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GroceryshopTrends & Insights Report

Contents:

• The State of Grocery

• Changing Consumer Behavior

• The Changing Digital Landscape

• An Update on DTC

• New Innovations in Retail/Grocery

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Online grocery sales grew 15% this year, according to a new

report from Brick Meets Click.

E-commerce in Grocery channel has been slower to catch on compared to other retail categories, so what is

driving this shift?

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The State of Grocery

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The U.S. grocery industry is undergoing a massive transformation. This shift is placing significant pressure on both retailers and the CPG brands carried on their

shelves. The shopper is in control and looking for convenient and innovative experiences including: digitally enabled shopping models (home delivery and curbside

pickup,) new in-store formats, and subscription meal kits. Although the majority of brand sales are still happening in-store, expanding shopping and delivery

models enables greater access to the consumers wallet, driving incrementality.

Meghan Garrity, Director, Starcom Commerce/Digital Shopper Practice

Tech is transforming ecommerce: Major brick-and-mortar grocers are investing in more robust omnichannel strategies to capitalize on ecommerce options to provide

customers with the convenient grocery shopping experiences they desire. Rapid growth online has prompted major retailers to invest more than $28 billion in grocery

ecommerce capabilities over the past 18 months, (per CommonSense Robotics Ltd.) The lions share of this investment supported a surge in on-premise pickup

locations and home same-day delivery options by major retailers, as well as on acquisitions and partnerships such as Amazon.com Inc.’s purchase of Whole Foods

Market Inc., Target Corp.’s acquisition of Shipt, and the Kroger/Ocado partnership to bring 20 automated sheds and robotic fulfillment to the US.

New retail formats are helping to drive down costs, but for consumers: Smaller stores with expanded fresh

department are breathing new life into retailers. Those retailers who have focused on fresh departments (produce,

deli, bakery, etc) are yielding higher store growth overall with $720K more per store on total food and beverages

sales (per Nielsen). By offering a selective fresh assortment, including options in seafood and produce, as well as

and carrying more meat alternatives, and complete meals within fresh departments. Stores of the future will focus

on the customer rather than the competition.

Omnichannel is impacting grocery in powerful ways:

• Personalization is vital to success in grocery, as in all of retail, however, this category may lend itself better to

creating truly personalized experiences. Both direct-to-consumer (DTC) and legacy brands speak directly to the

customer and use data to create new products that meet today’s customized eating plans and tastes.

• Shopper trust is everything: Credibility and reliability is difficult in an omnichannel grocery world. Retailers must

ensure the customer’s safety is the utmost priority, or feel the wrath of losing them. Both physical safety such as

product safety (food recalls, temperature controlled holding, and timely deliveries) as well as digital brand safety

and customer data protection must be of the utmost priority to build and retain a shopper’s trust.

A shift is happening…

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• 14% of shoppers are now using grocery

Click & Collect, expected to reach 30% by

2020

• 22.6M shoppers will use grocery apps at

least 1x per month, rising to 30M+ by

2022

• 59% of Click & Collect shoppers still enter

the store on a pick up trip

• 36% of Click & Collect pick up shoppers

will go inside for a cold beverage or snack

purchase

How can brands keep up, or get in front of these changes?

Source: Coca-Cola Retailing Research Councils

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“An explosion in consumer choice & accelerated expectations of convenience are creating new opportunities for retailers to help brands create meaningful connections.

Brands must be disciplined in their approach to create separation in a digitally constrained shelf – and leverage rich audience intelligence to influence the shopping mindset throughout the full-funnel path to purchase.”

Customers who are digitally engaged into a retail ecosystem are more valuable –they shop more often, and are more loyal. But brand loyalty doesn’t always transcend shopping modalities.

Cara Pratt

VP Kroger Precision Marketing, Product & Commercial Strategy

Changing Consumer Behavior

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While e-commerce continues to be the fastest-growing channel, adoption in grocery has been relatively slow (Food/Bev ~3% total ecom penetration in category) when

compared to other categories (20% cross-category.) However, we are beginning to see a major shift to online grocery as the barriers to adoption and growth are coming

down. In fact, online grocery is expected to reach 12% share by 2025. Retailers are investing heavily in technology, supply chain, and partnerships that will make for a

seamless customer experience.

