How to Succeed in the Emerging U.S. Grocery Market: Complete Analysis of U.S. Online Grocery Market, and Online Retailers' Features & Functionality.
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How to Succeed in the Emerging U.S. Grocery Market: Complete Analysis of U.S. Online Grocery Market, and Online Retailers’ Features & Functionality.
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 2 Introduction eCommerce in the US has continued to gather pace, The growth of eCommerce means that success for with the second quarter of 2016 seeing online retail fast moving consumer goods (CPG) manufacturers is grow at 15% year over year. Once considered immune more and more dependent on how their products are to the shift to the digital economy, grocery categories represented in the online channel. Understanding the are no longer the exception as a growing proportion of intricacies of how retailers operate online, and what retail sales move away from physical stores and into the capabilities are on offer is critical for brands looking to online channel. Established firms face competition from optimize their online performance. Amazon both online and offline, increasing the need for retailers to react to the changing market. In this analysis, Clavis Insight looks at the major online grocery retailers in the United States, comparing annual According to a Clavis Insight Survey, in the past six revenue, range and online store functionality for the four months 50% of shoppers have made a purchase in the biggest established players, in addition to the uniquely Fresh & Grocery categories online. Online frequency of positioned Instacart. Go to the Appendix for a full table purchase is also higher than in 2015 with 45% of online showing the functional capabilities of each, including grocery consumers shopping the category weekly, and size of portfolio, membership, delivery and navigation over 80% engaging with the category at least monthly. options, as well as product content, consumer engagement and mobile app capabilities.
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 3 Size of the prize: What is the opportunity The Major Players Online for brands? The grocery sector is a late bloomer when it comes to The online grocery market in the US is less mature than online penetration. Current estimates put 2016 online that of the UK, with different retailers tackling one city sales at 6%, compared to double-digit share figures or region at a time before expanding. Peapod is the in other categories such as electronics, but this is national leader when it comes to fresh delivery online significantly up from 2% in 2015. Online penetration with 5.4% of total online grocery market share according is expected to continue to grow, at an annualized to IBISWorld. It only operates on the east coast of the rate of 13.2% during the five years to 2020 according country and has been slowly increasing coverage since to IBISWorld. (An estimate from Brick Meets Click, a its inception in 1989. grocery research and consultancy, forecasts online grocery spending in the United States will reach between 11% and 17% in most markets by 2023.) This presents an opportunity for brands capable of establishing strong online positioning in order to take advantage of future growth. For this analysis Clavis Insight looked at some of the + Amazon largest players in the grocery market, including Amazon, + PeaPod Walmart, Peapod, and Fresh Direct among others. + Fresh Direct + Walmart
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 4 Peapod will deliver to the following areas Chicagoland S. New Hampshire Milwaukee Massachusetts S.E. Wisconsin Rhode Island Indianapolis Conneticut New York New Jersey Maryland Philadelphia Virginia S.E. Pennsylvania Washington D.C. *Note, Peadpod directly competes with Fresh Direct in New York City, New Jersey, Connecticut, Philadelphia.
