Wednesday 14th March 2018
Food for Thought: How eCommerce Is Shaping How Consumers Buy Food and Drink
This week I attended The Grocer’s annual conference - all about the emerging opportunities of online for the grocery market.
eCommerce in this area is far from new - Tesco started the process here in the UK when they provided CD-ROM catalogues, which allowed customers to place orders via dial modems way back in the late 1990s. However, the sector has continued to grow and shift as a reflection of both changes in technology and customer behaviour.
The conference featured a raft of insightful speakers from the likes of Amazon, Facebook, Iceland, Ocado and Alibaba who shared their views as to how brands and retailers can make the most of today’s digital opportunities. Here’s a summary of just a few of the key takeaways.
Online Sales of FMCG (Fast Moving Consumer Goods) Are Still Growing But Not as Fast (For Now)
Cantar predict that 12% of FMCG sales will be online by 2025.
However, growth in recent years has slowed slightly. There are some mixed signals here. On one hand it could be seen that the core online shopper for the grocery market may be starting to saturate. However, almost three quarters of shoppers still haven’t shopped for groceries online. With the emergence of further convenience-led online grocery services like Amazon Prime Now and Sainsbury’s Chop Chop, teamed with the inevitable future grocery shoppers as today’s teenagers move into adulthood, I think there’s still plenty to go for in the years ahead.
Importantly, it’s key to remember that the UK is a much smaller market than other territories such as China. China’s spend on online grocery is stellar due to the continued expansion of their middle class. Savvy British brands are taking advantage of this opportunity and using marketplaces such as T-Mall Global to easily tap into this. Whittard’s of Chelsea are just one brand who are taking such an approach and seeing the benefits. On Single’s Day, they sold more on T-Mall in one day than a whole week of trading in their flagship London store.
Breaking Down Barriers
Frictionless commerce is one of those phrases that seems to be rolled out at every eventuality now. But it’s importance in grocery, where customers have large baskets and time sensitive requirements, can’t be underestimated.
There were some great presentations from Amazon, Ocado and Iceland on this area.
For me, Matthew Lowe from Iceland summed it up amazingly. Grocery shopping can be a chore and there are a lot of factors that the customer has to consider like budget, offers, who wants what, when it’ll be delivered and how much they need to order. Removing barriers and making the experience as uncomplicated as possible goes a long way.
Watch Out - Amazon Are Coming
Love them or hate them, Amazon are undoubtedly pioneers in customer experience; they go beyond UX and consider their whole operational engine.
James Bate from Amazon shared their key guiding principals:
- Customer obsession rather than competitor focus
- Passion for invention
- Commitment to operational excellence
- Long term thinking
All of these elements tally with reducing friction by striving for the best user experience. For Amazon, this is brought to life through innovations like Prime, Alexa, Dash Buttons, Prime Now, Fresh and their logistics network - all seeking to create a seamless and ubiquitous shopping architecture, designed to delight customers through convenience. Clearly this is a massive part of their retention strategy by fostering loyalty via lock in.
Perhaps the ultimate frictionless shopping experience by Amazon is Go - a physical store where customers simply pick up products and they are then charged via their Prime Account. Expect to see more of this, given their introduction into bricks and mortar via the Whole Foods acquisition.
Some other interesting Amazon trivia:
- They have 400 specialists in Cambridge working on innovations like Alexa;
- Half of Amazon unit sales are marketplace sellers;
- 55% of Subscribe & Save deliveries last for longer than 12 months;
- They are currently developing Dash Replenishment Services - working with hardware manufacturers to embed auto reordering into the device (think washing machines/coffee machines etc). Perfect for customer ‘lock in’;
- At Prime Now, the fastest delivery was under 6 mins. Prime Now covers over a third of UK households. 2/3 of orders are grocery led and used for ‘top up’ shops.
Lastly on Amazon, I thought this quote by James Bate summed up their ethos pretty well.
‘We want to sell as much as we can… if it’s structurally profitable, we will sell it.’
There’s probably another blog post and debate in that quote alone!
We know how important content is for brands to connect with customers. However, the type of content needs to reflect the audience.
Maureen McDonagh, Facebook’s Head of UK grocery, took to the stage and shared some interesting stats.
60% of all grocery sales are digitally influenced and are mobile led (and she also shared people thumb through a Big Ben height of content each day!).
But with so much content, Facebook has to curate this via their algorithm and so only shows users around 10% of potential content based on relevancy.
Perhaps unsurprisingly, the younger the audience, the faster they process content but the lower the attention span! Maureen emphasised the need to use engaging content to capture attention quickly - she called it the ‘3 second audition’.
‘Thumb stopping content’ is now the order of the day. That means brands need to create interactive and visual content that captures the imagination and lasts between no more than 3 and 10 seconds. She shared some great examples of brands like Guinness and Heinz who’d done just this and the results were impressive. It was food for thought and a good reminder than content should always be about quality, not quantity. The message, format and creative is everything.
For me it inspired what I’ll be sharing with our team - The 10 second rule. Simply, how can we get messages across in less than 10 seconds? Any longer and it doesn’t work, not anymore.
