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The online grocery shift represents the most substantial industry change in 100 years, but the adoption phase is still in its infancy, and brick-and-mortar retailers have time to adapt – if they act now.
Marc de Speville, founder of London-based Strategic Food Retail, presented opportunities and threats of the online grocery market, as well as strategies that retailers can implement to adapt, during his presentation, "Technology Trends Changing the Shopping Experience," at FMI Connect in Chicago.
Online grocery is relatively small in most developed markets, he said, but company's like Ocado, the leader in online grocery in the U.K., and Amazon Fresh, an online threat to domestic retailers, are preparing for national and international expansion. And fresh delivery service Relay Foods, and company's like Yummy.com, de Speville said, are also picking up steam.
Challenges for Brick-and-mortar
The challenges retailers face by encroaching online competition include increased market fragmentation, the extra costs of brick-and-mortar outweighing extra sales, the continuous need for extra space, and the unsustainable zone pricing model.
"It's so much cheaper to carry stock in a warehouse than on the grocery shelf," he said, pointing to the increased logistical and organizational complexity that retailers face and online services avoid.
And as evidenced by the surging popularity of online food shopping, the experience allows consumers a more expansive product range, in-depth search and information tools, the avoidance of long checkout lines, as well as the convenience of home delivery.
Opportunities for Brick-and-mortar
Yet retailers have the "latecomer" advantage, de Speville said, as they can utilize newer technology that combines best service with lower cost, and "leap frog to the next level," as he put it.
Additionally, brick-and-mortar can provide a shopping experience that cannot be replicated online, as stores still remain a pick-up point for a large range of products, and in-person customer service can foster a strong emotional connection, acting as a point of differentiation against their online counterparts.
Consumers who shop in grocery stores also have the benefit of immediacy, the ability to examine products before purchasing, and an overall experience and culture not offered by its digital equivalent.
Merging Past and Present
Retailers who survive the threat of online grocery will combine the best of both online and physical retail, de Speville said, providing a consumer experience not available with either service by itself.
He then presented a virtual concept of a grocery store being developed in the U.K. (see photo), which automates the choosing and delivery of consumer packaged goods with a robotic system. The new concept will display all fresh options for shoppers to peruse, he said, will not require the use of check-out lines, and will feature customer service at each point of purchase.
In closing, de Speville urged retailers to adapt to the changing landscape before the larger wave hits, think big and test new concepts with a high-tech and high-touch approach.
"Dedicate resources, dedicate people and dedicate money," he said.