Would you be surprised if I told you that as many U.S. consumers now order groceries online as order restaurant food online?
Don’t be.
According to PYMNTS’ latest national consumer study fielded earlier in May, which surveyed a representative sample of roughly 2,300 adults, 17 percent of all consumers reported using digital platforms such as Instacart to order and pay for groceries instead of going to the grocery store to buy food. That’s a whisker ahead of the 16 percent of all consumers who reported ordering restaurant food online or from delivery aggregators instead of going into a restaurant to order and eat it. It’s a statistical dead heat.
These same consumers also report using these digital channels with about the same frequency.
Fourteen percent of consumers said they order groceries online once a month using digital platforms including Instacart, as well as grocery stores that may be powered by Instacart or grocery stores that offer their own online ordering options. Fourteen percent of consumers also report ordering food online, including from restaurant aggregators such as Uber Eats or DoorDash, once a month. Maybe not surprisingly, slightly more consumers order food from aggregators once a week (17 percent) than groceries (15 percent). Consumers are using digital grocery platforms a bit more to stock up, and are using food aggregators to order what is needed in the moment.
More importantly, out of the consumers who said they are simultaneously doing more in the digital world and less in the physical world when it comes to ordering and paying for their food, roughly 72 percent said they’ll stick with some or all of these digital habits moving forward – even as the physical economy reopens.
Projecting our sample to the U.S. population, there are roughly 45 million consumers — we call then them digital shifters — at the tip of the connected “Eat” ecosystem spear. And this Eat ecosystem — how consumers buy and pay for their food and where they eat it — is quickly becoming one of the most fascinating case studies for how connected economies develop, compete and scale.
Think about this for a minute.
Just 15 months ago, nearly all of a consumer’s grocery purchases were done in a physical store. And food ordered online from restaurant aggregators was a tiny sliver of food ordered online from restaurants.
As the economy reopens, platforms such as Instacart, Uber Eats, DoorDash and Grubhub are crafting strategies to preserve the digital ordering tailwind fueled by the pandemic. At the same time, traditional brick-and-mortar grocery stores and restaurants are evaluating the habits of their digital-first consumers, assessing their own digital capabilities and contemplating their options to blend digital with physical without losing control of their margins or their customers.
At the same time, consumers have a newfound appreciation for their time, and a new definition for what they consider to be a source of friction.
In March of 2020, shifting digital was more or less a false choice.
Restaurants were closed, and even as grocery stores remained open, going to one was filled with friction and consumers didn’t feel safe shopping there. Instacart powered online ordering from the grocery stores where consumers shopped — or where they wanted to shop, but found to be inconvenient. The company hired an additional 300,000 shoppers to fulfill the demand and overcome the grocery store’s inability to shift online without its help. Restaurant aggregators drove business to restaurants that were otherwise challenged to make sales and that had even fewer options to manage the logistics of delivery.
These digital platforms gave grocery stores and restaurants a digital-first boost by protecting the health of consumers and employees, who were able to interact with far fewer people and thereby reduce their exposure to COVID-19. Although there aren’t any hard data to prove it, it is clear they saved lives and reduced hospitalization.
Yet what defined success for consumers, restaurants, grocery stores and digital platforms over the last 15 months will be different as we look ahead. As health risks fade, how consumers use these digital and physical channels in the future will be determined by how well each ecosystem participant manages the three things that shape consumer and business behavior: friction, inertia and time.
Grocery Shopping: No Longer A Necessary Friction
Not many people say they absolutely love their trips to the grocery store, especially if that trip includes having a couple of kids in tow. Whether you live in the ‘burbs or the city, it is a schlepp to the grocery store — inconvenient and a big time suck.
Grocery shopping in the store is also not an activity that digital converts are eager to resume as the physical economy reopens, even though it remains the predominant way that consumers buy their groceries.
