An E-commerce Primer for Independent Grocers in the Retail Sector

By Bagrat Sarafian and Tigran Zograbyan, founders of Local Express

The grocery industry is undergoing several dramatic shifts — many that are influencing consumers to move their loyalty away from large corporations and toward smaller, local businesses.

This shift is dovetailing with an increased demand for transparency. Today’s consumers have a growing respect for retailers that share details about their business practices, including supply chain information and partnerships. Smaller independent groceries have an advantage as this shift progresses, as they are more able to trace the journey of their products. This gives them an increased degree of relevance, particularly in the eyes of the socially and environmentally conscious younger generation.

Another trend affecting the grocery industry is the popularity of e-commerce. In the past, grocery has lagged behind other industries in the broader world of e-commerce, which has been capturing more and more of consumers’ retail spending over the past decade.

Now, in 2019, more than 10% of all retail sales are electronic — yet, grocery still lags.

Consumer electronics currently gets approximately 40% of its revenue from e-commerce, and 20%  of footwear spending happens online. In the grocery segment however, only 3% of spending happens via online channels.  This percentage is increasing, but it is still lacking.

The problem lies primarily in the digital user experience. Electronics and footwear are easier to browse, buy, and return than groceries are, so they adapt better to an online format. Grocers, on the other hand, have found it difficult to replicate online the experience of shopping in a brick-and-mortar store.

Logistical Roadblocks to E-commerce Grocery Adoption

The grocery industry has invested heavily in the development of merchandising strategies for brick-and-mortar stores. Groceries and supermarkets are physically arranged to align with shopping habits, and, as a result, consumers find in-store shopping to be more convenient than online shopping.

Research has identified the biggest convenience gaps in the actual shopping process, are the selection of particular items, and the browsing process. In a grocery store, customers can do things like touch produce, smell meat, and compare expiration dates in ways they can’t online.

Now, as e-commerce becomes increasingly dominant in the retail sector overall, grocers are increasing their investments to develop better shopping experiences. These enhancements include more personal product recommendations, better browsing interfaces, and options for buying by quantity or weight, depending on product types.

Driving Factors Behind Grocery E-commerce Growth

According to a recent study by KPMG, 48% of grocery shoppers in the United States do some of their grocery shopping online, and 59% plan to do so by the end of the year. The fastest-growing segment of grocery e-commerce shoppers includes those who buy at least 40% of their groceries online. In 2018, 17% of grocery shoppers fell into this category, which is expected to jump to 25% of shoppers by the end of 2019.

Experts now believe that spending on online groceries will triple at minimum over the next decade. Several market enablers are converging to drive that major shift.

Consumer demographics and behavioral changes

Current consumer behavioral trends have brought grocery e-commerce services to a tipping point. First, today’s grocery buyer is likely to prefer healthy and natural foods. Niche alternatives, including plant-based and non-dairy offerings, as well as traditional options, are in high demand. Grocery e-commerce allows buyers to identify the product that meets their particular nutritional need and order it online, without having to scour grocery store shelves.

Grocery customers have also become accustomed to personalized marketing and service from retailers in other sectors. This trend may be driven by larger companies with artificial intelligence (AI)-enabled marketing systems, but independent grocers with local connections reap the benefits.

The consumers driving these trends are primarily young urban shoppers with significant disposable income. They are more likely to be under the age of 45, female, and from a minority cultural background.

Improved execution of omnichannel strategies

Today’s grocery buyers are accustomed to a seamless online shopping experience, which historically has been difficult for online retailers to replicate. The current shift is happening as grocery retailers are recognizing these expectations and responding by increasing their investments in technology.

One of the most critical technologies in improving omnichannel delivery is currently the order management system. This important tech investment allows grocers to orchestrate the complex logistics involved in e-commerce and deliver the convenience that today’s customers expect. This software is paramount in filling online orders efficiently, and enables retailers to track the progress of each order throughout the system — from picking to delivery.

Advances in delivery logistics

Improvements in delivery logistics have proven similarly critical. The availability of next-day and second-day delivery, particularly from retailers like Amazon, has changed customer expectations and increased the overall perceived priority of delivery speed. Thanks to advancements in route optimization, independent grocers in e-commerce are finding that they can compete with the delivery speed norms established by much larger companies.

The State of the Market

The grocery industry is now at a point where retailers need to align their services with consumer expectations. This alignment has positioned the grocery e-commerce market for explosive growth. Estimates suggest that grocery e-commerce will become the fastest-growing product category online by the end of 2019, increasing in revenue by 18.2%  percent to $19.89 billion during the year.

However, large corporations have the resources needed to invest in the highest level of infrastructure and the most advanced technologies — two factors that position this segment to dominate grocery e-commerce. Estimates place Amazon as the predicted leader in market share within the food and beverage e-commerce industry for 2019. In fact, the company is on pace to capture more than 32% of spending within this space.

Retail giants Walmart and Kroger are positioned to challenge Amazon, thanks to their widespread retail presence and their ability to provide “order online, pick up in-store” services.

The logistics of delivery and click-and-collect services have made it difficult for smaller grocery retailers to generate a profit by operating online, but the infrastructure is improving. To understand how this is happening, we have to look at the development of e-commerce for grocery brands.

Strategies and Best Practices for Independent Grocers’ Online Presence

Since food retail has a low margin of profit, grocery e-commerce is difficult for smaller grocers to maintain. Brick-and-mortar stores can handle those low margins because the customer collects the items, takes them to the checkout, then brings them home. Online ordering is appealing because it adds convenience, but that convenience also adds to the store’s overhead.

