What it takes to win in e-grocery

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What it takes to win in e-grocery

By Mike Troy - 02/24/2020

Powerful trends, including new competitive pressures, technological advances, and evolving consumer attitudes and behaviors, will disrupt the grocery business from coast to coast in the next few years. This is well understood.

Until relatively recently, the U.S. grocery sector has remained sheltered from the forces of e-commerce for a couple of reasons: Most American shoppers still prefer to choose their own food (especially meat, produce, and other perishable goods), and few grocers have had the financial capacity to invest in the highly efficient, large-scale cold chains required to make home deliveries at a profit. That is changing, according to a recent report from McKinsey & Company.

While online sales accounted for anywhere from 3% to 4% of the U.S. grocery market in 2019, the share could be greater than 10% by 2025, as major retailers—including well-funded entrants from outside the sector—invest in automation and innovative operating models to solve challenges in fulfillment and last-mile delivery. As quality rises and online grocers make more compelling offers, millions of shoppers will get comfortable offloading a task that only about 15 percent say they enjoy, according to McKinsey.

So, the question becomes, what does it take to win in e-grocery.

Recognizing that online grocery is exactly new anymore, but that the pace of investment and innovation is progressing at an unprecedented rate, McKinsey developed a framework for how grocers should be thinking about their digital futures. The five keys the firm identified include:

  1. Set an aspirational customer proposition using a data-driven fact base. Determine the core elements and differentiators of your omnichannel grocery offering and root them in a customer promise that you are prepared to deliver. Examples include fee structures, pricing models, and assortment choices. Leverage techniques such as conjoint analysis and ethnographic research to inform the value proposition.
  2. Build a robust demand-forecasting model for current and future markets. Project market demand for your trade areas and forecast your potential share. Geospatial-analytics techniques are available to inform demand modeling and the optimal mix of click-and-collect versus delivery offerings.
  3. Determine your optimal fulfillment model, which is likely to be bimodal. Explore the range of picking technologies available in the market and choose one or more that best suit your customer proposition and demand economics. Perform the same analyses when choosing delivery speeds and transportation models.
  4. Design your tech stack and prepare your IT systems. Build the IT plan that underlies each element of the customer proposition and select vendors to work with because most grocers won’t have in-house capabilities. Having a flexible technology stack that supports an agile operating model is key.
  5. Modify your organization and operating model to embed digital at the core. Align on a reporting structure for the e-commerce team and agree on decision rights and ways of working. Robust human-capital and talent plans and strategies will be necessary.