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 5 Other major retailers, such as Whole Foods, have Brands operating in the brick & mortar space are used decided to outsource their online delivery to Instacart. to competition from both rival brands and retailer’s Instacart was once valued at over $2bn, but the private label offerings; the online channel is no company has stumbled in recent months as growth different. All of the retailers included in the analysis remains below expectations. Instacart’s struggle is offer their own private label ranges (Instacart can further proof that this market is still in its infancy in the deliver retailers’ private labels), and often prioritize United States. these ranges ahead of leading brands reflected in Search results. One could argue whether this is the The biggest threat to existing retailers is by far Amazon. correct strategy to drive category value and growth, While Amazon Fresh first launched in 2007, the service but it is the reality that brands need to be aware has only recently incorporated into the main Amazon. of. Brands therefore need to ensure that they are com domain. Its main website generates over 2.1 billion continuously educating their retail partners with visits per month, dwarfing the 1.4m received by Peapod. online category insights, and forming collaborative This launch accompanies Amazon’s traditional portfolio of partnerships around category management initiatives items and Amazon Prime Pantry and help make Amazon to deliver growth. the number one overall grocery retailer in the US. Here we see Walmart Grocery following other retailer’s Share of Shelf and Size of Portfolio policy to strongly push private label, with 40% of the Search results for “Olive Oil” returning a private label. Amazon Fresh is the newest entrant into the online Other retailers have lower but not insignificant levels of grocery market, yet boasts the largest catalog of items private label items appearing in Search results. at over 100,000. Walmart Grocery was far behind with 30,000 items, with Peapod and FreshDirect closing out the group with “over 12,000” and “over 3,000 fresh” items respectively. Regional Availability: % Of Products In-Stock
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 6 Amazon only recently launched a private label line charge a delivery fee no matter the size of the order. in the home goods and grocery space, and does not Instacart’s model is unique in that you can wave the yet have an Olive Oil brand. This time should be used minimum shipping fee by signing up for a $99 per year by brands to well position themselves against key membership. categories on Amazon Fresh if they expect Amazon to expand their existing private label. Amazon prime recently switched its pay structure from $299 annual to $14.99 monthly as an “add-on” fee to Online store functionality a Prime account. The memberships still come with a $50 minimum order, making Amazon one of the more In our analysis of online store capabilities, we looked expense options out there. at the differences across a host of retailer functions including delivery options, mobile capabilities, product Speed and convenience is fast becoming a competitive representation, and more. Understanding the nuances differentiator between online grocery platforms. In a between key retailers will enable brands to better recent Morgan Stanley survey, data shows that many optimize against key online metrics such as Ratings & shoppers do not see going to a store as a major Reviews, Availability, Search, and Content Integrity in inconvenience. In fact, 67% of shoppers said they like order to drive sales on the different platforms. to select fresh products themselves, 33% said they enjoy shopping in stores, and 27% said that the store Membership and Delivery options is more convenient. This may explain why Walmart Grocery advertises that you do not need to leave your Most US online retailers don’t charge consumers a car during pick up, or why Instacart offers users the membership fee, in an bid to get more to sign up, ability to pay a premium for faster 1-hour delivery. and some offer free delivey for orders over a certain treshold, while others charge for delivery regardless of order size. FreshDirect and Walmart offer free shipping on orders over $30, while Instacart and Peapod
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 7 The Digital Shelf – Search and Menu placement Availability When shopping online, what would historically be Product Availability may well be the most important considered shelf “placement” is determined by how metric that brands track in both the online and offline well products rank for keywords on Search results channel. While warnings of low stock are expected in pages, or where they are located in the category more established online stores, most major online grocery navigation menu structure. This is why many brands platforms only enable “out of stock” or “in stock”. will make it a priority to ensure their products appear on the first page of Search results, in order to maximize Peapod offers two options once an item goes out of exposure to the greatest number of shoppers. stock: you can have a comparable item substituted into the order or be offered a rain check for the next time Brands should be aware of what constitutes the first the item is in stock. page of search on any given retailer. In the grocery space this number various greatly, from around 20 Instacart is unique in that it acts as the delivery arm of items on Amazon and Walmart, to 120 spots on some brick and mortar stores such as Whole Foods. Its Peapod. Regardless of first page length, brands should policy is to replace your requested item with a suitable be looking to optimize their search performance to best fit if the item is out of stock in the store. If you do increase conversations from the search results page. not like the alternative items, then they can be dropped from the order. Section Functions Peapod FreshDirect Walmart Grocery Instacart Amazon Fresh Amazon Walmart Availability OOS statuses Y Y N Y Various Y Y Availability Low stock N N N N Y Y N Waitlist / Email Availability Y N N N Y Y N Notification
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 8 Shopper Sentiment – Ratings & Reviews Product Ratings & Reviews are a proven sales driver in Once again, Amazon has thought ahead to help solve the online channel. Given consumers have over three this problem. Some items have had their regular Amazon times more trust in Reviews than in brand advertising, Reviews pulled into Amazon Fresh in order boost a high volume of high-scoring reviews can act as free Review counts. For example, both Dole and Del Monte advertising for your product, driving ‘add to basket’. have Reviews going back to 2014 for their canned fruit It is also particularly important to generate user products. In this competitive space, these two brands engagement for new products. dominate Search results for “canned fruit” on Amazon Fresh. For Dole, 67% of their products on the first page Surprisingly, three of the five retailers looked at for this have a positive Review score, while that’s true for 60% report do not support user Reviews. While Walmart of Del Monte products. This means that Dole can take allows Ratings and Reviews for general merchandise, advantage of positive past performance on Amazon to its grocery portal does not. And while Peapod does propel its strategy on Amazon Fresh. On other online support Reviews, the vast majority of items do not grocery platforms, all brands are starting at zero. have any due to this feature being a recent addition to its website. Many items on Amazon Fresh do have at least one Review, but total counts are low for most categories since Fresh recently expanded to so many cities. This is another opportunity for early moves to boost the appeal of their item but increasing consumer engagement with their online portfolio.
