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With the U.S consumers' wallet share on ONLINE GROCERY growing rapidly, there is a subtle battle brewing between traditional retailers and e-tailers to capture their share of wallet. Given this is an industry typically characterized as highly price sensitive, hyper-competitive with razor thin margins and high purchase frequency - 'How to drive profitable revenues and build a sustainable, scalable (mass-market) online grocery business model?' is a key conundrum faced by U.S grocery retailers today.

Without a doubt, the U.S Online Grocery industry is experiencing a structural shift [see Figure 1] in the way consumers shop for groceries today. Few key trends defining this landscape, worthwhile to note are: price-to-value continues to remain an important driver for consumers who are seamlessly shopping for food and beverage across various store formats (no longer shopping at just one stop shop supermarkets), local and private labels are gaining popularity (better assortment mix), and last-mile delivery continues to be more challenging for retailers with diversifying consumer needs. So, what drives a consumer to shop online?[1] 


Grocery Image_3.jpgGrocery Image_4.jpg 




Turns out, Convenience still remains their primary motivation, though not the ONLY reason [see Figure 2] - according to a U.S Grocery Shopper Trends 2012 - Executive Summary published by Food Marketing Institute (FMI). Clearly, some of these reasons are easily replicable by the traditional retailers making it a level playing field for them. So, how can grocery players tap onto this opportunity today and make MONEY at the same time?
A Grocer's Perspective
De-constructing the P&L of a grocery business model [see Figure 3] shows that the overall economics of this business mainly depends on: the type of fulfillment model used (meaning productivity in number of units picked per hour), basket size, consumer demand, and population density.[2] 
Grocery Image_5.jpg
Clearly, a one size fit all approach where-in an e-tailer offering only a home-delivery or a traditional brick and mortar retailer offering only an in-store pick-up might not be viable and profitable. Instead, both e-tailers and traditional brick and mortar retailers, will have to strategically innovate to harness the given market opportunity. Consequently, rather than having a home delivery model across all geographies, brick and mortar retailers can play it by the consumer demand and population density to leverage a combination of fulfillment models e.g. in areas of low density and low consumer demand they can offer variations of click-and-collect models (in store, curbside pickups, delivering to your cars - Volvo seems to be innovating on this front), areas of high density with high consumer demand can leverage dark stores (dedicated warehouses) to offer home deliveries. E-tailers too, can leverage a similar strategy in offering variations of click-and-collect models (car deliveries, specific location pick-up) to drive up their revenues. Having looked at the "last-mile" logistics of the food delivery, now let's look at the consumer side of interactions - how can grocery players engage better with changing consumer needs?
A Consumer's Perspective
Offering a "differentiated digitally connected seamless" shopping experience today will entail: brick and mortar retailers looking at leveraging location based services to offer a more contextualized, and personalized in-store experience. E-tailers can explore the possibility of offering virtual grocery stores, and contextualized basket building features to match the in-store experiences offered by a brick-and-mortar retailer. In my opinion, some of the key capabilities [see Figure 4] emerging for grocery players today are:
Grocery Image_6.jpg

Given the relative economics of grocery business, offering a right combination of click-and-collect and home delivery models that "seamlessly" integrates with a "differentiated digitally connected shopping" experience will be the key to position the grocery retailers for success ahead. Grocery retailers to realize this first will continue to stay relevant to take it all.

As traditional retailers build upon their omni-channel capabilities to be more "online-like" and e-tailers continue to expand their offerings to be more "store-like", it will be interesting to see who wins in this unclaimed territory. Whom do you think will win? 

To know more about trends in online grocery and how you can leverage various innovative technologies to provide a seamless and truly engaging customer experience, meet our experts at Retail's Big Show 2015 (Jan 11-13, 2015). Schedule a meeting now. Visit

[1] U.S Grocery Shopper Trends 2012 - Executive Summary by FMI:

[2] Online grocery winners emerging - A Report by Bank of America Merrill Lynch


High degree of quantitative analysis and thought provoking insights Gaurav.
Inspired by your blog, I tried to find more on the topic.

Favourable points &(Possible future action to not lose on market share):
customer loyalty in place ( need to reinforce),
supply chain in place ( need to innovate and cut all possible costs)
Reaping the investment in warehouses ( need to collaboration with 3pl warehouse)
Reliable relationships with transaportation service providers ( Need to innovate on long term partnerships terms)


Favourable points &(Possible future action to not lose on market share):
can directly jump to marketplace model with not very significant initial investments (have to be wary of law of the land.Legality of inventory model vs marketplace model)
Rely on data analytics services available in markets and get demographic insights and needs of customers.(Need to have a clear strategy to target the segment)

Both categories seem to be trying to retain their respective favourable points and keen to be adapting the favourable points of the other.

Essentially retailers and etailers seems to be converging to a hybrid model,which can become sustainable after a lot of experimentation.

While etailers would try to become more aware of the customer profiles via context based services, data analytics and other technolgies, they will only try to become similiar to the traditional retailers who have enjoyed personalised touch, relationships with the customers.
The traditional retailers would try to focus on "shape up or ship out" and will invariably embrace technology to realise the lean- cost gains which Etailers enjoy.

Rajat Pawar

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