According to the latest PYMNTS consumer study, coming in at No. 9 on the list of the top 10 behaviors that consumers want to maintain as the physical economy reopens is going back to the grocery store to buy groceries. Nearly tied for fourth and fifth on the list is ordering groceries online to pick up curbside and ordering groceries online for delivery. (The top two behaviors they would like to maintain, in case you’re curious, is buying retail products online and working from home.)
Digital platforms — the store’s own or the more than 350 grocery store brands and 25,000 store locations whose online experience is powered by Instacart — have saved consumers’ time and delivered a great user experience.
Shopping histories save ordering time. Instacart gives consumers the option to link their store loyalty programs to their account and store choice, so ordering from Instacart doesn’t come with the expense of losing out on store loyalty points — and the store doesn’t miss out on the chance to capture loyalty club consumer data or build an email list of those who shop with their store on that platform.
Instacart’s ad platform gives brands the ability to promote their products and offer discounts to induce purchases. Some of those inducements subsidize free shipping if consumers spend a threshold amount with that particular brand.
The Instacart Effect For Supermarkets
Instacart eliminates the biggest grocery shopping friction of all: drive time to and from the store.
Stores that were on the consumer’s grocery store wish list but were nixed because they were too far away are suddenly back in their consideration set. That includes a variety of regional brands, Costco and smaller grocery stores.
The consumer who has found and shopped these new stores and done so without the friction of actually going there is likely to stick with that choice for at least some of her grocery purchases — unless she’s had a bad experience. And that’s particularly younger consumers: According to PYMNTS’ latest survey, 60 percent of millennials and bridge millennials reported that they will continue to use Instacart for grocery purchases because of the convenience and time savings.
These digital-first grocery shoppers may not abandon going to the grocery store at all, but will likely shift some in-store grocery store purchases to other online, direct-to-consumer (D2C) brands with a unique product or compelling brand proposition. Or they may shift to their local specialty food purveyors, such as their local butcher, cheese shop, specialty grocer or seafood shop. Or to Amazon’s “subscribe and save” platform for the bulky products and essential staples that are just easier to buy online and have delivered in order to never be without.
All of these dynamics create a more competitive grocery market. Consumers have more choice, and grocery stores have more incentives to woo consumers from more and different rivals.
When the competition for the consumer’s grocery dollars is any store — not just the stores that are convenient for a consumer to drive to, and not just the brands they always used to buy in those stores — grocery stores and brands will adapt. They already have.
Desirable delivery windows will become more available, and deliveries will be on time. Policies around substitutions will be clarified upfront to avoid disputes and improve client satisfaction. Communication between the shopper and the consumer throughout the shopping experience will become more interactive and specific to customer requirements.
Grocery stores will market heavily to consumers who shop their stores via the Instacart platform to induce them to shop directly with them, even though Instacart still powers their online and delivery channel. The economics are different for the consumer and the grocer in this scenario, since one of the ways Instacart makes money is by marking up the in-store prices. Brands will compete for the consumer’s spend by making offers contextual and redeemable in real time.
But the consumer’s digital shift also changes the dynamics of the grocery shopping ecosystem, as grocery stores want more feet inside their stores, and want more control of the economics of their digital channels.
The “Instacart effect” for the grocery store is navigating this new shopping dynamic without creating friction for the same consumer they want to attract and retain. A consumer who is used to a friction-free digital experience with certainty about what’s in stock, choice in whether and what to substitute, and the option to shop the physical and digital store in the way that best suits their preferences in 2021. A consumer who has proven that she is willing to pay for the convenience of a better digital online grocery shopping experience. A consumer who says she’s not that keen to shop for groceries the way she did in 2019.
Grocery stores now face a new decision-making dynamic, too — at the same time that their inertia for change has been lowered, and the inertia for consumers making another change is now higher than before, given their level of satisfaction with their digital-first alternatives.
It’s also a decision dynamic made more complex for grocery stores as the shift from current legacy systems to a native digital ordering and delivery experience is a costly, time-consuming and potentially risky big lift for grocery store execs. As is the inability to use data to better understand the behaviors of the consumers who shop their physical stores, other than knowing how much they spend and which SKUs they buy.
