E-commerce is a burgeoning industry worldwide. It is also the fastest growing industry in retail - accounting for close to 8% of all retail sales worldwide.
Yet grocery e-commerce sales are dismal when compared to other e-commerce categories. There are some successful cases, but by and large, food sold online is still a mystery for most retailers. Curious still, since food is the largest category in all offline sales.
It’s not that retailers haven’t tried. Ever since the Internet dotcom bubble, numerous retailers have been furiously innovating at grocery online sales. We saw this approach most famously with Webvan, but also at Peapod, FreshDirect, Tesco and more recently Amazon Fresh and Instacart. Still, as share of all e-commerce, grocery online sales account to 2% to 4% in most markets (compared to 20-25% for other categories) and with a poor growth rate.
So why is that?
I suspect that food, being such an emotional item after all - yes, we do go out to buy chocolate-chip cookie ice cream at 11PM Monday night if we see a heartbreaking movie reminding us of our lost love - is hard to tackle by applying purchasing principles and logistic considerations fit for “cooler” purchases such as TV sets, hobby items, books or personal care.
So, what exactly are grocery retailers missing? How should we decode this emotional side of food, that is deeply embedded by millennia of food hunting and harvesting? After all, some suspect that food creation is what founded our traditional social arrangements - like living in close knit groups, setting aside dowry and arranged marriages.
The Job-To-Be-Done Framework
One reason for this lack of performance is that food has a myriad of jobs-to-be-done with correspondingly various states of minds, needs and motivates, and there is no single retailer that nailed at least part of them. So when acquiring food, most of us look to satisfying various goals:
- Acquire staple items that are big, bulky and we hate to carry (this job is probably the best served by retailers right now - think canned food or water).
- We absolutely hate to throw away food, so we want something specific right now to go with what’s left in the fridge or pantry. I suddenly crave pasta - which I have plenty of, but no Parmigiano. So I go out to get some.
- I have a party to throw and I want something special to delight my friends. But I have no idea what so I go out and roam the aisles in hope something catches my fancy. (this is one of the worst performing jobs of online retailers - they do not allow for that serendipitous discovery of clarified ghee with lemongrass jar)
- My kid suddenly develops a case of rejection against his favorite yogurt brand, so I go out and hunt for several that he might enjoy. And I have to do this in the next 30 min or else he’ll throw tantrums.
- I’m too busy at work to think about what I’ll want to eat tonight. We are cognitive misers, too lazy to anticipate (happy system 2 anyone?) So I find it easier to browse in a brick & mortar store and stumble across a ready meal. Or just settle for my favorite salad. Or get some take-away.
And these are just some of the jobs that food triggers and the emotional context that surrounds them.
Add to that the fact that food is deeply sensorial - you need to see, smell and touch to be delighted. It’s no wonder that restaurant menus that offer sensorial descriptions like gently braised baby carrots with ginger, cumin and nutty cardamom sprinkled with tender goat ricotta make you willing to pay more than by just saying: braised carrots with condiments. This is why aisles take our fancy much more than browsing pages.
Your brain on pain
On top of these jobs, there’s the mischievous issue of delivery costs. It’s well known that the biggest incentive to shop online is free shipping. It doesn’t matter if I plan to spend 100 euros on food, but when I see delivery charges of 5 euros, I put it off. Why? Because we cannot help but think that after all - I’d better get down and get the food myself. Somehow, we are not accustomed to doing the mental accounting of placing value on our time. We have hourly wages, we often charge our clients by the hour - so we should have a pretty good idea of what one hour of our lives is worth. But when it comes to delivery charges in our private lives - all this goes out the window and we feel robbed.
When I used to run an ecommerce store (an apothecary, by the way), I had reputable bloggers saying that delivery should be free, because we cut a lot of costs by not needing a physical store. The dangerous perception that online is cheap, which e-tailers encouraged decades ago as a competitive proposition, is backfiring and customers use it to question any pricing decision you take.