Connecting with shoppers is vital to drive growth. Grocery shoppers are using all available purchasing options: in-store, last mile delivery (3rd party such as Instacart),

online (click & collect and delivery,) and subscriptions (meal kits or frozen meal delivery). These are not mutually exclusive; shoppers prioritize convenience (speed,

delivery, simpler process) based on their needs, and use all of the above options based on their needs. Brands must win the shopping occasion by leveraging online

and offline moments for incremental sales.

Meghan Garrity, Director, Starcom Commerce/Digital Shopper Practice

Invest for the long term: Although ecommerce adoption is on the rise, it’s not an instant win. Brands must support their products via search

and onsite placements to stack the deck to influence purchase. Grocers with loyalty card data will highlight previous purchases (both online &

in-store) with a simple “Buy again” option. Winning the top placement as either a previous purchase or top search result is vital to a brand’s

online success. Although Wall Street tends to focus on the short term goals, online grocery is still in its infancy. However, if brands don’t take

the risk to invest, are they willing to concede this growth opportunity to their competitors?

Consumer-Centric Planning: Brands should pivot marketing strategies to focus on customer behavior, and not their platform (in-store vs

online). Advertisers must rewrite the traditional marketing funding source-siloed model of brand, shopper, ecommerce, and trade

dollars, and pivot to a coordinated, holistic planning effort. This allows for planning across tactics such as brand awareness, shopper-

driven insights, promotional effectiveness, and retail on-site share of search. Planning models must evolve past using only reach and

frequency planning to objective based metrics (R/F, ROI, ROAS, HH Penetration, Buy Rate, Redemptions, etc.) to deliver on converting

the complicated grocery shopper.

Build Brand Equity & Retailer Equity Simultaneously: Focusing on a company’s JBPs and utilizing retail insight-driven planning

efforts, allows brands to support key initiatives at retail. By planning holistically, marketing efforts are coordinated nationally

via brand, shopper, and ecommerce support, which ultimately builds both brand equity and the retailer relationship.

The path to purchase has many twists and turns, but

data is creating a new roadmap for brands

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The Changing Digital Landscape

The path to purchase has completely changed. It’s no longer linear and the traditional sales funnel now comes in “all different shapes and sizes.” The key to digitally

transforming a brand is to provide a frictionless, personalized experience, and understanding how to navigate the retailers changing environment to activate effectively.

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Jason Comack, VP, Director, Starcom

Digital Channel Engagement is Driving Loyalty

Customer Lifetime Value is metric that was often brought up during the course of the event. Now more than ever consumers have choice between not only their brands

of preference, but also their mode of shopping, and therefore, it is imperative that brands and retailers engage the consumer across all of their need states.

Consumers value and expect convenience and the emerging models of Online Grocery Pickup and Last Mile Delivery expand ways of servicing consumer need states.

By creating a frictionless journey between the add-to-cart and pick-up stages of purchase, brands can drive loyalty and repeat usage. With Walmart expected to grow

their pickup coverage to 78% of the nation combined with online grocery pickup consumers being of higher value (with a 2X average checkout v. standard purchase),

this will be a key channel for brands to win going forward.

Retail-Owned Digital Responsibility Changes

Over the past two years, we’ve seen a significant digital transition and transformation in grocery

channel digital offerings. Albertsons, Ahold, Kroger, and Walmart have all altered who is responsible for

their digital offerings, (either a 3rd party change or in-housing of responsibilities.) These transitions

have a domino effect to the business, and take time to achieve optimal staffing and training, newly

established ways of working, and even re-negotiations in rates, terms and conditions. All aspects of the

marketing, sales, and agency teams must be in lock step, aware of any and all impacts to campaign

that working with a new partner may entail.

Data Transparency is Still Lacking

CPG brands without direct-to-consumer components face a fundamental challenge - the retailer selling

their product not only owns the customer relationship, but all the data associated with that customer.

That relationship can either be a one-way relationship (where data sharing is at a minimum) or a true

partnership (with both parties sharing data). Retailers that provide feedback on customer segments

who should be buying your product help the brand, but also enable a new category buyer for the

retailer. Creating two-way relationships between brand and retailer are key to success for both parties.

Once dubbed digital disruptors, the direct-to-consumer model is now part of the playbook for

startups and established brands

alike.

How is this impacting the grocery aisle?

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Direct to Consumer Means Retail on Consumers’ Terms

If e-commerce is where the action is for manufacturers today, direct to consumer (DTC) is where the real, big, exciting opportunity is down the line. According to a

study by Feedvisor and Morning Consult, DTC brands rank as the most pressing ecommerce challenge for brands.