And few good options have emerged. For the same reasons that grocery stores don’t want Amazon managing the ordering and delivery of their groceries, neither will they want another competing grocery store to do it.
Restaurant Aggregators at Greater Risk
For the very same reasons that Instacart has a leg up in the grocery segment, restaurant aggregators are at a longer-term risk in their own segment.
The biggest friction for consumers over the last 15 months has been their inability to experience restaurant food in the restaurant. After not being able to see family and friends, going out to eat is consistently cited as something consumers miss the most.
Restaurant aggregators filled that void for consumers, but in so doing introduced their own set of frictions for diners and restaurants. And restaurants are much less happy with delivery services than supermarkets are with Instacart, because the economics don’t work in their favor.
Consumers who order food from aggregators want their food at a specific time — not within an uncertain two-hour window. That narrows the consideration set for consumers to restaurants that are part of the aggregator’s platform, and that can fulfill the order at the time most convenient for them. With too few options and too uncertain of a timeframe, consumers may continue to order online for pickup, but using the restaurant’s app or website or good old-fashioned telephone. In fact, the majority of the online orders placed today are not delivered, but are picked up by consumers, and ordered directly from the restaurant.
Savvy restaurateurs that want to avoid the costs of using aggregators have helped influence that dynamic. Not all menu items are available on restaurant aggregator sites. And many have marked up the price of the food on those menus and delivery fees to defray the cut taken by the aggregators when consumers place their orders with them.
At the same time, restaurants have new options for managing online ordering and delivery via their own systems. Cloud-based POS and ordering platforms integrate online ordering and delivery capabilities into the restaurant software systems. New ecosystems, like Google Ordering, offer a new option to fill the online order funnel by capturing and converting search traffic. In much the same way that restaurants use Open Table for bookings, QSRs, fast-casual and on-premises restaurant establishments are matching their use of aggregators to times when the business they get is mostly incremental.
For consumers, ordering online or directly from the restaurant is a familiar behavior that has been made easier over the last 15 months by the innovations that restaurant software platforms have enabled. Restaurant operators realize the power of digital, and want to keep it in the mix across the entirety of the restaurant journey – for food ordered online for pick up or delivery and at the table – to make the restaurant ordering experience more satisfying and within the guest’s control. As restaurants continue to refine their own online capabilities, and new commerce ecosystems emerge to help fill the incremental ordering funnel, restaurant operators will rely less on food aggregators and use them opportunistically.
The delivery part of the experience is the void that aggregators fill today. It’s also the part of the experience that others with logistics expertise and a supply of drivers could help fill.
Maybe even Instacart.
The Value Of A Framework
Frameworks are what separate good strategy from chasing trends or monitoring the competition out of context. For instance, successful matchmakers — the cornerstones of the platform economy — use the ignition framework to design strategies to get critical mass on both sides of their platform, and a business model that delivers both growth and profitability.
The framework for the connected economy adds another layer to that. It systemically evaluates how friction, inertia and time variables influence the consumers’ behaviors, and therefore the structure and strategy of the digital platforms that will power it. As we have seen over the past 15 months, the inertia that was once the obstacle to change across the connected economy fell away, because it was either impossible or too risky for consumers to stick with their ingrained physical ways. Digital platforms provided access to the physical world products and services with much less risk, thereby countering the inertia. And once they made the move, they discovered that they saved time and encountered less friction.
Now it’s time for entrepreneurs to apply this framework — one PYMNTS calls the FIT ® Framework (for Friction, Inertia and Time) — to find the next opportunity for an Instacart to revolutionize a physical sector. Entrepreneurs can discover these by looking at places where there is significant friction for consumers and businesses, where substantial time savings can be achieved and where it is possible to overcome inertia — for consumers and the businesses that wish to serve them.
My bet is this will lead to the next decade of innovation for the connected economy.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
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