One-quarter of global respondents say they are already ordering grocery products online for home delivery and more than half (55 percent) are willing to use it in the future, according to a new Nielsen Global E-commerce and the New Retail Survey. The survey polled 30,000 online respondents in 60 countries to understand how digital technology will shape the retail landscape of the future. The report looks at how consumers are using technology and offers insights into how retailers and manufacturers can use flexible retailing options to improve the shopping experience and drive increased visitation and sales across channels.
Connected commerce: bridging digital with the in-store experience
The good news for brick and mortar retailers is that clicks won’t be replacing bricks any time soon.
Online shopping has a number of benefits, but physical stores also have strong key advantages over e-commerce—especially for fast-moving consumer goods. In fact, the majority of global respondents (61 percent) reported that going to the grocery store is an enjoyable and engaging experience. A similar percentage (57 percent) thinks grocery shopping in a retail store is a fun day out for the family.
However, Nielsen research shows that clicks do lead to bricks, and this is an important take away for retailers and manufacturers who must engage the consumer early on the path to purchase. There are many touchpoints along this path, which include finding the store, making shopping lists, checking prices, researching products, sharing reviews and manufacturer and retailer content on social media, and finally purchasing.
“The connected commerce era has arrived,” said Patrick Dodd, president, global retailer vertical, Nielsen. “Consumers are no longer shopping entirely online or offline; rather, they’re taking a blended approach, using whatever channel best suits their needs. The most successful retailers and manufacturers will be at the intersection of the physical and virtual worlds, leveraging technology to satisfy shoppers however, wherever and whenever they want to shop.”
Retailers have a lot of room to grow when it comes to in-store digital enablement options, such as mobile coupons, lists and shopping apps, and in-store Wi-Fi availability. Use of online or mobile coupons (18 percent) and mobile shopping lists (15 percent) are the most cited forms of in-store digital engagement in use today among global respondents, with about two-thirds willing to use them in the future (65 percent and 64 percent, respectively). Downloading a retailer/loyalty program app on a mobile phone to receive information or offers is used by 14 percent of global respondents, and 63 percent say they’re willing to use one when it is available. About one in 10 global respondents say they log in to store Wi-Fi to receive information or offers (12 percent), use in-store computers to view extended product ranges (11 percent) or scan QR codes to access more information (11 percent). Roughly two-thirds, however, are willing to use these options in the future (66 percent, 68 percent and 65 percent), respectively.
In-store digital enablement options can bring the ease, convenience and personalization of online to brick-and-mortar stores. Instituting digital strategies into the in-store experience is not just a nice-to-have—these options can increase dwell time, engagement levels, basket-size and shopper satisfaction. Among the online respondents in Nielsen’s survey, use of in-store digital enablement options is highest in Asia-Pacific and Africa/Middle East. These regions also exceed the global average for willingness to use in-store options when they become available. Current usage is low in Latin America, but enthusiasm for them is high. More than seven in 10 Latin American respondents say they’re willing to use the in-store digital enablement options in the future. Mobile coupon usage is highest in North America (26 percent). European respondents have the lowest claimed usage levels for in-store digital engagement, but more than half (average 55 percent) say they are willing to try the options in the future.
“At present, shoppers do all of the work putting the pieces together to arrive at their final purchase decision,” said Dodd. “In a competitive retail environment, retailers and manufacturers can add value and differentiation by providing digital tools to help consumers take control of their shopping experience while also increasing sales potential. Mobile in particular can tip the scales in favor of increased shopper control, empowering them to shape the shopping experience more than ever before.
“Time-starved consumers want to use technology to make shopping faster, easier and more efficient,” added Dodd. “As we’ve seen with self-checkout, one of the more mature flexible retailing options included in the survey, as more retailers incorporate these options in their in-store and online offerings, adoption rates will likely increase.”
Who is shopping online?
The growth of online CPG sales has been driven in part by the maturation of digital natives, the consumers who grew up with digital technology (the Millennials and now Generation Z). These consumers have an unprecedented enthusiasm for and comfort with technology, and online shopping is a deeply ingrained behavior. Current usage of six e-commerce options (home delivery, in-store pickup, drive-thru pickup, curbside pickup, virtual supermarket and automatic subscription) is greatest among the youngest respondents, and they also are the most willing to use all of the e-commerce options in the future. For example, 30 percent of Millennials (age 21-34) and 28 percent of Generation Z (age 15-20) respondents say they’re ordering groceries online for home delivery, compared with 22 percent of Generation X (age 35-49), 17 percent of Baby Boomers (age 50-64) and 9 percent of Silent Generation (age 65 and older) respondents. Younger respondents also are the most willing to use all of the e-commerce options in the future.
“Millennials are at the beginning of their careers and are starting to form households, while the oldest members of Generation Z will soon be graduating college and joining the workforce,” said Dodd. “These generations will shape our economy for decades to come. Therefore, it is critical that retailers and manufacturers understand how these consumers are using technology and include digital touch points along the entire path to purchase.”
