Selling groceries has long been seen as a brick-and-mortar business only. And thus far, online retailers have been taking the idea of selling food online warily as clearly shown by figures. In 2018, groceries accounted for modest 5.5% of all online purchases in the US, which is almost four times less than apparel (18.9%).
As ecommerce consultants, we have worked with different markets and niches and offer our take on why food remains one of the less developed product lines across the ecommerce board. Food retailers tend to go online after they have established a strong physical presence in the market, feel experienced enough within their domain and are ready to take their business to the whole new level. In this regard, the understanding of general ecommerce laws adds to the confidence in their success. But at some point, specifics and challenges of selling food online take them aback leading to poor decisions and lost revenue. Such failures of companies to root in the market may put an idea in their minds that starting an online food business is a no-win scenario. However, the problem is not so much the futility of an e-grocery industry than it’s a lack of deep understanding among entrepreneurs of its pitfalls and benefits.
We've done our best to fully cover the topic of food ecommerce building on our expertise. But if you feel like talking your business instead, don't hesitate to contact our team.
Specific features of food ecommerce we provide below cannot be considered disadvantages. Rather, these are limitations to take into account when developing a food ecommerce business.
1. A strong habit of traditional food shopping
People are used to purchasing foodstuffs in traditional brick-and-mortar stores. A possibility to handpick goods is a key reason for that. The factor is particularly critical for such products as fruit, vegetables, fish and meat. Customers not only want to physically view products and make sure of their quality (check for freshness, bruises, cuts, etc.), they also may have individual preferences concerning food items. For example, some people like their tomatoes juicy and meaty while some prefer slightly unripe ones to prolong their shelf life at home. Besides, drafting up a shopping list and doing groceries can be a bonding family tradition.
Online retailers can’t fully imitate a real-life shopping experience for customers. Still, they can mitigate possible inconveniences to encourage customers to give online grocery shopping a try. By carefully selecting best-quality products for online orders, they ensure their current customers stay satisfied, trust the company further on and speak well of it. Besides, retailers can accentuate their strengths by offering lower prices while a user-friendly ordering process and door-to-door delivery will imply more quality family time for customers.
2. Low margin
Food ecommerce is a low-margin industry, so retailers always have to struggle for larger revenue. They can barely go by way of marking up prices as this will scare potential customers away to traditional grocery shopping. Instead, online retailers can place a bet on order volume. They can offer free delivery options for orders above a certain amount, thus encouraging customers to stock substantially.
3. Small orders missed out
Customers are usually willing to use online grocery stores for regular full-basket food orders. Thus, online retailers miss out on the part of revenue coming from smaller orders – for a mere bunch of stuff (like candies after a stressful day) customers would rather drop by a nearby grocery store on their way home. A click-and-pick option can become a convenient alternative for that. It allows customers to place an order any free minute during a working day and pick it up at a physical store or a warehouse in the evening.
4. The limited area of delivery
Retailers have to manage and deliver orders same-day due to the perishable nature of food and beverage products. Naturally, this limits the delivery area to their city or a city area. If aiming to expand beyond that, food retailers need to establish a physical presence (a network of strategically located warehouses) in the target areas.
5. High procurement investments
Poor supply drives low demand, which in turn leads to poorer supply. This vicious circle explains why food retailers can’t start with a modest product assortment if they plan to grow an online supermarket. They need to invest heavily from the very start to offer customers diversity in each product category. Still, a narrow start-up product offering can work out for niche web stores (e.g., selling entirely vegetarian or home-made food).
Starting an online food business, retailers must be prepared to go through a number of formal steps to legalize their company. In addition to the Food and Drug Administration’s (FDA’s) requirements, there is a number of local regulations that differ from state to state. We recommend that retailers check with legal advisors to get a full list of permits and licenses they need.
Now that we’ve outlined potential restraints for food retailers as they try to go online, it’s high time to cheer them up with undeniable upsides. Knowing and leveraging them, retailers can create an exceptional experience for customers and encourage them to switch from traditional grocery shopping to online ordering.
1. The convenience of online shopping
The possibility of placing orders at any convenient time and from any device (a laptop from home/work or a mobile on the go) tops the list of ecommerce advantages regardless of product lines. Relating to grocery ecommerce, there are more perks for shoppers. Let’s compare online and brick-and-mortar shopping journeys to illustrate that.
Traditionally, John shops for groceries once a week (on the weekend, as a rule) in a nearby supermarket. With driving in heavy traffic, wandering around the store for necessary products and idling in line, he spends an average of 1.5-2 hours.
