Navigating Digital Transformation in the Grocery Industry
Like everything else these days, the weekly grocery store trip is becoming increasingly digital. Traditional analog experiences, like the weekly circular and paper coupons, are migrating to digital with “find and clip” versions. This is all part of the digital transformation in grocery. Inside the grocery store, customers are choosing to use self-checkout lanes more than cashier staffed lanes or completely bypassing the checkout stand by using hand-held scanning devices and the store’s mobile app. Recent innovations even automatically scan items as they are added to the cart in real time. Of course, customers can opt out of the store experience all together by online ordering with home delivery and curbside pick-up options.
While all these digital capabilities present big opportunities for grocers, they also present new challenges. On one hand, each new technology introduces powerful, exciting ways to connect with customers that can translate into meaningful gains in engagement, market share, and profitability. On the other hand, keeping pace with ever-changing customer expectations while ensuring the shopper’s journey is seamlessly connected isn’t easy and ushers in new chances for friction at each step. If not resolved, this friction can lead to customer disappointment, fractured relationships, and ultimately, lost share of market, wallet, and mind that won’t be easy to regain. It’s important for grocery brands to keep track of what’s happening in the market, know when to address trends, and how to incorporate these factors into their playbooks.
Trends Impacting Grocery’s Shopping Experience
Innovative changes are emerging that are having a big impact on how customers interact with retailers. Here are trends related to five core touchpoints that are particularly important to the evolving grocery shopping experience:
- Loyalty programs: Today’s loyalty programs are often a mishmash of digital offers and in-app exclusives for members. A typical user experience involves clipping and renewing digital coupons, managing online only discounts, and knowing how, when, and where to optimize and take advantage of cash balances earned through different shopping behaviors. Fuel discounts are often connected. And consumer-facing rewards apps like Fetch, Ibotta, and Upside are layering on an additional level of complexity with even more discounts, points, or cash back offers tied to purchasing select products from participating retailers.
- E-commerce: A huge boon during Covid, online and digital sales continue to grow, moving from 8% of all grocery sales last year (LY) to 10% as of the first half of 2023. While there is growth, penetration lags well behind other retail channels. Food retailers are actively engaged in improving the services by expanding coverage, enhancing operations and execution, and remodeling stores or revisiting fulfillment strategies, all with an eye toward driving greater profitability while delivering a better user experience.
- Digital circulars: Digital circulars are increasingly replacing their paper predecessors. They are cheaper, greener, and deliver a 10x to 19x return on ad spend (ROAS) compared to printed circulars, according to a recent article. They also offer new capabilities including personalization, tracking to help link store traffic to purchase behavior, and version testing for more refined targeting. While retailers like Walgreens, Target, and CVS have already fully transitioned to digital circular technology, grocers are generally more reluctant to make the switch. Many are taking a crawl, walk, run approach; they are launching and testing the results of new digital circulars while strategically reducing weekly circulars in underperforming markets. Many are still keeping a stack of paper circulars in stores to appease loyal fans and help bridge the transition to digital.
- Digital coupons: Just like paper circulars, paper coupons are increasingly exiting the scene, and at an even faster clip (pun intended!). But the digital coupons prevalent today are not yet optimized, with security presenting the biggest issue. While still in its infancy, the next generation digital coupon protocol, AI 8112, is solving for the security problem by offering improvements in fraud protection and near real-time reconciliation along with new capabilities in customization and tracking. AI 8112 also stands to substantially improve the user experience. Consumers will soon have a universal wallet that can store and manage all manufacturer coupon offers across all retailers. This free-range, use-anywhere attribute will make redemption and settlement seamless for all parties. At the same time, it opens the door to smaller retailers that are currently not “heavy” coupon redemption channels.
- Store experience: Emerging technologies like electronic shelf labels, digital data collection, and computer vision can enhance the in-store experience, but they require careful planning to maximize the benefits. There are only a few “first-movers” testing these innovations, while still a ways off for most retailers. In the meantime, the masses can better connect the in-store experience with the digital experience in meaningful ways. Primarily this involves upgrading in-store communications to reinforce and build upon digital offers through education and awareness messaging. For example, promote the app download in-store, including self-checkout messaging, with promise of exclusive digital offers. And encourage digital habits by placing signage with easy-open app QR codes throughout shopping journey. This creates a win-win experience for the customer and increases multi-channel shopping behaviors.
The key to successfully embracing the opportunities and avoiding the missteps will be to approach each new digital functionality and related customer touchpoints in a connected and customer-first way. This will require grocers to modify their “tried and true” strategy, loyalty, and technology playbooks to benefit from the new possibilities for engaging customers at each step in the end-to-end shopper journey.
As grocers and other retailers respond to market trends and capitalize on the digital evolution, here’s what we believe will lead to successful, customer-centric digital integrations for a digital transformation in grocery.
1) A Unified Commerce strategy will become a “must-have” to ensure success.
Innovative grocery retailers are staying connected to market trends and tech advancements and are testing and adopting new digital capabilities to modernize the customer experience. But they’re often doing it in silos. This approach misses the opportunity to fully understand the end-to-end customer journey, consolidate key data sources, and integrate all touchpoints to create a cohesive brand experience. By failing to connect the dots for their customers, retailers are jeopardizing strong customer relationships. And the results are felt in the form of smaller baskets, abandoned carts (both physical and digital), share of trip declines, and other erosion in performance.
