Blog Post - Frank Kochenash , Mar 27 2020

COVID-19 is redefining online grocery

COVID-19 is redefining online grocery

The surge of humanity

Amidst this global crisis, the rising tide of bad news feels inundating. But over the last week I have also been inspired by the actions of people—individuals, families, companies, nations–to do the right thing; to suddenly consider long-term objective functions and act in the best interests of the community and the species and not solely their own self-interest. GM and Tesla are making ventilators. Hanes is making masks. Food giant Sysco is donating 2.5 million meals. And Sunnyvale based Cepheid just got approval for a 45-minute Coronavirus detection kit that will ship by end of the month. There are others. We are truly a noble species. We are in this together.

The imperative for online grocery

Crises often accelerate changes in consumer behaviour. We are in the midst of a massive one right now: Consumers are shifting grocery purchasing online at such a rate to challenge the supply chains of Amazon, Ocado, Kroger, and others. Amazon is hiring 100,000 fulfilment centre employees. Walmart is hiring 150,000. Kroger is hiring 10,000. Ocado in the UK had to temporarily shut down its website amidst intense demand. Amazon temporarily paused Prime Pantry. Retailers in grocery (and other categories) are redefining operations to adapt to the outbreak.

This is a challenging time to make predictions, but it’s relatively safe to predict that online grocery will occupy a markedly greater share of total grocery sales post-crisis than prior to the virus outbreak. "We see this unfortunate period accelerating structural changes in consumer shopping," possibly by five years, said Seth Sigman, an analyst at Credit Suisse. As well, the change that’s occurring seems to benefit the largest US retailer with Walmart’s online stores picking up the majority of new online grocery shoppers, capturing 58% of first-time grocery shoppers compared to Amazon’s 14% share.

Last week Amazon took the unprecedented step of pausing purchase orders of nonessential items into its fulfilment centres so that it could focus receipt and delivery on essentials. Over the weekend Amazon in Italy and France said it will temporarily stop taking consumer orders for “some nonessential products” in order to focus on essentials. Amazon defines “essential” categories as baby products, health and household items, beauty and personal care, groceries, industrial scientific, and pet supplies and other high-demand products.

For brands in these categories, this is an occasion where doing the right thing for the community coincides with doing the right thing for your business. Be in stock and win your share. For years the key to growth in online grocery was to get on the list—get onto the previously ordered list that drives algorithmic commerce. At this point, a large portion of the population is getting on the list en masse. The immediate challenge is one for the supply chain, but merchandisers and marketers have their roles too. Consumers can’t buy what they don’t know is there. Without being opportunist, it is the time to be aggressive.

It also time to prepare to rejigger your channel investment mix for the post-crisis period. Ecommerce will be bigger. We can already see from our co-workers in China that there are permanent changes in play for how customers find and buy products, and companies that anticipate this early will be able to take the most advantage of the shift.

What’s next for “non-essentials?”

This question is lurking for many brands and clients who operate in categories other than food, health, or the “essentials” as defined above. I believe it’s too early to tell. To a certain extent a key role is to enable available resources to resolve the essential needs of the community. But, “essential” means different things over different timelines. Keeping the economy functioning and people employed are also essential. We need a more robust answer. I believe two criteria will inform the necessary response. First, how long will the major retail distributors need to focus on essentials distribution? Second, how deeply will underlying consumer demand be reduced? If Amazon, Walmart, Kroger, etc. can adjust quickly and keep/get essentials flowing to meet demand, then capacity will re-adjust to all categories and impact will be minimised. If, however, the adjustment takes longer, then these “nonessential” brands need to consider alternative fulfilment. The impact to underlying consumer demand will probably take weeks to understand. This too is dependent on the length of the crisis.

At this point, I believe it is critical for brands in these categories to understand their current inventory and production capacity, as well as distribution capabilities (both those currently extant as well as those they could quickly stand up)—so that they can quickly shift supply into the distribution channels that can meet consumer demand.