Kate also prefers to bulk shop once a week, but she has long evaluated the convenience of online grocery shopping. As she has the list of must-have products that remains largely the same week by week, she just repeats the previous (or sample) order and adds or removes items if needed. As far as pricing is quite a sensitive aspect for Kate, she finds it convenient to have a separate catalog section for all products participating in promotions. It barely takes her 10-15 minutes to place an order. Kate chooses delivery time in line with her today’s plans so up until then, she is free to enjoy time with her family and friends or relax after a workweek.
2. Decreased overhead expense
With a number of similar expenditures for online and brick-and-mortar grocery businesses (e.g., for a warehouse), online grocery retailers save on the overhead costs associated with renting retail premises (the prices of which grow in proportion to a location’s convenience) and customer-facing staff. Instead, they can invest in expert ecommerce development and marketing.
3. Personalized customer experience
Online retailers can develop more personal communication with customers – even if this communication takes place online. By tracking and analyzing customer behavior, they get to know who their customers are and what engagement they expect.
- Website analytics tools automatically follow a customer across a web store, compile pieces of information they leave (page views, clicks) and bring insights into customer behavior.
- A CRM system unifies customer information coming from an ecommerce platform, an analytics tool and any other data sources a company uses (e.g., a mobile app).
- Marketing tools put the CRM data to use to segment customers and allow personalizing online shopping experience for them.
Key factors for winning over customers in food ecommerce
Food companies that strive to establish a solid online presence have quite a number of small to large questions to settle. We have grouped them for convenience and now will talk about the importance of the right technology, ultimate customer experience and a well-organized delivery solution in food ecommerce.
Smaller food e-shops can do well with SaaS ecommerce platforms. They can enter and stay in online business successfully if they target the right audience with niche-oriented products. The basic ecommerce functionality is enough for allowing such businesses to sell online, process orders and run basic marketing campaigns.
However, we commend open-source ecommerce platforms for food businesses that aim to create custom solutions in line with all their needs and plan to grow and evolve continuously.
There is no ecommerce platform that fully meets the needs of specific companies or even categories of product offerings. Thus, catalog design, product merchandising, and filtering will be different for the food and fashion industries. Most ecommerce platforms offer ready-made plugins that help with some adjustments. Still, a possibility of advanced customization is required for checkout optimization, personalization of customer experience, or integrations with corporate systems. With an underlying open-source platform, e-grocery retailers can shape a full-fledged ecommerce solution corresponding to their needs. This calls for more investment but returns as greater flexibility of their business.
- Multi-store functionality
E-grocery companies always target a particular area (city, region or country). Supposing that such a company grows out of its area, it needs to modify the catalog, prices and even language on the website while staying true to its brand identity. Enterprise ecommerce platforms feature multi-store functionality allowing companies to create and manage multiple web stores via a single administration panel.
It’s time to talk about trump cards online retailers can play to win customers.
1. Customer personal profiles
With brick-and-mortar stores, customers will feel frustrated to discover a single missing item they have forgotten to buy as it means a second time of driving, picking, and queueing. When purchasing online, they can edit an order in personal profile before it has been dispatched. Besides, there is a couple of features retailers can customize in profiles for customers’ convenience.
- A possibility to reorder for customers to place orders faster.
- Smart upselling when the system reminds customers of products from previous orders that they might have forgotten to include this time.
A smart approach to ecommerce merchandizing can contribute greatly to customer experience and sales rates when paying attention to the following details:
- Navigation and filtering. An easily searchable and user-friendly product catalog ensures that customers can check off their product list quickly by seamlessly navigating across sections. It’s important for retailers to provide filtering possibilities – for example, price-sensitive customers would want to sort products by price.
- Product presentation. For informed purchasing decisions, customers will appreciate high-quality media and comprehensive product information (composition, manufacturer, etc.). Besides, they can go through product reviews and compare prices while online shopping. A possibility to diversify product descriptions can become one of competitive advantages of ecommerce over brick-and-mortar businesses. Robust ecommerce platforms allow creating custom sets of attributes for each product type so that customers get the fullest product information. For example, wine can have an attribute The food it best pairs with. What is more, retailers can group related products and possibly offer a perk in the form of an overall price reduction.
- Products display. Naturally, the first positions in an online catalog get much of customers’ attention (most customers won’t scroll further to see all the options if they have found a required item). Knowing that, retailers can experiment with different merchandizing approaches based on their goal – give the first catalog positions to best sellers to boost sales or slow sellers to manage overstock inventory. Also, they can vary product display for various customer segments to target highly personalized customer experience.
