New ‘Role of Digital in Food Retailing’ research from IDC, commissioned by Precima, reveals personalization and fresh food will be fundamental to the value equation in four major national markets, as online grocery shopping comes of age.
Increasing adoption of online grocery shopping by consumers in four major European economies signals the time is ripe for grocery retailers in those countries to vie for a share of digital sales. With purchasing behavior changing rapidly, personalization and fresh food will be key factors for remaining competitive in the next era.
New research shows that digital grocery shopping rates in Italy, Spain and France are growing fast – to a degree that they will soon catch up to the UK, which had been the pacesetter in Europe. While consumer penetration continues to grow in the UK in double-digits, the rate there is tapering off slightly as that market draws closer to saturation.
Retailers in these four leading European economies now offer digital grocery selling almost universally – 92% or more. Online purchases account for 11% or more of total sales at between one-third and one half of those retailers, with rapid growth anticipated.
This evolution occurs as digital shoppers in those four nations expect to shift a larger proportion of their grocery budgets online. Three in ten (30%) expect to spend 26% or more by next year, compared with just 14% of shoppers a year ago and 27% this year.
The two web-based surveys were conducted in December 2018 by IDC and sponsored by Precima. In all, 1,760 food shoppers and 225 retailers that sell food responded from the four countries. The implications of these and other findings from the present research have wide-ranging implications for grocery retailers in these European countries.
Three themes emerge from the present research:
- Multiplier effect is driving rapid growth in digital grocery shopping
- Digital “gateway” purchases begin in shelf-stable departments
- Personalization emerges as an essential retailer strategy
Here’s why digital grocery shopping has reached the tipping point in UK, Italy, Spain and France:
Multiplier Effect Driving Rapid Growth
The phenomenon of more digital grocery shoppers who individually spend more online on more occasions is creating a multiplier effect on growth. Retailers recognize this and are responding. Are supermarkets in those countries ready to provide the level of experiences that shoppers require?
While the United Kingdom has thus far been the European leader in online grocery shopping penetration, its edge has narrowed to a statistical dead heat with France [Fig. 1.]. Meanwhile, consumer stated intention in Italy and Spain indicate that change is underway in those markets.
An eye-opener from the consumer survey data is the degree to which Italian shoppers say they are embracing digital grocery shopping. While 36% say they already buy some or most of their groceries online, another 33% indicate that they plan to start. If they follow through on that intent, that could position Italy to become the most active market for online grocery shopping in this group.
Fig. 1. Shoppers are Embracing Digital Grocery Shopping
Q11. Which of the following best describes your ecommerce/online grocery shopping experience?
A look into how European online grocery shoppers spend their budgets indicates that comfort is increasing with digital grocery shopping [Fig. 2.]. Just 14% say they were spending more than one-fourth of their grocery budgets online in 2017. That number nearly doubled in 2018 to 27% and was expected to increase to 30% in 2019.
Here again, we see evidence of rapid adoption by Italian shoppers, at a pace slightly faster than the other four countries surveyed.
While consumer intent measures well into the double digits in all four countries, UK and French consumer markets may be slightly more mature in terms of digital grocery shopping experience. It remains to be seen what the upper limits may be for digital grocery shopping, however the arithmetic is compelling in all four nations. When two-thirds of shoppers spend a fourth or more of their grocery budgets online, that represents a milestone for the industry.
For retailers, the high rate of consumer adoption constitutes a mandate – not just to offer a digital shopping option to their customers, but also to make it competitive in terms of service levels, quality, cost, and experience, since alternatives are a click away. On the first point there’s little doubt that grocery retailers in all four countries are taking up the challenge, with very few exceptions [Fig. 3.]. Digital grocery shopping has become nearly a universal offering among grocers in these markets.
The UK still leads the pack – by a whisker – with 99% of retailers responding say they have some digital sales “this year” (2018). Notably, 28% of UK retailers say digital accounts for 11% or more of their total sales, but 45% expect to top the 11% threshold “next year” (2019).
Retailers in the other three countries are barely behind in digital participation – 96% in Italy and Spain, and 92% in France. More retailers in those countries say digital accounts for 11% or more of total sales – 33% in Spain, 41% in Italy and 42% in France.
As in the UK, retailers in the other three countries say they expect significant increases in digital sales in the next year (2019). This corresponds well with the previously stated intention by more consumers begin shopping online and by online shoppers to increase their online shopping activity levels.
Clearly online shopping growth has shifted into high gear in 2018-2019 from the perspective of participation by both shoppers and retailers. It would not be an exaggeration to call this a tipping point for the industry.
Digital Gateway Purchases Begin in Shelf-Stable Departments
Current rapid market expansion carries an interesting implication regarding online grocery shopping behaviors: What shoppers buy could be as significant as how much they buy. In fact, there seems to be a pattern of experimentation among online grocery shoppers that is common across all the countries studied.