So what should those in grocery retailing do?
1. Work out ways to lower our resistance to delivery charges
When you ask people to pay for each delivery, you run the risk of generating psychological pain.
An ingenious fMRI study run by Knutson and his colleagues from Stanford University - showed that when presented with a brand, the reward area of the brain lighted up. However, when the price was shown, a different area was activated - the insula - a region normally activated when we experience pain – either physical or social. In other words, when looking at price, the brain experiences pain – so that means that price isn’t anything rational.
As a retailer you want to only activate the reward side and steer clear of the insula. You could try to negotiate free delivery but this is not really an option unless you have your own fleet. Otherwise, frigo vans are expensive.
Another option is to devise a subscription option - like Amazon Prime - thus convincing consumers to only feel the pain of paying once, albeit in a larger amount.
Yet another method is to bundle the price of deliveries with more expensive purchases, where the additional cost of yearly deliveries is easily hidden within a higher-value product. For example you can offer a full year of free deliveries when you buy your next Samsung fridge. When a customer pays 500-1000 euros for a fridge, 50-75 euros more (the cost of deliveries to you) suddenly don’t seem so painful being offset by the promise of “free delivery for a year”.
Or, though you have to be careful with this, you can try to spread the cost of delivery across products for which customers do not have a good memory of price. So steer clear of staples like milk, bread, yoghurt or cereals. But you could do it with meat because it differs a lot by type, cut, cured or fresh etc making it difficult for consumers to have an exact price reference.
2. Present your offering around the various jobs to be done
Most grocery e-commerce stores present items by traditional categories: pantry items, fresh food, diary, veggies and fruits and so on. This is a good way to categorize, but not the only way to help customers fulfill the jobs they want in that specific moment.
A good idea would also be to have special “shops” of baby & kid food, food items for garden parties, picnics, farmers market, organic food, world cuisine or even meals to cook in 20 min. And make sure you present alongside those items, some nice recipes in order to help the customer with some sensorial information about the outcome of her shopping session.
3. Carve a niche for products difficult to find in traditional retailers
Every once in awhile we get the longing for special products - like farmers market cheese or veggies. By tapping into these products that resist listing in national retailers due to local or restricted availability - you can lure consumers to try. You can provide them with a gate to entry your ecosystem. Once there, the most difficult hurdle is crossed and chances are they would return.
I haven’t seen this pattern applied on the market in Romania where traditional products abound, yet due to their scale, producers have difficulty in accessing shopping channels. Laziness gets the best of us, consumers.
True, quality is not a standard. But there are plenty of consumers that can be educated about variances in taste or shape - like the now famous campaign Inglorious Fruit & Vegetables campaign in French supermarket Intermarche. Slowly, we are waned on the belief that standard, beautiful produce is the healthy one so why not transform imperfections into a decision making criteria?
4. Build habits
This is perhaps the trickiest thing to solve. How to deal with impulse buying? How to tackle the natural tendency of people only deciding what to buy once they see it on the shelf? How to create their habit of purchasing groceries online?
Enter there the BJ Fogg model. BJ Fogg is the the founder of Stanford’s Persuasive Technology Lab and developer of a simple model of behavioral change. Simply put, behavior change is a matter of motivation, ability and triggers—all present at the same moment. To enable a behaviour - people have to be motivated to do it, have to be able to perform it and finally, they have to be reminded to implement it. So it’s no use to have TV adverts about drinking & driving (trigger) when beer is consumed mostly in pubs (where motivation to not drink is abysmally low and ability to drink is very high) (1).
Grocery e-commerce seems to be lacking in all 3 respects: the motivation to buy specific food is not very strong, often we make do with what’s around; the ability to buy food online may be high (easy process) yet the ability to think about buying food online is not (I always find myself thinking - with heavy purchases in hand - Damn, I should’ve bought these online. But now it’s too late) and this happens because of a lack of “hot” triggers at the right moments, while triggers for traditional supermarkets abound.