Willingness to use digital retailing options in the future is highest in the developing markets in the Asia-Pacific (60 percent on average), Latin America (60 percent) and Africa/Middle East regions (59 percent), and trails in Europe (45 percent) and North America (52 percent). Continued increases in mobile adoption and broadband penetration, particularly in the developing regions, also have helped boost online grocery sales. Regionally, Asia-Pacific consistently exceeds the global average for adoption of all online retailing options. Ordering online for home delivery is the most commonly preferred flexible retailing option in the region, with particularly high usage in China. More than one-third (37 percent) of Asia-Pacific respondents, and even more in China (46 percent), say they use an online ordering and delivery service. Adoption levels for online automatic subscriptions also are particularly high in this region (22 percent vs. 14 percent globally), with China once again leading the way (30 percent).
Increasingly, retailers are introducing e-commerce models that make it even easier for tech-savvy, time-crunched consumers to get the items they need. Fourteen percent of global respondents say they use an automatic online subscription service, in which orders are routinely replenished at a specified frequency, and more than half (54 percent) are willing to do so in the future. In 2011, Tesco (Homeplus) introduced the first virtual supermarket in a South Korean subway system, and the model has spread to other markets. Today, 13 percent of global respondents say they’re already using a virtual store and nearly six in 10 (58 percent) are willing use them when they become available.
A smaller number of consumers are using “click and collect” services in which consumers order groceries online for pickup at a store or other location. Just more than one in 10 global respondents say they order groceries online and pick them up in store or using a drive-thru (12 percent each). Slightly fewer (10 percent) order online for curb-side pick-up. More than half of global respondents, however, are willing to use these online options in the future (57 percent for in store, 55 percent for drive-thru and 52 percent for curb-side pickup).
What are we buying on and offline?
Virtual baskets don’t necessarily mirror physical ones. In fact, the relationship between the two is often an inverse one. In the U.S., for example, the mix of online product sales is roughly 60 percent non-food to 40 percent food, the exact reverse of the total in-store CPG picture, which is about 60 percent food and 40 percent non-food.
“Consumers are embracing the idea of buying certain packaged goods online, but some categories are simply better suited for e-commerce than others,” said Dodd. “While certain fast-moving consumer goods categories will serve as ‘on-ramp starter’ e-commerce categories, adoption rates will vary market by market. Understanding what consumers are buying both on and offline allows you to prioritize digital initiatives and take action with the categories that drive in-store trip count and basket size.”
So which categories have the most potential for digital success and which are best suited for in-store? Generally, stock-up categories like personal care and household products are prime selections for e-commerce inventory, while immediate-use items like fresh and frozen foods, condiments and beverages will be slower in adoption. However, general rules do not hold in every market. For example, in China, which has experienced phenomenal online growth of fast-moving consumer goods purchases, food has been the primary growth engine. Between 2013 and 2014, e-commerce’s share of the liquid milk and chocolate categories grew 91 percent and 59 percent, respectively. In addition, there is tremendous opportunity among niche consumer segments—especially in the healthy eating space and other categories that may be more difficult to find on in-store shelves.
When it comes to in-store shopping preferences, the retail landscape for developed and developing markets is different. In developed markets, sales are concentrated in large supermarkets and hypermarkets, accounting for 61 percent of personal care, 62 percent of food and beverage and 79 percent of household care category sales. In the food and beverage category, convenience stores also are a sizable player, accounting for 20 percent of sales. Similarly, in personal care, 22 percent of sales come from drug stores.
In developing countries, the landscape is more fragmented. Food and beverage is the most concentrated category. Forty-five percent of category sales come from traditional stores. Personal care and household product category sales, on the other hand, are divided across five channels: drug stores, hypermarkets, large supermarkets, small supermarkets and traditional stores. Hypermarkets and supermarkets are growing in these markets, but the importance of traditional channels should not be ignored due to their size and importance in the majority of categories.
Where are we shopping in store?
For all three categories included in the study (food and beverage, household products and personal care), the largest trade channel was not the one with the highest growth rate, indicating that global share of trade is becoming more fragmented. In the food and beverage category, traditional stores are growing fastest (+5 percent). Supermarkets and hypermarkets are still important to these categories, but consumers are increasingly relying on smaller formats such as traditional stores and kiosks, which fulfill their needs for convenience and speed. The story is similar for household product and personal care categories. Hypermarkets still claim the largest share of trade, but drug stores and convenience stores are growing quickly.
“Large supermarkets and hypermarkets are important players in the global retail landscape and this will continue well into the future,” said Dodd. “But smaller formats claim considerable share in some categories and are growing in others. Distribution efforts must rely on a mix of both. Understanding where consumers are shopping and for what categories gives you the insight to develop more precise, market-by-market distribution strategies.”
Consumers have more shopping choices than ever, and as channels proliferate, protecting and building store loyalty is no easy task. To keep customers coming back for more, understand what drives them to leave one store for another. It’s little surprise that price is the top driver of store-switching behavior—by a wide margin. Globally, 68 percent say price, followed by quality (55 percent) are store-switching motivators. Convenience (46 percent) and special promotions (45 percent) are drivers for nearly half of respondents, while cleanliness (39 percent), and selection/assortment (36 percent) are reasons for four in 10. Store staff is a factor for just more than one-quarter (27 percent) of respondents.
While digital is here to stay, the majority of consumers will continue to shop for the bulk of their purchases in store—even if the channels they’re using are changing. Shoppers will use whatever format best suits their needs for convenience, choice and value. Therefore, it is critical that retailers and manufacturers leverage physical and digital assets to optimize the in-store experience.
