COVID-19 has propelled the grocery and consumer and packaged goods (CPG) industries into a new era. Prior to the pandemic, e-commerce accounted for ~3% of the ~$800bn US grocery market. Now, several months into the crisis, industry sources estimate e-commerce could account for as much as ~10% in 2020. As grocery e-commerce grows, so too will ‘click & collect’, blending the physical and digital shopping experience, whereby consumers buy online and pick-up curbside or in-store.
Although it is still early to delineate the arc of the COVID-19 effect on online grocery, our Research analysts see a compelling argument as to why the click & collect model may become the low-cost, if not free, online grocery option for consumers, and discuss three potential implications of a sizeable click & collect opportunity for investors.
We estimate a $60 billion click & collect market opportunity, even as delivery experiences robust growth, with far-reaching implications for the CPG industry.Galya Laskar, US Thematic Consumer Equity Research Analyst
As click & collect order volume increases, manual order picking from store shelves – which is how orders are often filled – may not be sufficient. At a certain tipping point, traditional brick & mortar grocery stores would be faced with significant investments to meet the demand, which could likely come with a re-think of their overall offline/online approach in order to maximize return on investment. This could trigger a cascade of supply chain changes, which could reverberate to consumer and packaged goods (CPG) manufacturers.
For example, to optimise in-store picking, many retailers have been exploring automated fulfilment centers on- and off-site. To increase reach, offsite pick-up locations have also been considered. The net effect is how, or indeed, how much of that inventory flows through supply chains could change. In fact, manufacturers could be required to build new parallel supply chains. They may also be prompted to rethink packaging that can efficiently reach online consumers and store shoppers alike.
As new infrastructure is set in place, routing changes could inherently dampen the economies of scale that retailers and manufacturers have achieved over decades.
Source: Wollenburg, Hübner, Kuhn, Trautrims; Barclays Research
While the brick and mortar grocery shopping experience is largely the blueprint for the online experience today, as click & collect adoption increases, this dynamic could flip. Online transactions provide robust data that retailers can leverage to tailor experiences shopper by shopper. Further, in an online environment, consumers are able to shop items by recipes or bundles. As consumers become accustomed to this type of seamless shopping experience, grocers could look for ways to recreate it in stores. This could influence planograms, assortment and include various degrees of virtual interruption in stores.
Looking at the grocery landscape, there is evidence that the current set-up encourages the robust click & collect growth dynamics, helping shape the direction of omni-channel retail today.Karen Short, North America Food & Staples Retailing Equity Research Analyst
Source: Barclays Research
“For example, all the ingredients for a ‘spaghetti dinner’ could be placed together or easily shopped as a bundle – much like they could be online –rather than having one aisle dedicated to all types of sauce, another aisle dedicated to all types of pasta, etc.,” says Andrew Lazar, the US Packaged Food Equity Research Analyst at Barclays. “If consumers and retailers start to think and shop across categories, it could benefit those manufacturers that have scale across categories.”
As consumers increasingly incorporate click & collect and delivery into their routines, the potential types of retail journeys will multiply. While this amplifies datasets and insights, it also raises the bar in terms of what it takes to effectively market to consumers.
For example, carving out space to install a micro-fulfillment center and related storage for click & collect orders can reduce shoppable floor space – taking away from available shelf space for innovation. Meanwhile, since online consumers cannot spontaneously add items while browsing aisles, or enjoy the instant gratification that comes with purchasing a candy bar or cold beverage in the check-out lane, solving for impulse consumption in an online environment is a major priority. As a result, increased click & collect market penetration could eventually lead retailers and manufacturers to partner on product development, combining resources to increase the chances of success. It could also provide unique opportunities for retailers and manufacturers to generate impulse consumption.
“Click & collect offers retailers the opportunity to drive impulse at the point of pick-up with recommendations based on AI (e.g. a personalised text message as a consumer is driving up to the pick-up area, asking if they want to add a beverage or a snack to their order),” says Lauren Lieberman, the US Cosmetics, Household & Personal Care, and Beverages Equity Research Analyst at Barclays. “With this as background, we could see a greater percentage of marketing dollars in impulse categories funnelled towards transactional marketing, such as coupons, to prompt purchases as opposed to relationship marketing strategies like TV advertising.”
Retailers and manufacturers alike could be prompted to make significant investments and rewrite playbooks in order to capitalise on a $60bn click & collect market opportunity. While today, click & collect can be a very manual experience, over time it could become an extremely automated process, seamlessly integrated into an omni-channel experience, with stores actually designed around click & collect to some degree.
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