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Online grocery shopping, spend poised to climb

KPMG survey: Price not the chief factor drawing consumers online

More than half of U.S. consumers are projected to be shopping online for groceries next year, and those who do are expected to boost their spending, according to KPMG’s 2018 Grocery Retail Consumer Perception Survey.

Of more than 2,000 grocery customers polled, 48% currently do some or all of their grocery shopping online and 59% said they plan to do so in the future.

KPMG’s research also revealed a coming change in online spending. In 2018, 17% of shoppers made more than 40% of their grocery spend online, 27% made 21% to 40% of their spend online and 56% made 1% to 20% of their spend online. Yet for 2019, 25% of online grocery shoppers expect to make over 40% of their spend online, compared with 22% shoppers for 21% to 40% of their spend and 53% of shoppers for 1% to 20% of their spend.

“While the number of consumers who are planning to shift more than 40% of their shopping online is the fastest-growing group, the majority of consumers will do less than 20% of their shopping online,” the study said. “Thus, we anticipate a barbell effect where there is an increasing number of consumers shifting significant spend online, while there is also a large group that will remain in-store.”

Price is a factor but not the main draw pulling grocery shoppers online, according to New York-based KPMG.

Among heavy online shoppers, 26% cited product assortment and 25% named product quality as the chief factor in buying groceries online. Eighteen percent cited price, followed by promotions (11%), the shopping experience (9.6%) and convenience (9.5%). KPMG added, though, that price remains key to online grocery shoppers since price transparency makes less-price-sensitive customers more price-savvy.

“As the online grocery business is exponentially taking off, grocery retailers and consumer packaged goods companies (CPGs) alike need to adapt to factors that are important to online shoppers such as convenience and choice,” according to Mark Larson, national leader of KPMG's Consumer & Retail practice. “Already operating in low-margin environments, winning retailers and CPGs should consider innovative approaches in strategic revenue management, as well as digital and M&A strategies to remain competitive in the online market shift.”

The study also identified four customer profiles in relation to online grocery shopping for retailers and CPGs to consider when formulating their digital strategies.

The Online Pioneers are younger than 35, 80% spend over $250 per month on groceries online and 60% hold a club membership. Another notable group of e-shoppers, the Next-In-Line Adopters, does less than 20% of their grocery shopping online but plans to increase that, and they weigh product assortment as their top factor.

Meanwhile, the Online Dabblers do just a limited amount of shopping online, and the In-Store Crowd shops almost exclusively in physical stores and doesn’t plan to change that. Of these consumers, 80% are older than 35, and 40% spend less than $250 monthly on groceries.

“There is increasing pressure to better understand the evolving buying habits and expectations of the growing number of online grocery shoppers, but also those customers that remain in-store,” explained Katherine Black, co-lead for U.S. Consumer and Retail Strategy at KPMG. “This knowledge will help grocery retailers and CPGs to successfully find new options to meet their customers’ needs.”

As more grocery shoppers go online, both retailers and CPG companies will grapple with financial pressures because of online grocery’s impact on profitability, KPMG noted. Retailers must develop the necessary e-commerce capabilities at their distribution centers and stores — including logistics, digital technology solutions and last-mile delivery — and the cost will squeeze their already thin margins.

 At the same time, the failure to transition to new shopping patterns could result in lost market share and hurt their profits further, the study said, also pointing out that any extra costs will be passed on to CPG companies.

“Online grocery retailers and CPGs need to leverage technologies to simplify and diversify their supply chain and build their digital brands,” Black added. “Implementing multiple digital strategies to accommodate the key shopper segments, from online pioneers to the in-store crowd, can improve customer profitability and drive margin growth.”

Consequently, M&A activity stands to continue as grocery retailers and suppliers enact new growth strategies, roll out new product lines and deploy new technologies, according to Mark Belford, managing director of co-head, Consumer & Retail Investment Banking at KPMG.

“Targeted M&A can strengthen existing infrastructure, drive consumer awareness and rapidly accelerate digital capabilities for grocery retailers and CPGs, thus better positioning them to compete with leading and emerging retail private labels and digital natives,” Belford stated. “Therefore, the recent surge in highly focused, need-based M&A activity is expected to continue in order to win in the online grocery game.”

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