Adding online services requires a grocer to invest in infrastructure and allocate extra labor hours to preparing orders. Most small grocers also can’t wait long enough for a typical e-commerce platform purchase to pay for itself.

A new e-commerce program also requires a significant advance investment of time and expertise. Small grocers are less likely to have in-house tech expertise and lack the extra resources to hire someone from the outside. This professional would need to be paid not just through the development phase, but well into implementation. The cost of such support exceeds what smaller grocers can typically afford.

Similarly, the balance sheet of most grocery stores can’t support the extra labor hours inherent in a delivery or click-and-collect program. For online ordering and delivery fees to make up the difference. Rather, those fees would have to be higher than consumers can afford, or are willing to pay.

Bridging the gap

Thus far, the only companies to establish successful grocery e-commerce programs are large corporations and third-party hybrid companies like Peapod. The latter works with existing grocery stores, also on the larger side, while retail giants like Walmart and Target depend on their existing broad infrastructure.

Neither of these options is feasible for the small independent grocer. Instead of looking at prior successes in grocery e-commerce for guidance, the smaller grocer needs to look at different business models.

Accessible E-commerce business models

It would be unfair to expect an independent grocer to compete with the infrastructure of a company like Walmart. A better strategy is to consider the advantages the independent grocer has over the large corporation, and how the grocer can capitalize on those advantages.

Ability to personalize

Today’s consumer loves personalized service. Approximately 80% percent of consumers are more likely to patronize a brand that customizes the shopping experience, and more than 70% of consumers get frustrated when service is impersonal. Across the retail sector, including in the grocery industry, customization is rapidly becoming one of customer service’s most critical best practices.

Fortunately, personalized service is one of the things that independent groceries do best. These stores have a greater likelihood of success in e-commerce if they adopt affordable platforms that allow them to highlight individual service capabilities and dedication to their communities.

Flexibility

Smaller grocers are less likely to be limited by corporate policy than their larger counterparts. This flexibility can be an asset in the world of e-commerce, provided that the grocer can find a platform that is customizable in design and affordable to use.

Long-term relationships

The independent grocer often has loyal long-term customers who appreciate the opportunity to patronize a local business. These customers can embrace e-commerce and generate a strong return on investment if the grocer can communicate the benefits of the service.

Independent grocers need to market e-commerce services to the specific needs and preferences of their customer base. Fortunately, because one of the best practices of independent grocery retail is the nurturing of long-term customer relationships, the smaller grocer tends to have a firmer grasp on what their regular customers tend to prefer. Strong customer relationships help the grocer to build an e-commerce business, which then further enhances those same relationships and encourages lasting loyalty.

How Local Express Can Help

Local Express is an e-commerce platform for the grocery industry. It adapts to suit grocers of all sizes, but is designed to serve the independent grocer.

Unlike most e-commerce platforms for grocery, Local Express is fully customizable. Clients get unique domains and can choose their themes, features, and even payment methods. In-platform marketing tools let the grocer effectively communicate the convenience of its e-commerce services and the unique nature of its product portfolio.

With these marketing tools, an independent grocer can use e-commerce offerings to strengthen customer relationships. There is no loss of individual attention, thanks to Local Express’s fully customized interface, only the benefit of convenience and the option of pick-up or delivery.

Local Express is easy for the independent grocer to implement and maintain. The self-service platform features a one-click setup and automatic product importing plus free access to a diverse product portfolio. Once the system is set up, integrated store management and delivery management apps make it easy for the grocer to conduct e-commerce activities as part of the typical flow of business.

All of this is available at a cost an independent grocer can afford. Delivery is included, so it’s easy for the grocer to price the investment. Local Express is proud to offer advantages like these, which help smaller grocers to gain a competitive edge and make inroads in a market that often seems to favor larger stores.

Conclusion

Although it has a historically high barrier to entry, e-commerce offers significant advantages for the independent grocer. It allows them to provide many of the conveniences that a larger store can offer, but with more personalization and flexibility. In addition, it increases the earning potential of the independent grocery by broadening its audience.

Like any innovation, grocery e-commerce requires a leap of faith and a commitment to the future. It is a leap that must be made, however, since independent grocers who do see the possibilities in e-commerce will quickly outpace the competition. Grocers that are reluctant to make the change will struggle more to position themselves as relevant. Ultimately, they will be left behind as e-commerce becomes an industry best practice.

Independent grocers must act quickly and begin adopting these services so that they can stay competitive, take advantage of e-commerce opportunities, and serve their customers as well as possible.

Bagrat Sarafian is Co-Founder and CEO of Local Express. He has background in investment banking, private equity and consulting and has experience launching or being a principal investor in several startup companies in fintech, IT and engineering. His key areas of expertise include including financial management, early stage entrepreneurship and strategy execution. He holds an MBA from University of Southern California and a BS in Industrial Engineering from Armenian Polytechnic University.

Tigran Zograbyan is Co-Founder of Local Express. He previously was COO of TVBoxPLus, the leader of native IPTV services in California, and also was Vice-President of Media City, the inventors of a new type of advertising inside apartment buildings. Tigran also has experience as a Marketing Consultant in Russia. He earned his MBA degree from International Inter-academic Union and his BA from St. Petersburg State University of Cinema and Television.