted. (According to a response during the Q&A portion of the webinar, Bishop indicated that “grocery-related” follows the same hierarchy as that used in Progressive Grocer’s annual Consumer Expenditure Study.)

In frequency, grocers still have an edge, although Amazon is close behind: Active digital shoppers purchased from supermarkets on average two times during a 30-day period, which is 25 percent higher when compared to frequency shopper buy groceries from Amazon.

In terms of reach, however, digital storefronts have no boundaries, allowing greater reach of households. This is where Amazon dominates, reaching well over 50 percent of active digital households who buy groceries online. Since supermarkets are more grounded in the physical world, their reach is limited. However, Bishop pointed out that Amazon’s reach relative to groceries across all households stands at less than 10 percent currently, underscoring one reason motivating their planned acquisition of Whole Foods Market.

Bishop highlighted ways grocers can keep their steam – or, in the last case, close the gap – in these three areas:

• Spend: Perishables are the key here, as their presence in the basket is highly correlated with the larger, stock-up trips for regularly purchased products. Grocers need to highlight these areas in various ways, such as by improving placement on the website, leveraging higher-quality product images, promoting cross-sales opportunities and leveraging off-line purchase history to create a more frictionless experience online.
• Frequency: Consumers buy groceries online for a variety of reasons. However, for grocers, the game is mostly about saving time. So if grocers wish to protect or, better yet, grow purchase frequency, then they need to demonstrate how ecommerce frees up consumers' time. This can be done by making it easier and quicker to build the cart and improving order completeness and accuracy. Doing this delivers against the ecommerce promise and increases repeat and retention rates, while it also generates positive word of mouth or earned media for the service.
• Reach: In the only area where they're currently falling behind, grocers need to think about reach at a market or local level. It's at this level that the grocery ecommerce race is shifting, as proximity to the household is the direction in which pure-play digital grocers must head to move up the share of wallet rankings. This means grocers should monitor this metric at that level, but, more importantly, leverage existing digital and physical assets to promote their service in ways other retailers – such as Amazon – simply can't do today.