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 9 Content Integrity – Delivering an Engaging Shopping Experience More and more consumers are by-passing Google For example, of the retailers analyzed only Amazon and other traditional Search engines, instead turning Fresh allows product images to be added to the directly to online store fronts for superior production description portion of the product page. While this information that educates and engages. Product page type of A+ Content is popular on Amazon, most Content in online stores is the means for brands to Amazon Fresh pages’ lack Content outside of the most educate and reinforce their product efficacy and brand basic details and a single image. This is a sign of the equity. In the absence of having a physical product immaturity of the market. Brands need to be aware of to touch and feel, it is the opportunity to create a the limitations in place and take advantage of the tools shopping experience that both informs, but also drives available to best positon their product. Amazon is joined conversion. Unfortunately, Product Content is another by Fresh Direct as retailers with multiple images toward area where the online grocery market lags the general the top of the page, as Instacart and Walmart Grocery eCommerce market. lack this basic feature. Multiple Images are important because they allow shoppers to get a better item for what the item looks like, increase conversations.
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 10 Mobile Apps In terms of eCommerce and online Content in particular According to a 2016 study done by Progressive Grocer, more and more industry watchers are talking about the roughly 43 percent of millennials shoppers say they use importance of Mobile. Speaking at the Clavis Insight some kind of mobile app to grocery shop, a further sign eCommerce Summit in 2015, Ocado’s Head of Product that brands will need to optimize for smaller mobile and Merchandising, Hannah Gibson, stressed the screens. Mobile ready images call out pack size, color, importance of Content, adding that brands and retailers and other key details. This saves shoppers from having needed to think mobile first when it comes to creating to zoom in on text located on labels or small bottles. their online store Content. “It’s really difficult to create Content that works well to engage the shopper on Amazon offers its Fresh service within the standard mobile, with small screens, minuscule images and short Amazon app, which will boost the number of shoppers bursts of text,” Gibson explained. “But if you can get exposed to its service. Walmart offers a standalone app your Content to work on small formats then it will work just for its grocery service, while FreshDirect, Peapod, for desktop web pages as well.” and Instacart all offer their own apps as well. In the United States, shoppers have been flocking to mobile across multiple categories, driving 1/3 of all Black Friday traffic this year. This is only a sign of things to come, and brands that get ahead of the curve to optimize for mobile shoppers will have a distinct advantage.
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 11 What do brands need to win? How can brands take their knowledge of the key Building customer engagement on websites with sparse eCommerce metrics and turn it into success in the Reviews, such as Peapod, will help cement certain items online grocery space? has category leaders. As the market matures, there is room for brands to be aggressive and to jump ahead The key foundation of capabilities and resources of rivals on a slew key online metrics. needed to succeed in the online grocery channel will include measurement and analytics. As we have The eCommerce channel isn’t going to go away; in fact, seen, many of the retailers trail traditional retail sites it is continuing to grow its share of overall retail. Brands when it comes to their current feature set. No matter need to understand this ever-evolving landscape, the he metrics and KPIs you choose to follow, basic retailers and capabilities of their online stores to be improvements will have a significant impact on your better armed in order to win in the coming years. online offerings. Luckily there are usually plenty of examples where you can demonstrate impact. It might be about optimizing product titles for better Search performance or quickly identifying distribution gaps in certain online retailers. 2 1 3
