5 Keys to Profitable E-Grocery

It was common to see retailers achieve double digit gains in sales last year, as the pandemic altered shopper behavior in profound ways. Most notably, e-commerce adoption surged causing record growth in online grocery sales.

This year, U.S. grocery sales are projected to exceed $100 billion with roughly 12.4% of total grocery sales expected to take place online. Just five years ago, online grocery orders barely topped 1%. While we won’t continue to see the same dramatic rate of growth, the new behaviors have become established and e-commerce penetration rates are expected to climb through the foreseeable future. This is true despite a recent uptick in brick-and-mortar store traffic resulting from rising vaccination rates and the lifting of pandemic regulations and mask mandates.

Still, some retailers question whether investment in online grocery is worth the capital expense. Many grocery retailers — both national and independent — leave their e-commerce businesses to third-party providers like Instacart. Though these partnerships provide a valuable entry point for customers testing the waters of online grocery, retailers lose control of their customers’ experience, revenue, and the ability to glean valuable data and insights.

Our “normal” now involves consumers using e-commerce at a much higher level due to ease and convenience. However, delivering that ease and convenience can be costly, which grocers must address through deliberate actions or risk long-term consequences to the financial health of their business. Five key areas to drive profitability in e-grocery include:

1. Product Pricing: Consumers tend to perceive click and collect and/or delivery fees first, followed by food staples and items with minimal price elasticity. With a smart pricing strategy, retailers have a prime opportunity to earn incremental margin on products with high price elasticity to help cover the costs of fulfilling online orders, lower service fees and improve consumer price perception.

2. Order Staging: For most independent retailers, it makes sense to fulfill orders from your existing retail space. We’ve seen retailers who have over-invested in setting up their staging areas with expensive equipment and picking operations. Today, using innovative picking tools and a vetted equipment list can squeeze the most value out of your staging area — starting in spaces as small as 32 square feet, and costing less than $2,000 per store.

3. Fulfillment Efficiency: Managing labor costs is paramount for successful grocery
e-commerce. Best practices to drive optimal efficiency include:

• Defined product locations: Provide precise product locations that include aisle, shelf and slot number to reduce search time. Wasted seconds equals lost revenue.
• Smart pick paths: Help pickers select products in an intuitive and efficient sequence.
• Batch picking: With the proper equipment, select products for more than one order at the same time.
• Zone picking: Creating zones within the stores enables greater familiarity with specific store departments (i.e., produce), in addition to greater density in the picking process.

4. Service Offer Sequencing: Once retailers get online, they tend to want to jump straight
into on-demand. In the beginning, it is important that retailers ensure expectations are met by offering customers scheduled click and collect and delivery options. Your e-grocery business will take a hit if a) you can’t consistently fulfill orders on-time, b) you can’t fulfill orders efficiently, or c) you can’t fulfill orders with positive unit economics. If customer orders are late, missing items or contain items they did not ask for, it gives them reason to jump ship.

5. Differentiation: In the grocery business, we all look to the giants for inspiration and insight into what’s coming next. But it’s important to remember what sets your business apart. Most likely it is because you deeply understand the needs of your customers and strive to go the extra mile to deliver great service. E-commerce is just an extension of your brand and business.

With a thoughtful approach to e-grocery execution, a wealth of data proves the relatively high customer lifetime value of grocery e-commerce customers while also earning loyalty and greater share of wallet. We already see our retail partners benefitting from incremental orders and basket sizes about 50% larger than the industry average.

While there is no one-size-fits-all approach, maintaining a laser-focus on delivering a great
customer experience through the technology and fulfillment solutions right for your business
and e-commerce maturity will help you build a profitable and sustainable e-grocery business — today and into the future.