Grocers looking to keep pace with the digital evolution and meet customers’ growing expectations along the way must invest in developing a holistic Unified Commerce strategy. Unified Commerce provides the focal point grocers need to keep customers central to their strategic plan and roadmap. It starts with developing an enterprise view of the entire customer journey and understanding the KPIs that most impact that journey. With this framework, grocers can then take the right steps to align people, processes, systems, and data to work in harmony, with the goal of delighting customers across all channels. A Unified Commerce strategy will be the glue that ties the experience together from end to end, eliminates existing gaps in experience, and prevents new gaps from occurring as the customer journey continues to evolve.
Building a Unified Commerce strategy is often a multi-step, multi-year journey. But as more and more grocers and retailers adopt this approach, they will be positioned to integrate new customer touchpoints more effectively and seamlessly. Ultimately, a Unified Commerce strategy makes it easier and more rewarding for customers to shop with and deepen the relationship with the brand, regardless of how they choose to interact with the brand.
2) Loyalty programs will get a much-needed makeover as they shift toward digital personalization.
Grocers enjoy some of the highest loyalty membership penetration rates in retail. It’s reported that 70% of Americans are a member of at least one grocery loyalty program. This is true despite the fact that the programs are increasingly complex and cumbersome for consumers to fully understand and manage. In many cases, loyalty program members are more motivated to join by pain avoidance than by the rewards. Simply put, they sign up for the program to avoid paying higher prices, not necessarily to enjoy the benefits and to become more closely connected to the brand. And despite the promise of savings and rewards, there is still a good chunk of customers who aren’t satisfied with their grocery loyalty program (21%). Retailers need to be mindful of these perceptions and behaviors to understand how they may be impacting their customers and share of wallet.
Of course, some retailers do a better job than others at intentionally developing more meaningful and valuable loyalty programs. Gelson’s, for example, gives an automatic $5 dollar discount every time a customer spends $100 and sends a rewards sampler box to its top 2,500 customers every quarter. Retailers need to add elements like this to the value proposition to reinforce that their program offers more than a discount mechanism. They also need to be deliberate about their loyalty marketing, explaining to members how and when to engage with the loyalty program to maximize its value. Digital advancements in grocery loyalty programs give retailers the ability to stay in front of its members, provide personalized offers and timely messaging.
Speaking of digital innovation, consumers will increasingly find new digital coupon technologies easier to use. Since this tech allows customers to choose the grocer where they want to redeem the coupons, retailers will need to rethink their loyalty program constructs. Relying on a “sign up or else” approach simply won’t work in an environment where consumers have more choice and control.
This may present problems for big grocers like Kroger, Ahold, and others that tend to focus heavily on their proprietary loyalty programs and app usage. Grocers that view the new digital manufacturer coupons and digital wallet concepts as competitive and versus complimentary will miss out on the positive impact. Grocer loyalty programs and digital coupons can coexist, and the collaboration is a great way for retailers to stay relevant in their customers’ eyes.
Digital technology is here to create flexible, agile, personalized loyalty programs. On every level, a customer-centric, digitally enabled loyalty strategy should aim to surprise and delight customers based on each shopper’s behavior and preferences. This should include:
- Capturing and activating preferred communication methods
- Individual shoppers preferred days/times—the typical Wednesday ad drop is no longer the only option for the circular
- Allow banking rewards for a bigger prize rather than more frequent dollars-off offers
- Customized discounts in the shopper’s preferred categories
- Automated, customized coupons delivered directly to the wallet
Grocers that incorporate these new technologies, tools, and trends into their loyalty program refresh will be the best positioned to create profitable behavioral change, bolster relationships, and drive true loyalty. It’s a big effort, but one that will be the cost of doing business at some point sooner than most retailers realize.
3) Investment in technology and infrastructure upgrades will lay the foundation for the future.
For most grocers, reaping the advantages of new digital capabilities will require a much stronger IT backbone. Right now, few organizations are set up to fully leverage and benefit from these innovations. Most retailers rely on an amalgam of legacy and upgraded technology solutions as well as manual processes to drive business operations, data collection, and reporting. To tap into the increased personalization and tracking capabilities afforded by new digital touchpoints, companies will have to strategically upgrade with a focus on systems integration.
Probably the biggest hurdle grocers will have to address is acceptance of the new digital coupons mentioned earlier. They’re called AI 8112 digital coupons. Many grocers don’t have this technology on their radar yet, but they should. AI 8112 coupons are universal, single-use coupons validated in real-time and are getting attention and support from key industry players, including the manufacturers that issue coupons at scale. As these digital coupons become more mainstream, grocers will need to consider when and how to integrate them into their value proposition. The impact will be significant, with even a one percent share gain or loss here can have a significant impact on a grocer’s bottom line.
Getting their systems ready to accommodate these types of advancements for digital transformation in grocery will mean upgrading or replacing proprietary and heavily customized POS technology. And while they have the hood up on their POS system, retailers should take the opportunity to assess the entire tech stack. Regularly accessing “tech debt’ is important. Knowing when and how to sunset outdated or expensive-to-manage systems will clear the path to successful digital transformation in grocery. Taking the time to create a go-forward IT strategy that prioritizes strategic investments, upgrades, and process changes will be important. Grocers building and activating this roadmap will create a strong competitive advantage and pave the way to a frictionless Unified Commerce approach.
It all comes down to a customer-first mindset for digital transformation in grocery.
The digital equation in grocery will continue to become more complex and even more important to retailers’ growth and health. Those who will be successful in the new digital era will do so by staying laser-focused on what matters most: their customers. Keeping customers as the north star makes it easier to navigate the continuously changing landscape. And it helps retailers make the right strategy, personalization, and technology choices that will deliver both short and long-term results.
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