Complete Analysis of US online Grocery Market, and Online Retailers’ Features and Functionality 12 UK Grocery Category Functions Peapod FreshDirect Walmart Grocery Instacart Amazon Fresh Amazon Walmart.com Size, Operations and Offering Online Launch 1989 1999 2015 2012 2016 1994 2000 Year (UK) Over 15 major cities London, and ten Over 30 locations including Atlanta, major US cities Northeast, Chicago including Boston, Chicago, including Los area, Washington New York, New Bentonville, Regions Served Denver, Los Angeles, New Entire US Entire US DC area, Jeresy, Philadelphia Arkansas; Phoenix, Angeles, New York, York City, Boston, Philadelphia Arizona; Denver, Philadelphia, San Chicago, San Colorado Francisco, Seattle Francisco Product Count 12,000+ 3,000 30,000 Varies by Store 100,000+ 200+ million 4+ million Own Label Y Y Y N Y Y Y Capabilities Marketplace N N N N N Y Y Capabilities Pricing & Delivery Shipping Y Y Y Y Y Y Y BOPIS /Click & Y N Y N N N Y Collect In-Store Only N N Y N N N Y Subscription/ N N N N N Y Y Subscribe & Save Membership N N N N Y Y Y Fastest Shipping/ Y N 2 hour 1 Hour On The Day Delivery One Day 2 Day Delivery Available Free Shipping Must be a prime N $30 $30 N $35 $50 Threshold member Delivery Fee $9.95 under $100 $6.99 free pick up $3.99 $299 per year $3.99 $3.99 Availability OOS statuses Y Y N Y Various Y Y Low stock N N N N Y Y N Waitlist /Email Y N N N Y Y N Notification Navigation options & Placement Menu Filtering Y Y Y Y Y Y Y Navigation Menu Page Size 120 25 60 All Items (80+) 24 24 39 Search Page Size 120 25 60 50 24 20 20 Suggested Search Y Y Y Y Y Y Y Terms Spelling Y Y Y N Y Y Y Forgiveness Sponsored Search Y Y N Y Y Y Y Search History Y N N N Y Y Y Consumer Engagement Ratings & Reviews Y N N N Y Y Y Enable Manufacturer N N N N Y Y N Responses Review Syndication N N N N Y N Y Chat / Feedback N N N N Y N N Functionality Q&A N N N N Y Y Y # secondary images N Y N N Y Y Y (up to 5) Content & Product Page Structure Video N N N N Y Y Y Variated Pages N N N N Y Y N Detailed Y Y Y Y Y Y Y Description Images/Graphics N N N N Y Y Y in description Detail Bullets Y Y Y Y Y Y Y Best Seller Y Y N N Y Y Y Rankings Ingredients Y Y Y Y Y Y Y Allergy Y Y Y Y Y Y Y Nutrition Panel Y Y Y Y Y Y Y Sponsored Products N N N N Y Y Y on Product Page Suggested Items on Y Y N Y Y Y Y Product Page
13 Online Key Metrics Availability Track your portfolio’s state of Ratings and Reviews Set targets for availability by retailer, category, brand, and total number of product reviews and manufacturer to optimise your range, maxi- average rating score to help drive omni- mise distribution, and improve sell-through. channel sales. Search Rank Understand where your Media Tracking Monitor online products rank in search results for specific media placements for compliance search terms to ensure your products are and effectiveness; track category discoverable. competitors. Content Integrity Monitor compliance Price and Promotions Tracking of product content for individual SKUs Monitor pricing and promotions for by category and online retailer so that you your products and your competitors’ can make sure your products are optimised products to make sure your products to win the digital shelf. are optimised to win the digital shelf. Category Placement Understand where Location Based Tracking Monitors location- your products rank on the online store based product Distribution, Availability and category menu structure. Target categories Price & Promotion, and provides aggregated to ensure specific product sets are analysis of metrics at the market-level by easily discoverable. retailer, brand and category.
14 About Us Clavis Insight is at the forefront of the ecommerce revolution, delivering ecommerce insights and online retail store analytics to a broad range of consumer products brand leaders around the world. Our Insights are designed to enable you to optimise your distribution, content integrity and online placement in the digital channel in order to protect your brand online and grow your sales. To learn more please contact: info@clavisinsight.com BOSTON LONDON SHANGHAI DUBLIN 46 Farnsworth Street, #610, 6th floor, Room 965, ECO CITY 7th Floor, 1 Floor, st 22 Upper Ground No. 1788 Nan Jing Road O’Connell Bridge House, Boston, London, West, Jing An District, D’Olier Street, MA 02210 SE1 9PD Shanghai, China Dublin 2, Ireland + 1800 693 9591 +44 20 3318 6329 +86 21 2231 0511 +353 1 254 3440
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