Many retailers in the U.S. have started their journey into eCommerce by either running a pilot or implementing a small-scale rollout of click & collect and/or local delivery. Getting into eCommerce is now a requirement if you’re going to compete in the grocery industry. But developing a strategy that can scale as we approach the next wave of eCommerce grocery is potentially of even greater importance.
Here’s how you can ensure you’re prepared for the next wave of eCommerce grocery:
1) Get your pricing right – Many retailers make the mistake of assuming that in-store pricing needs to be matched online. When matching in-store pricing, it becomes virtually impossible to create a profitable and sustainable eCommerce business. There are inherent incremental costs in fulfilling online orders. Those costs need to be covered. And it’s very challenging to do so simply on service fees (click & collect and/or delivery fees). Additionally, if you start by matching in-store pricing, you create a consumer expectation that can be difficult or even impossible to reverse.
TIP – Remember that consumer price perception is typically based on service fees (click & collect and/or delivery fees) first, and unit pricing second. Retailers have a major opportunity to earn incremental margin on a per-product basis, accounting for incremental costs associated with fulfilling orders. In doing so, service fees can be reduced, which simultaneously creates positive consumer price perception.
2) Think beyond the store for pick & pack – Given the amount of excess retail space that exists in the grocery industry, it makes sense to begin fulfilling orders from your stores. At an early stage, the capital expenses associated with developing a “wareroom,” dark store, or dedicated warehouse simply do not make sense. (A wareroom is a small warehouse space within a store – typically in the backroom – that has dedicated inventory for fulfilling eCommerce orders.) But, as your volume grows, it will become prohibitive to pick from your store shelves. There are a number of issues associated with picking from a store – for example, dealing with a high percentage of out-of-stocks, inefficient picking (leading to high labor costs), and negatively impacting the in-store experience by adding traffic to the aisles.
TIP – Even if you aren’t ready to begin developing a wareroom, dark store, or dedicated warehouse, we recommend thinking about your long-term strategy for fulfilling online orders. eCommerce will eventually account for 10-20% of total volume, so plan your fulfillment strategy for those days ahead and you will be set up for success.
3) Create efficiencies through proper slot utilization – It’s easy to think you should offer your customers as many time windows as possible for click & collect and delivery. But this won’t benefit you if a) you can’t consistently fulfill orders on time, and/or b) you can’t fulfill orders efficiently. Offering on-demand delivery may be a great service to customers, but can you meet that expectation consistently? Can you do so in a manner that allows you to profit on each order?
TIP – Consider the costs associated with offering each of your click & collect and delivery windows. Make sure you provide yourself ample time to fulfill orders accurately and on-time for your customers. Plan to continually optimize your fulfillment windows to create operational efficiency while meeting customer needs — scaling up time windows that are particularly popular, while reducing/eliminating time windows that aren’t being utilized.
4) Define your differentiation – Given all the pressures on grocery retailers today, it’s easy to rush into eCommerce without thinking about differentiation. But that’s possibly the most critical mistake you could make as more volume begins to move online. Just like you focus on differentiating from your competition in the store, you must do the same online.
TIP – Do not simply check the box; really buckle down and focus on how your eCommerce business and associated services will be unique from your competitors. Consider how you can create a differentiated customer experience. And remember: this involves much more than the user interface; it encompasses everything from the time the order is placed until it’s in the customers hands. Focus on products you offer that your competitors don’t, and put as much energy into merchandising online as you do in-store.
These are some of the many ways grocery retailers can prepare for the next wave of eCommerce. We hope these tips are helpful to you. Please contact us to learn more!