- Website analytics. Modern analytical tools allow online merchandizers to back up their intuition with accurate insights and understand how their product presentation decisions influence the sales. Putting A/B testing in regular practice, they can continuously experiment and optimize product merchandizing in a web store.
When a food ecommerce business is launched, work begins on marketing it effectively. With a great variety of available techniques, online retailers better have a marketing goal in mind to invest profitably.
- Winning new customers. Online retailers target a large but geographically limited audience. Considering this, they should promote their services within a target area. If they deliver within a city, banners and local advertising work out well. And branded delivery cars can publicize the launch of a new online supermarket to all city areas. If we talk about region- or country-wide delivery, retailers cover the largest possible audience advertising via popular news portals or internet magazines.
- Retaining customers. Building customer loyalty is of paramount importance in food ecommerce as such companies aim at repeat orders rather than one-time high-priced purchases. Providing perks for customers is a sure way to their trust. Along with regular product promotions (like a product of the day, best offer, time-limited discounts), retailers can launch a loyalty program for each customer to get a personalized discount based on their shopping activity. Adding a gaming element is also a good idea. Thus, offering toys or coloring books as bonuses to orders exceeding a certain amount, retailers can engage a large part of their target audience consisting of young families.
- Returning at-risk customers. Food companies have two lines of efforts to reengage with customers who have been inactive for quite a time. First of all, win-back emails or push notifications are effective for those clients who were satisfied with the service and need only a reminder to return. If that doesn’t work out, retailers should understand the reason why customers have left to improve a potential flaw (customers might have had a negative experience regarding delivery or order picking). An experience survey should help with that. Making it short and to-the-point, retailers ensure they don’t take up much of customers’ time and increase the chance of feedback. Regular surveying allows retailers to improve their services continuously and minimize the segment of at-risk customers.
- Promoting less developed product categories. In food ecommerce, customers may feel wary of products that are sold by weight as they can’t check their quality. In this case, a possibility to return a product to a courier can serve as a guarantee that customers will not have to pay for low-quality products. Retailers should add this information to each product page to make customers aware of their rights.
- Promoting a new product. Naturally, online retailers strive to provide product variety to customers. So, from time to time they will work with new vendors. Items in the catalog labeled as New Products or New Arrivals will show to customers that a retailer continuously works on expanding the product assortment.
- Promoting a new service. Just as with a new product, raising awareness among customers is important when launching a new service, for example, a click-and-pick delivery option. Here, a promotional scenario may include a banner on a starting page and a reminder at the checkout.
4. Experience surveys
It is possible for online retailers to “hear” customers and use their opinion as growth points. There are two options to set an experience survey – in a personal profile right after an order has been placed (calls for customization of a customer profile) and by email after the order has been delivered (a CRM system can trigger the dispatch as scheduled). If offered a discount for the next order for going through the survey, customers will certainly show more enthusiasm to leave their feedback.
The last step in online shopping – order delivery – is by far not the least. Retailers have several factors to think over here.
- Payment. Both pre-payment after the order has been placed online and payment upon delivery are available for online food retailers. While the process is clear with payment upon delivery (a courier can accept cash or a credit card), a pre-payment option has some specifics for food ecommerce. As far as a food order can contain products sold by weight, customers cannot get an exact order cost at the stage of order placement. As a solution, they make pre-authorized payment when the maximum possible order cost gets reserved on a customer’s credit card account and the correct amount is automatically withdrawn upon order shipping.
- Packaging. With much attention given to environmental protection, the way companies support environmental initiatives may become a decisive factor for customer loyalty. Offering the possibility to choose eco-friendly packaging, online food retailers can win respect and trust of their green customers.
- Delivery options. Retailers need to focus on customer needs to ensure convenient delivery options for them. Door-to-door delivery, express delivery and click-and-pick provide a minimum basis.
- Real-time order tracking. In the main, orders in food ecommerce are placed and fulfilled the same day, so retailers better engage mobile text messages to inform customers about major order updates (e.g., the departure of a courier).
A few last words
Success in an online food business largely depends on what benefits retailers offer to customers to beat a possibility to hand-pick products. In short, their competitive advantage is customer experience where they can offer a personalized approach, a time-saving purchasing process and convenient delivery options. Given that prices online are generally lower than in physical stores – a good jump start for a food ecommerce business is ready.