Deploying a Digital Grocery Strategy that Delivers a Profit

Going digital presents tricky revenue problems for many industries, but a FMI Nielsen report predicts the grocery business will move online faster than other industries have. While the current penetration is still under five percent of sales, research shows it may be 20 percent by 2025, representing $100 billion. The problem is coming up with a viable online business model when the cost and logistics of delivering fresh produce and meat in a timely fashion are completely different than an in-store model. Add to that the competition from giants like Amazon who have come up with not only at-home grocery delivery through AmazonFresh but also AmazonGo, the brick-and-mortar grocery where digitally savvy can just grab their groceries and walk out.

Digital Strategy Pricing Concepts 

How can retailers compete and make a profit? Well, we have some ideas. First, no retailer can afford to sit back and see how things shake out, you need a strategy, now. There are various ways to make online grocery delivery work, it’s just a matter of what works best for you.

  • Monthly or Annual Fees: One way to make money is to charge an annual or monthly fee, pay-to-play so to speak, for customers who plan to make home grocery delivery a lifestyle choice. Perfect candidates for this are older people—especially in upscale neighborhoods—and parents with young kids. Considering who might be using this service might help to ensure the product mix available offers some special discounts that make the service more attractive.
  • Per Delivery: How much are consumers willing to pay for delivery? Should it be a flat fee or a percentage of costs? A flat fee encourages more volume shopping—more bang for your buck. But it also means whoever is doing the shopping and delivery has more work so you might try two different approaches and see how they shake out for your stores.
  • Cost Per Item: You could add a fractional cost onto each item sold. This makes sense and defrays the cost of shopping and delivery but might turn off customers who want to know exactly what the service is going to run them.
  • Limit Online Inventory: If you do this, you can offer a flat fee and have the items grouped conveniently for online delivery so that they can be easily assembled into an order and delivered. The down side is that you also limit your ability to compete against retailers who offer everything, including the kitchen sink. Another option is to offer everything, but give customers coupons that may influence them to buy the items on you limited list.
  • Specialize: One problem people have with switching to online grocery buying is that they fear they won’t get the best, freshest meat and produce. You can charge more if you can guarantee the shoppers will bring premium fresh goods to the door. Specializing in being the store that brings the best meats, fruits, and vegetables to your home may encourage online shoppers to go with you rather than a competitor.

Listen to Your Customers Feedback 

Of course, a lot of how you structure your online grocery business includes how the food is transported—working with an Instacart or Uber—which have their own business models. It also matters what market you’re in. Who are your shoppers and what services do they already use? What is the market penetration of online grocery companies today?

One thing’s certain, beginning to understand how your stores can best move into the digital world is something you need to be thinking about today.

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Seth Nagle, Senior Marketing Manager at RW3 Technologies understands the power of innovation but also its limitations. Attending Salve Regina in New England, starting his career in Silicon Valley, and now living in Austin, Texas; Seth provides a unique tech perspective to a complex CPG and Retail Grocery Industry that is in constant disruption.

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