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Ali Amarsy, SVP, Global Product Lead, Commerce Publicis Media

As Frito Lay’s SVP, Sales & Chief Customer Officer, Mike Del Pozzo put it, “Amazon has made everyone better. It’s made us obsessed with the consumer and

we no longer take our leadership position for granted.” A Salesforce survey in February 2019 showed that 51% of respondents saw Amazon’s

Marketplace as a critical threat, and 68% believed that consumers were more loyal to Amazon than their own brands.

The next level of customer ownership lies in building a direct relationship with them -- the way DTC, namely digitally-native,

vertically-integrated brands (DNVBs) do. 99% of consumer goods leaders surveyed by Salesforce said that they were investing in DTC strategies of some kind. The DTC business model has several benefits: it gives control to manufacturers, allows

manufacturers to have visibility into the full path to purchase, and it’s a responsive model with speedy feedback loops.

And this agility has allowed DNVBs to meet consumers’ major wants and needs:• Personalization: Anil Aggarwal, CEO of Groceryshop, opened his keynote saying that personalization makes people

want to spend 20% more. That probably explains why retail spends more on AI than banking, manufacturing or

healthcare.

• Zero waste and sustainability: Deborah Weinswig, Founder & CEO of Coresight Research, singled these out as two big

consumer trends, quickly becoming must-haves for brands.

It’s not a perfect model though and there are some major unanswered questions and warning signs. Ken Cassar, VP

Research, Groceryshop warned us there is a trend of homogeneity amongst DTC brands, at least in messaging and claims.

Will that eventually cause consumers to tire of brand shopping experiences versus shopping with retailers they know and

trust? Further, while it’s true that digitally native brands continue to push the envelope forward in terms of modern products

with strong value propositions, how big is the consumer base who is willing to purchase products in fragmented shopping

trips/orders vs their normal behavior of basket building within CPG categories?

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Groceryshop played host to a variety of technologies.

From the well-entrenched to the startups in pitch

sessions, what promises to help brands better connect

and convert customers?

At Grocery Shop 2019, what was packaged as new and cutting edge

actually felt quite familiar. The common theme amongst every startup

pitch was an ambition to bring the transparency and intelligence that

we’ve come to expect from the e-commerce world, to brick and mortar.

What We Consider Standard in Online,

is Now the Innovation of OfflineAli Amarsy, SVP, Global Product Lead, Commerce Publicis Media

CMOs have grown accustom to the ability to track

inventory, traffic and sales in real time, allowing them to

meet consumers where and when they want to shop with

the right recommendation. If they’ve got it for the 10% of

online sales, why not make it work for the remaining 90%

offline and really see how businesses can be transformed?

That’s the vision the entrepreneurs we saw are chasing.

Challenge: We live in a world where everything can be searched and found, until you get to a store and you have to go on a manual hunt

Solution: In-store navigation within three feet of accuracy without the need for extra hardware

What it’s like: Like a Google Maps for your grocery list

Why it’s awesome: Others have tried to crack this for a decade using routers and wifi – which means hoping people have their wifi on, investing in hardware and imprecise tracking

Where we see it coming to life: Retailer apps, proximity-based suggested products, footfall & dwell tracking

Challenge: Once a customer leaves the store with a product, it’s unknown how they use it and when they run out

Solution: Connected smart product labels that retransmit usage data

What it’s like: The phone battery tracker in your iPhone, but for your shampoo

Why it’s awesome: Better insight into product use and the ability to communicate and push frequency or repurchase

Where we see it coming to life: First, high end CPG; then all CPG

Challenge: Even in 2019, companies send people into the market to manually track competitive pricing

Solution: A hyperlocal, real-time pricing dashboard

What it’s like: An amazon product search page, for the real world

Why it’s awesome: It reduces duplication of work, offers more transparency, and in the end. consumer wins

Where we see it coming to life: All major markets once the right scale is established

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Here are three start ups that really caught our eye:

What We Consider Standard in Online, is Now the Innovation of OfflineAli Amarsy, SVP, Global Product Lead, Commerce Publicis Media

We’re sure this isn’t the last we’ll hear of these companies, or of the wave to make brick and mortar as intelligent and intuitive as

e-commerce, and we’re all here for it…..

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