Consumers around the world want to do more of their grocery shopping online, and this demand is fueling a market that is expected to grow to US$100 billion by 2018, according to a report by The Boston Consulting Group (BCG).
Based on research in eight countries and on client experience, BCG believes that establishing profitable online operations is not only possible, it is essential for players that want to continue to grow and maintain market leadership. Early movers will seize a significant competitive advantage over those that come late to the market.
The BCG report, "Omnichannel Alchemy: Turning Online Grocery Sales to Gold," goes beyond assessing market potential to identify four fundamental elements for building a successful online-grocery business. This game plan can be applied to most markets and company circumstances:
• Don’t wait. Seize the opportunity now to lock in core customers and drive share.
• Avoid the costly last mile. Start out with the click-and-collect model and add home delivery only once sufficient scale has been achieved.
• Target affordable differentiation. Invest in the drivers of online satisfaction. Focus on key proposition elements that will attract and retain customers while keeping a careful eye on the workability and economics.
• Evolve and adapt. Whatever model a grocer begins with will need to evolve over time as the market and customer base—and the company’s own capabilities—develop. Plan a journey with a realistic timetable and return targets.
“In both developed and nascent markets, the brick-and-mortar players that dismiss the potential of online grocery sales risk being left behind,” says Chris Biggs, a BCG partner and a coauthor of the report. “There is now a clear roadmap that just about any grocer can follow. The early movers have the best opportunity to achieve profitability relatively quickly.”
BCG’s research shows that grocers’ most important customers—young families and affluent couples—are especially ready to take advantage of online grocery shopping.
Moreover, when these customers move online, they are likely to spend far more across channels than they would have done by shopping in the traditional way—the uplift often ranges from 30 to 50 percent.
Biggs points to the fact that any market in which two or three grocers engage in an online fight for customers sees a substantial rise in online penetration as the competing players invest in building and marketing their offers.
In large and competitive grocery markets, such as the U.S. and Germany, the competition for share is intense and becoming more so, thus limiting the ability to grow by adding stores. Moreover, in most instances, an online grocery operation is a much lower-cost growth option, and it can help grocers address current drivers of dissatisfaction among customers, such as the lack of assistance with carrying packed bags and boxes to their cars.
Online grocery shopping has already reached a substantial size in several countries: 5 percent of the total grocery market in the U.K., for example, 3 percent in France, and 4 percent in South Korea. The online share of grocery shopping is growing at rates of 20 to 50 percent per year in leading markets and should double in many markets by 2016.
“The difference between the leaders and the countries in which online grocery shopping has yet to establish a significant presence has a lot more to do with the reticence of retailers than the desires of consumers,” Biggs says. “Big companies in countries with developed online markets, such as the U.K. and France, already attribute a substantial proportion of their overall grocery sales to online purchasing. An even higher percentage of their yearly growth is driven by online sales.”
Consumers in the countries BCG surveyed said that they would expect to use an online grocery service with either the click-and-collect model or home delivery 13.5 times a year, on average—more than once a month.
In some markets, such as Brazil and China, consumers would shop for groceries online nearly twice a month. In the United States, approximately half of the respondents said that they would try home delivery or either click-and-collect or drive-through services.
The eight countries surveyed included two well-developed markets for online grocery shopping—France and the U.K.—and six nascent markets: Brazil, China, Denmark, Germany, Russia, and the United States.