Online orders force supermarkets to rethink their stores
Online orders force supermarkets to rethink their stores
Smart & Final Inc. has made some changes lately that seem almost a heresy for a supermarket: the California-based chain started sandwiches racks and other profitable impulse purchases near the doors of some stores and installed freezers there.
But grocery executives say the seemingly irrational move is simply one of the many signs that the supermarket business is changing dramatically. The freezers will serve as collection points for customers who order their groceries online and can never go further in the store.
Such online sales, says Smart and Final CEO David Hirz, are "becoming a significant piece of our business."
After years of inertia, US supermarket chains UU They are competing to add online options, such as home delivery and in-store and sidewalk pickup, to prevent buyers from transferring more than $ 800 billion in annual food and beverage expenses to e-commerce companies such as
Amazon.com
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The process is encouraging retailers and major food brands to change fundamental aspects of their operations, from staffing and supply networks to the way they organize their parking lots and stores. At the same time, online change has created complications for physical stores.
Bill Bishop, co-founder of the consultancy Brick Meets Click, considers it the biggest change in supermarket operations since the introduction of bar codes to consumer goods. "There really has not been anything from this operational sweep since then," says Bishop.
Expected growth
E-commerce accounts for less than 5% of US grocery sales today, but food and beverage sales are growing much faster online than in traditional supermarkets. Forrester Analytics predicts that by 2022, the US online grocery market UU It will total $ 36.5 billion, an increase of $ 26.7 billion this year.
The purchase of Walmart Inc. from the e-commerce site Jet.com in 2016 and the acquisition of Whole Foods by Amazon last year have prompted merchants to accelerate their online expansions.
Where is the growth
E-commerce was by far the fastest growing grocery shopping channel in 2017. Change in sales from 2016:
While staying behind, shopkeepers are remodeling their stores and designing new locations to better adapt to online orders. Smart & Final plans to expand the front of some of its new stores to allow more racks and refrigerators, says Mr. Hirz. Many supermarkets are reserving parking spaces where customers and delivery services can quickly pick up online orders bagged in stores. Some stores have designated payment lines to obtain larger orders of third-party online grocery delivery services, such as Instacart, while others have created separate entries for delivery pickups.
Meanwhile, food manufacturers are beefing up e-commerce units to make sure customers can find their products online and track their flow from retailers to customers' homes. "We should all be careful to think about this," says John Carroll, general manager of e-commerce at Coca-Cola Co., which has 50 employees working in its online division.
The beverage and snack company now fills stock at some stores throughout the day, says Carroll, after discovering that almost 50% of online orders are made at night and retailers tend to package collection orders at non-work hours. It has also changed part of its packaging to make it lighter and less prone to damages from its online sales.
Food retailers such as
WMT 0.79%
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Kroger
Co.
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They are spending tens of millions of dollars to acquire digital order technologies, implement home delivery systems and create thousands of store collection points for online orders. Kroger, the largest supermarket chain in the US UU. Has hired or assigned approximately 19,000 workers to manage approximately 1,400 online order picking sites, which cover approximately half of the company's stores. This fall it is expanding same-day delivery through Instacart to 75 additional markets and launched its own mail order service for shelf products this summer.
objective
Corp.
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is introducing a new inventory system to replenish its stores and complete online orders faster as part of a $ 7 billion review.
Retailers are also adding more bulk items online that ecommerce buyers prefer. Larger packages of cookies and other foods tend to be cheaper to ship online, which helps offset delivery costs, says Carmela Cugini, vice president of operations and healing at Jet.com.
Meanwhile, snack brands are trying to figure out how to increase impulse purchases when customers do not go through their items when paying.
Hershey
Co.
HSY 1.04%
says Doug Straton, the company's Digital Trade Director, pays for promotions and better search results from retailers to encourage online shoppers to add their sweets and snacks to their online baskets, and uses their data to adapt those promotions based on previous purchases. "You can not think of impulse purchases in the same way as in the physical world," says Mr. Straton.
Many clients have come to love the services they say save them time and annoy them.
"I no longer buy physically in grocery stores unless it's out of absolute necessity," says Shelby Allen, a 23-year-old health worker from Hunt County, Texas, who uses Walmart's grocery collection service for the most part. of your employees. shopping supermarket. "It has simplified my life so much."
However, online momentum poses risks for merchants, since it requires an initial investment and can detract from the in-store experience for customers who still generate the majority of supermarket sales. Because most of the US supermarkets UU Comply with online orders from physical stores, rather than warehouses like Amazon, keeping stock in stock can be tricky, given the different order patterns and limited backroom space.
Shopkeepers tend to comply with online orders from their previous inventories, but third-party delivery services such as Instacart send couriers to stores to take products from store shelves. Employees who comply with online orders can clog aisles and payment lanes or choose the best products, say customers and grocery consultants.
"The last thing I need to buy groceries is more frustration," says Kristyn Booth, a 48-year-old teacher in Austin, Texas, who resents the lines created by grocery store collectors online at the stores she buys.
Trained collectors
Instacart says it is trying to alleviate its impact on stores by running preparation areas in the back rooms of supermarkets, batch orders and the use of specific payment lanes. The company, which has contracts with 50,000 buyers, says it does train the collectors to select the best products, although that varies according to personal preferences.
Kroger is trying to combat congestion in its aisles by having employees who choose products for online ordering use portable scales to accelerate the process, says Matt Thompson, vice president of digital.
Shopkeepers and food manufacturers are also examining their supply systems to avoid running out of stock as e-commerce orders increase. The Grocery Manufacturers Association was surprised to find out in August that online grocery stockout rates hover around 15%, almost twice the average in stores. When customers do not immediately find the items they want, 70% change to another brand or store, or stop their order, found the business association.
Kroger has fined suppliers that do not deliver on time and in full, and Walmart has given more business to those who consistently deliver on time. Smart & Final is increasingly frequent the delivery of goods, executives say.
Walmart is also working on integrating its supply chain with its Jet.com division. Its goal is to get more goods for customers faster by using algorithms to determine which compliance centers can best meet a customer's order, says Ms. Cugini.
In the future, grocery stores will need to build separate warehouses to meet online orders, given the pressure the company creates in its existing supermarkets, says Nick Hernandez, managing director of retail services at real estate services firm Transwestern. Retail locations can be reduced, while warehouses can be rented for a fraction of the cost of a store supermarket, he says.
In spite of everything, the shopkeepers are struggling to find a balance between encouraging customers to place orders online and attract customers to their stores.
"Stores have to improve," says Mr. Bishop, who advises supermarkets on how to build online operations. "We have not found the secret sauce for shoppers to go to the store routinely."
Ms. Haddon is a journalist for The Wall Street Journal in Chicago. Send an email to heather.haddon@wsj.com.
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