Confirming a general sequence also seen in the U.S. market, consumers in Italy, France, Spain and the UK are more likely to purchase non-perishable products online, gaining comfort with these lower-risk gateway categories and mastering the digital shopping process overall before adding fresh foods to the mix.
This learning/conditioning model was also evident in results of the combined consumer survey, which included consumer respondents from the United States as well as those from the UK, France, Spain and Italy [Fig. 4]. When looked at on a country-by-country basis, the general pattern holds.
Health and beauty care (HBC) products are the apparent front-runner in this regard, both in the combined survey and in the individual European countries. In Italy for example, 86% of shoppers say they either already buy HBC products digitally (33%) or will within the year (53%) [Fig. 5a].
We identify packaged HBC, home products and general merchandise as gateway departments because the physical attributes of these items make them less risky to order online and unlikely to spoil or be damaged in transit. For these reasons, shoppers tend to try these items before venturing into perishable categories.
By comparison, just 16% of Italians say they buy fresh bakery products online at present, but three times as many (47%) say they will within 12 months [Fig. 5b]. Similar patterns are in evidence for baked goods in the UK, Spain and France with moderate variation.
We label bakery, dairy, meat, produce, meat, deli, and frozen as follower departments because they are perishable and require more physical protection and temperature control in transit. In addition, shoppers are particular about the selection of these items, a task that is not as easily trusted to an anonymous order picker. Many shoppers enjoy the lifestyle aesthetic experience of selecting fresh fish and vegetables. Such an emotional connection may not apply for underarm deodorant or aluminum foil.
While digital shopping penetration is clearly lagging in follower departments, there is also clear evidence of rapid growth in these products too. Shoppers appear to gain confidence via experimentation and experience. Retailers are seizing the opportunity to gain their trust.
Perishable product purchases are also an important driver of growth. The data reveals more online shoppers will spend more of their budgets online and add items from more departments over time as they gain familiarity with the digital experience. Retailers are refining their methods for servicing digital orders and working on their reliability – for both delivery and click & collect.
Personalization Emerges as a Core Retailer Strategy
The vigorous growth of digital shopping also means this is the moment for grocery retailers in the UK, France, Italy and Spain to embrace personalization as a core business activity, since digital shoppers regard personalized offers and assortments as must-have features.
These expectations have been established from their experiences in other digital retail categories as well as their experiences with supermarket frequent shopper programs that deliver add-to-card promotional deals. Indeed, the nexus between digital shopping and loyalty programs is a crucial aspect of competitive strategy for grocery retailers.
Current and anticipated growth in online grocery sales suggest an important and growing role for personalized offers. Retailers are aware of this imperative, but a gap remains between expectation and reality – at least from the shoppers’ perspective [Fig. 6].
Consumers in all four countries place a high value on personalized promotion offers to varying degrees, but satisfaction lags in all instances.
This finding reveals an opportunity – perhaps an imperative – for grocery retailers in these four markets. Most seem to recognize this to some extent. A strong majority recognize that personalization is “important” or “very important” [Fig. 7].
Nearly as many report that personalization contributes positively to their financial goals [Fig. 8].
Personalized offers are clearly important to these retailers, but they vie with other essential business activities, and compete \with other technology investments for budget priority. The shopper responses suggest that room for improvement remains, and the hard realities of digital shopping may make developing and enhancing this skill set a competitive necessity in the years to come.
Summary of Implications
The survey results presented in this paper are extracts of a large and rich data set that compared many more dimensions of the consumer/shopper perspective on digital grocery shopping and retailers’ readiness and investment plans. In the UK, France, Italy and Spain, online grocery shopping has moved beyond novelty to take its place as a familiar alternative that many shoppers embrace on a regular basis.
Multiplier effect on growth. Multiple factors have driven digital grocery retailing to its present strong level of penetration and growth. In all four countries studied, more shoppers are purchasing some groceries online. They say they plan to spend more of their grocery budgets online. Retailers are offering digital shopping options with very few exceptions and the proportion of grocers that expect to book more than 10% of revenues online is approaching half this year.
“Gateway” to fresh sales. Digital grocery sales so far have been led by non-perishable departments. Shoppers have more experience ordering shelf-stable products online and may regard them initially as lower in risk. They are gravitating toward fresh product purchases rapidly, however. It will be competitively essential for grocery retailers to continually refine their order-picking and handling methods to fulfill the rising expectations of digital shoppers for quality, freshness, ripeness and safety. Alternatives are a mere click away.
Personalization is key. Shoppers regard relevant personalized offers to be one of several essential features of a strong digital retail offering. Experience with frequent shopper programs and standards set by other digital retailers are influencing factors that may explain why satisfaction lags behind importance in this area. Retailers recognize that personalized deals are a requirement and they understand the important loyalty message that this sends. They are taking steps, but they may be challenged to balance this against other investment priorities.
These trends, taken together, indicate digital grocery shopping has reached a tipping point in the four European countries studied.