What Really Works With Digital Innovation In Grocery?

Take a closer look at grocery retail these days, and you’ll find an interesting story.

Sure, technological innovation is gaining speed in that vital and longstanding sector of the economy, with Amazon, Walmart, Kroger and others working hard – via both time and money – to meet demands of mobile consumers and gain more market share. At the same time, consumers are staying loyal to their old grocery habits, and there is fresh evidence that investors are not as impressed with those innovative efforts as might have been assumed.

So, what’s going on? And what’s working when it comes to grocery sales in the digital age?

Kroger provides a recent example that some innovation might come too late, or be too little, for meaningful returns. The chain has recently become one of the most aggressive would-be innovators in the grocery space, thanks to the work being done under its multi-year Restock Kroger push, a digital and store overhaul rolled out last year. Among other digitally-focused work, the grocery chain has beefed up its fulfillment capabilities and made significant bets on meal kits that consumers can order online.

Promise vs. Time

Recent results have shown promise. In 2018, digital sales for Kroger increased 58 percent (the company offered no dollar figures). Additionally, the chain’s grocery pickup and delivery programs – a prime part of bringing the sector fully into the digital age – now reach 91 percent of the households within Kroger’s reach, with executives expecting to reach 100 percent by the end of 2019.

In fact, Kroger said last week (March 7) that in 2019, it will spend up to $3.2 billion on capital investments including digital efforts, an amount that excludes mergers, acquisitions and purchases of leased facilities. That’s up from about $3 billion in 2018. But investors didn’t exactly take that news with a positive attitude, sending Kroger’s stock on a post-earnings downward slide.

The worry?

That all that spending would eat too deeply into profits and not grow revenue enough over the immediate term. In fact, investors during the chain’s post-earnings conference call sounded impatient about the progress of Kroger’s digital push, which amounts – in the words of company executives – to a “business transformation.”

Grocery Stakes

It can go without saying that grocery – given how it fills the most basic human needs for survival – is a lucrative business, but the recent PYMNTS Enterprise Grocery Report gives a specific view of just how lucrative. The average customer spends more than $4,000 a year on food and makes over 40 visits to grocery stores each year – in fact, 91.5 percent of consumers still make grocery purchases inside stores, the PYMNTS research shows. Additionally, grocery or food at home products make up 20 percent of all consumer retail spending.

Those are the stakes for one of the biggest battles in retail, the ongoing competition for retail dollars between Amazon and Walmart – both of which can draw upon their particular expertise in logistics. Grocery is part of that larger fight for dominance – and a relatively rare area where Walmart is totally dominating Amazon, in part because consumers do still like to shop inside grocery stores (studies point to consumer worries about higher prices online, along with the need to inspect food in person before buying it, as some of the main reasons for that).

According to the latest retail data from the PYMNTS Whole Paycheck Tracker, food is one of the few categories where Walmart continues to hold a commanding lead on Amazon: 19.1 percent of the consumer spend as opposed to Amazon’s 1.9 percent. That said, it has only been 18 months since Amazon bought Whole Foods, and that number is on the uptick. Walmart’s share has remained relatively flat over the last four years.

The competition between the two companies promises to heat up in grocery. Earlier this month, news emerged that Amazon wants to open physical grocery stores in multiple big U.S. cities, an effort that comes as the eCommerce operator continues to make the most of its Whole Foods acquisition.

Consumer Impatience

When it comes to what works in the grocery space – even amid all the digital and delivery developments taking place there – familiarity and getting it right the first time appear to take on supreme importance, at least according to a Bain & Co. survey.

The survey reportedly found that “only 42 percent of people using a grocery delivery service for the first time say it actually saves them time,” and that “one bad experience can potentially ruin a shopper’s perception of the concept and make them never want to try it again.” Besides that, “it’s important for a company to get it right the first time, because 75 percent of online grocery shoppers say they continue to use the first retailer they shopped from.”

As grocery becomes more digital, there is some evidence that offering a seamless checkout experience will pay off over time. For instance, PYMNTS research has found that 16.7 percent of consumers said the main reason they visited a grocery store was because of scan and pay through mobile devices. That’s good news for Amazon Go and other cashierless grocery ventures.

Grocery Experiences

Offering what amounts to an ordered experience seems to work well with grocery shoppers. Roughly three in 10 – or 27.1 percent – of consumers said the main reason they visited a grocery store was because it was well-coordinated online and in-store, the PYMNTS research found.

That preference can extend to programs that exist at the border of online and physical retail, such as curbside delivery. Consider what Wegmans eCommerce Group Manager Erica Tickle has said about the service: “Our customers are busy, so when it comes to grocery shopping, they appreciate a range of options that allow them to get the task done with ease, when and how they want.” Shoppers can use the Instacart website, Instacart app or dedicated Wegmans page to choose a pickup time and make a payment. They then receive instructions and a phone number to call as they approach the store.

When it comes to grocery innovation, Kroger’s recent experiences with investors are a reminder that innovation needs to produce relatively quick returns. That said, grocery retailers are still figuring out what works and what doesn’t, and the coming months will likely bring much more clarity to that question.