The Future of Grocery eCommerce

By Somak Roy July 16, 2019

Grocers against Amazon – arming David with the sling 

What the grocery business is witnessing in circa 2019 is a transition from commodity to cult. Commodities are products differentiated solely on price. With commodities parity has been achieved on quality. Also, there is no brand story, and no warm fuzzy feeling associated with its purchase or consumption. Buying the brand does not send a social signal, except perhaps that one is value conscious. It leaves no Instagram trail. 

And then there are cults. Cults are products consumers have strong attachment to. Cults are products that become part of the buyer’s identity and a vehicle for self-expression. In extreme cases the brand is so central to the customer’s sense of self they make their association with the logo public and irrevocable through an extreme measure such as tattooing (Harley-Davidson comes to mind). 

For the longest time, it was assumed that the unassuming grocery business is commodity. Then came the whole foodie movement, or rather the fetishization of food. And suddenly grocery was a cult. Cooking became both mass and high art, chefs became celebrities, and food revolution was televised with gusto – with cooking shows everywhere. It is a good time to be in grocery.  

What was once a weekly chore of buying green leafy vegetables or tenderloin stands transformed, taking on a variety of meaning, potentially attesting that the buyer is a worldly-wise citizen of taste and discernment. Turkey sales nosedived (an 8.3% decline) in 2018 because the average American figured out the inhumane caging and antibiotic regimen it takes to raise a 30-lb turkey. Customers are asserting they are sophisticates and good Samaritans, buying organic, buying vegan, buying local, buying free range, and buying sustainable. Again, it’s a damn good time to be in grocery. As a general rule, unless you are part of an existing oligopoly it’s better to be in the cult business than in the commodity business. A commodity business favours giants. Consider utilities. Consider telcos. A cult business can sustain many cults, each nurtured by a bunch of faithfuls that have bought into a specific variant of The Story. Consider high-end sound systems for audiophiles. 

Also, we believe grocery ecommerce can bear many players and is unlikely to become concentrated (i.e. go the way of digital commerce of electronic goods) because of the unique nature of its last mile. Grocery has a last mile delivery problem. The price to weight ratio of the merchandise is low, which increases delivery costs, and a direct to home delivery becomes unattractive – price wise – relative to an in-store purchase. Per unit delivery costs would be lower if the delivery density is high, which has a chicken and egg problem. Delivery density can only be high when adoption of grocery ecommerce is high – which cannot happen until delivery density is already high. One way to solve the deadlock is for a gargantuan entity like Amazon, reinforced by the might of Whole Foods, to break through the chicken and egg conundrum. However, large scale intervention by an alleged monopolist that accounts for 4% of US retail and nearly half of the country’s ecommerce might not be the only way for the industry to forge its way into the digital era. What puts an interesting wrinkle on the problem is the distributed nature of grocery retail. Grocery is a local business (the top 13 players in the US account for less than 47% of the market, compared to nearly 56% for fashion), and its proximity to customers can solve the last mile delivery channel – if local grocers are equipped with the right technology, and can partner with delivery providers like Instacart as a consortium. 

In this David versus Goliath, David needs to be armed with a technology platform that compete with the majors’ in term of the wealth of features, the quality of user experience, and agility – encompassing both standard ecommerce capabilities, and the omnichannel capability of BOPIS. The platform should also help midsize grocers join ranks, consolidate their individual strengths, and aggregate what’s common, while being mindful of the differences. The right word to describe such as arrangement is the neologism – co-opetition. 

There are two ways of enabling such co-opetition. One is a marketplace that is owned by a consortium such as the NGA, and the collective allows every participating grocer to retain its brand. The other option is to empower every grocer with ecommerce technology that is suitable, both in terms of manageability and commercial terms, for the local, niche grocer. And such technology should be acceptable to the collective so that knowledge of implementation and ongoing support and enhancement diffuses through the industry, and is thus lowered for every participant. Of course, software that is acceptable to all also reduces the unit licensing cost for everybody. 

We dare say our Litmus7 Ecommerce Accelerator Platform (LEAP) could be David’s sling. It’s a fully managed, subscription-based solution that offers all the benefits of SaaS, but without any of SaaS’ limitations. The user experience can be custom. Indeed, we will work with you to build exactly the user experience your business needs. If your customer journey requires recipes, or calorie counting, or if you need to establish traceability for your merchandise, or the grocer’s sustainability score – it can be all be done. Our digital commerce expertise spans over 1,000 person-years of experience and was honed transforming ecommerce platforms at Walmart, Kroger, and ASDA. 

LEAP is a solid, proven platform based on Magento. However, the LEAP proposition goes far beyond technology. Our commercial terms can be such that we bet on your success, with fees linked to your transaction volume. We take a (modest) percentage off the retail price, and our fees grow only if your ecommerce business takes off. What’s more – through our program of “tech equity” our platform can be paid for with a stake in your business. Our interests couldn’t be more aligned. We are successful only if you are successful. Together, we can offer the increasingly sophisticated grocery customer what they want – better than the giants.