- To change this you have to:
- Boost motivation (if needed) to buy food online vs offline.
- Enhance ability by making the commitment act simple.
- Issue the trigger when both motivation and ability are at their highest point.
For example, get some panel data (2) or shopper data on when most consumers do their weekly shopping trips (big baskets). Tackle these first as they are the most “planned” trips of all. They usually happen during the weekend. Find out what they usually buy (brands, categories, size of purchase etc). Armed with this info - send them an email on Thursday - enticing them with an offer (trigger). Follow-up with a reminder on Friday, stressing the offer but also free time recommendations for the weekend (subtly, playing the FOMO game - missing fun stuff due to traditional shopping trips). This is the motivation. You could also add a time-bound offer that ends Saturday morning, thus making customers commit to the purchase online.
For each job-to-be-done, these three elements vary, so think through each of them, develop hypotheses and then test.
Another example to build habits is to take the cue of traditional loyalty cards or stamp cards. While grocery e-tailer already offer vouchers, they are most often in an electronic format, thus less salient. Why not create a voucher on paper with a magnet for the customer to attach to his fridge? Thus any time he peers inside the fridge, there’s a tangible nudge telling him about the online retailer brand.
Also, simplicity is a function of the scarcest resource available - sometimes it may be money, other times it may be time. If I only got 10 minutes, being able to do something has to take me less than 10 minutes.
So why not go a step further - beyond simple shopping lists online which you can order with a simple click? Why not design a mobile app that scans product barcodes while in line at the supermarket and automatically matches that retailer’s product with the one in your database, and adds it you the customer’s shopping list? So next time, your shopping list is ready.
Amazon executes simplicity brilliantly. Not only do they launched Dash - a one-click-reorder button for staples place at the exact moment when motivation is high (on your washing machine), they are also building AI ordering capabilities into their Alexa product. So you could just say “Alexa, I need some Papers please, size 3” and the second day, your order arrives. Now that is simplicity at its best!
5. Get smart about pricing, discounts and cross-promotions
Welcome to the fascinating world of pricing, arguably the most important strategic tool (the brand is on par). This article doesn’t aim to discuss fully all pricing strategies available (a wonderful book is The Psychology of Price by Leigh Caldwell), nevertheless - there are some less than common ideas worth mentioning:
Buy now, pay later
As mentioned, when parting with money - people feel pain. Your goal is to lessen the pain as much as possible. In many other e-commerce categories there are methods in which you can postpone payment after delivery and in case of food, after consumption.
This is not to say that people don’t have money to pay for food (most of us have a dedicated budget for this), yet, merely seeing this message could engender less pain and diminishes perceived risk. Klarna is such a service that works with most e-commerce platforms, while PayPal also launched their Pay after delivery service.
An online retailer that really got creative with pricing is Jet. By the way, Jet is now being purchased by Walmart for 3bn, in the hope of making a dent in Amazon’s market share (38% to be exact).
Jet started out with an innovative pricing model as their engine of growth: the more you buy in one go, the lower the price.
Also - the price gets lower if:
- You pay by credit card
- You buy products from several recommended categories
- You are willing to defer delivery for a couple of days (presumably allowing them to optimize logistics)
To sum up:
In conclusion you need to:
- Pay attention to consumer psychology when it comes to food shopping: employ a job-to-be-done framework
- Minimize the pain of paying by bundling delivery charges with other purchases
- Focus on niche products where you can be the sole supplier or at least, the most convenient one
- Build habits by creating triggers at just the right moment and simplifying the experience
- Get creative around pricing
Now, your turn - what do you think? Any other ideas on how to make grocery e-commerce more appealing?
- On a side note, I once read a brilliant case study on responsible drinking that subtly triggers our conscience: the beer caps all had a car painted on top of it. When you tried to force open the cap, naturally the cap got scratched and bent, just like a car after a crash, making you think twice to drink another beer.
- There is an online shopping panel company too, called: Slice Intelligence