So what is the future of retail as it pertains to groceries?
We believe that brick & mortar stores, whether they are supermarkets, convenience stores or even open air markets, are here to stay. Online grocery stores will take more share from brick & mortar stores. However, they will co-exist.
Total grocery revenues will be almost evenly split between online and brick & mortar stores. Customers will use grocery stores to explore and discover new brands, and buy fresh groceries and meat.
Companies will use brick and mortar presence to signal brand credibility to customers and to encourage trial. Just like D2C brands are now building their brand identity selling directly to consumers, there will come a time, when brand identity is built at brick & mortar retailers and consumers will look to establish brand credibility at stores.
Deliveries are becoming less of a pain point as an increasing number of stores offer delivery service to customers once they buy their groceries at stores. There will be fewer brick and mortar grocery stores in the future as their revenues will not justify the rent on the space.
Additionally, there will be fewer stores in prime locations, further lowering the rent paid annually by these retailers. The reason they currently have stores in prime locations is for convenience (of their customers). But online shopping is likely to be the more convenient choice of the future, whether it gets delivered or whether it is picked up from a convenient location. This would leave a higher margin for retailers than they currently have.
The winners in this space will be:
- the ones who can get delivery of fresh produce right. The greatest concern/barrier for customers buying online is fresh produce. Online grocery stores and brick & mortar stores that have an online presence should build a reputation for delivering high quality produce consistently to encourage repeat purchases and new customer sign ups
- the stores that can offer a ‘pick-up at store’ option for those who shopped online or the online stores (like Amazon fresh) that offer deliveries within an hour
- the brick & mortar stores that can offer busy households a painless shopping experience without queues, like Amazon Go. This combines the convenience of buying online with the experience of buying at stores
- the ones who have an online presence combined with brick & mortar stores
Watch out for this space next week to understand what led us to these conclusions!