It’s pretty obvious that business models in the grocery industry are in a state of flux right now. Everyone’s vying to determine what customers really want – and how much profit can be made by providing it for them.
While there’s a lot of hype about online grocery stores being the “next big thing,” they still only represent about 5 percent of the retail grocery pie in the U.S. On the flip side, grocers are experimenting with other unconventional means of getting customers to buy — and figuring out how to balance those methods with the traditional in-store shopping experience still favored by 95 percent of U.S. shoppers.
State of the Union
While online grocery shopping is rapidly gaining popularity in other countries, no one really knows how customer preferences will emerge in the U.S. The online segment has proven challenging for many due to razor-thin margins, customer preferences for hands-on product comparisons, difficulties in shipping perishables quickly and the complexity and cost associated with quick-ship supply chains.
For now, many supermarkets are dipping their toes into several waters to determine what their customers want and whether they can make money through those less traditional means of service.
“(Consumers) can now order online, through mobile apps or by QR scan, and receive their goods through store pickup, drive-through, home delivery, locker drop-off or even have them placed in the trunk of a car,” writes Ralf W. Seifert on IMD. “(But) looking at the market today, it does not seem as though online delivery has disrupted the grocery retailing model very much at all.”
Stay Patient, Stay Nimble
Seifert points out that the 10-year-old Amazon Fresh, the online leader in the U.S. market, still struggles with pricing models and has yet to establish significant presences in several cities. Similarly, the conglomerate’s Amazon Go stores – which compile customers’ charges automatically without need for manual check-out – may not be expanding at the rate originally anticipated.
Meanwhile, seven-year-old multinational firm HelloFresh, which sends meal ingredients and recipes straight to customers, is growing at a healthy rate, partly due to its careful supply chain management. In 2017, worldwide sales rose by 90 percent; in the U.S., active customers and meals delivered both more than doubled.
The Berlin-based company focuses on nutritious, easy-to-prepare meals targeted to market tastes, using ingredients that can be bought, packaged and shipped at scale through use of outside delivery providers. Future plans call for more personalized offers based on data, and VP-Global Supply Chain Roger Hassan recently told Raconteur the company places a priority on staying ready for further innovations in this uncertain environment.
“Every decision we make in supply chain has to be with an eye on the future,” he said. “We’re always looking for solutions that are as flexible as possible that don’t require huge amounts of fixed infrastructure, inflated costs or overheads, so we can modify and adapt alongside the innovation of the product.”
His stance suggests other grocers going neck-to-neck in this rapidly evolving environment would do well to fine-tune their supply chains as well, remaining as nimble as possible until they see what the future holds. Seifert agrees.
“Amazon Fresh and the online grocery market prove that the scope for digitalization of supply chains is vast,” concludes Seifert. “But the Amazon Fresh story reminds us that the same business rules apply to disruptors as they do to brick-and-mortar retailers. Patience and attention to results are the best mix for success moving forward.”