Don’t Forget the Bread and Butter
It was great to see some fantastic developments by Sainsbury’s with new delivery innovations like Chop Chop - a 60 minute service for up 25 items (currently just in London).
But just as interesting was also their more traditional UX work around A/B testing. Anyone who knows me knows how much of an advocate I am for conversion optimisation and how powerful it can be.
Sainsbury’s shared a number of scenarios where they put down hypotheses around merchandising and promotions to test assumptions against facts.
As generally happens in A/B testing, there were some surprises for the team when certain tests outperformed their ‘common sense’ conventions on imagery and offers.
It served as a timely reminder of the value of the basics like A/B testing, how transformative it can be and how even big brands can be surprised at the results. It’s easy to fall into the trap of assumption-led decision making - conversion rate optimisation techniques like this keep us grounded.
‘The Age of Assistance’
Harry Walker, Industry Head for Retail at Google, shared with us where they believe online retail is going.
He described ‘The Age of Assistance - where brands are rewarded for proactively helping customers get stuff done’. Here, he’s referring to the growth of AI and tools such as Google Assistant and Google’s Home speakers.
According to Harry, today’s customers are curious, demanding and open.
Curious = research led. They are actively hunting for information on the ‘best’ - whether that be a toothbrush or a new kitchen. Every product can now be a high considered purchase - not just cars and holidays.
Demanding = retailers delivering to meet and exceed customer expectations. As trends emerge (health, fashion etc.) customers expect retailers to adapt. Growth in areas like vegan and ‘free from’ are good examples - retailers who expand their ranges to serve these niches will win. A good direct to consumer example could be Lo Dough or Allplants.
Open = Trying new things. Being surprised. Being influenced. Trying different retailers.
There’s been a massive growth in search for generic terms (cheese, milk, coffee) vs retailer brands (ASDA, Sainsbury’s etc) suggesting more openness to where customers buy based on who is best placed to supply the desired products. This could present a great opportunity for niche brands to sell direct to consumer.
According to Harry, assistance is the new battleground for growth.
Speak to the Speaker
Of course, no retail conference would be complete without a segment about AI and voice search.
A panel of esteemed professionals gathered to debate the impact of voice search in the market. There were some conflicting stats, but it’s estimated that between 10% to 18% of consumers now use smart speakers like Echo for shopping.
There’s no doubt that this is one to watch, but it’s still developing and it’ll be interesting to see how it pans out.
My bet is that if it does indeed take off then Amazon will emerge as the winner. They have successfully flooded the market with Echo devices which provide the perfect opportunity to add products into Amazon baskets.
‘Culture Eats Strategy for Breakfast’
At Statement, we talk a lot about the traits of high growth online businesses and how this is aligned with culture.
So it was great to hear Matthew Lowe of Iceland when he shared the 4 key principles of operating their business:
- Urgency (agile, quick decisions)
- Accept reality
He went on to expand on how these principles pan out in the day-to-day running of Iceland online and how it guides everything they do - from UX to marketing.
To me, it’s clear that this set of cultural values empowers Iceland to be agile and responsive to their customers in a very fast changing and competitive market, something which I think is a key characteristic of a successful online business.
It was enlightening to see such an approach in a big business like Iceland - one that operates over 800 stores and employs over 23,000 people - yet still priorities the type of agility that smaller businesses enjoy.
It’s All about the Customer (and the Data)
The last takeaway is about direct-to-consumer opportunities. Naturally this is an area I was really interested in.
I’ve been working more and more with brands (large enterprise through to SMEs) in food and drink who are selling direct to consumers and sometimes bypassing traditional retailers altogether.
This model has some tremendous benefits but also brings with it considerations around marketing and logistics too.
A panel of retail professionals discussed their own experiences and the value of selling direct-to-consumer for grocery brands.
A key benefit is that it allows a brand to connect directly with the customer, creating a close conversation, loyalty and direct access to data to understand usage patterns. This can be highly useful when it comes to new product development.
There’s also the opportunity to trial niche or low volume lines that just wouldn’t work logistically or commercially in a traditional retail channel.
However, the logistics of running a direct-to-consumer operation do need to be carefully assessed. There are costs and processes involved around delivery and managing multiple individual orders which are very different to selling wholesale. As such, direct-to-consumer may not suit every business.
In my view, and this was shared by the panel, food and drink brands selling directly to the consumer through an own branded eCommerce store works with authentic niche brands where consumers want to connect with the brand. There are countless examples of this working well from the likes of Graze and Muscle Food through to emerging brands like Thyme and Lo Dough.
I’m also privileged to be working with some leading FMCG brands on their own direct to consumer projects and I’ll share more insight on these as they develop.
The world of selling food and drink online remains dynamic and full of opportunity. The Grocer’s conference was an excellent way to bring together some of the industry’s leading minds to assess the opportunities that exist for brands in the years ahead.
There’s no doubt that further disruption lies ahead, whether that’s Amazon continuing to grow their market share or shops without checkout desks.
Amidst this sits a compelling opportunity for many food and drink brands, with the right business model, to take inspiration from some of the world’s leading direct to consumer companies in categories such as apparel and beauty, and carve out their own success through their own eCommerce stores where they own the customer relationship, not the supermarkets.
It’s certainly food for thought.