Tug of war: The Omnichannel battle for consumers' hearts and minds

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Tug of war: The Omnichannel battle for consumers' hearts and minds

By Mark Hamstra - 08/24/2018
It is clear that mass retailers are fighting back against Amazon and the other online retailers that are grabbing market share by the boatload. The big question is whether these strategies will be successful against an online giant that seems firmly entrenched and confident that its model will win the day.

It has been 24 years since Amazon was founded as an online bookstore and began to redefine retailing for the modern age. In that time, the online juggernaut has siphoned off sales from
brick-and-mortar retailers in categories ranging from electronics to apparel, and lately it has sharpened its focus on food and drug retailing, with the acquisitions of Whole Foods Market in 2017 and PillPack this year, among other moves that encroach on drug store and supermarket operators.

A recent report from OneClick Retail estimated that Amazon’s year-over-year grocery sales were up 40% in the second quarter of this year, when it captured 18% of U.S. online grocery sales.

In order to defend their turf, food and drug retailers are waging a multipronged and well-publicized effort to enhance the convenience of their offerings by expanding their delivery services, adding click-and-collect options at their store locations, and partnering with such third-party services as Instacart and Shipt. They also are leveraging data to optimize the cross-channel experience for customers and investing in digital expertise to refine their omnichannel strategies for the future.

“It’s all about ease of use for shoppers,” said Mark Mechelse, vice president of insights and communications at Colorado Springs, Colo.-based Global Market Development Center. “Whether it is online, mobile or visits to a physical store, customers are seeking choice, value and ease in their shopping experience.”

The battle for a piece of the e-commerce pie is more complex than just competing against Amazon and other online sellers, however. Traditional retailers also must contend with the fact that there remains a rather limited consumer base for e-commerce sales, and many of those shoppers are not satisfied with the experience, said Bill Bishop, chief architect at Barrington, Ill.-based consulting firm Brick Meets Click.

He estimated that online sales are growing at rate of about 20% to 22% a year, but said that most of that growth is being driven by existing e-commerce users, rather than new customers.

“The conversion of non-online shoppers to online shoppers is very small,” Bishop said. “The growth is occurring among those who’ve tasted the advantages of this and want more.”

Bishop estimated that less than a third of those who shop online are regular digital consumers, so retailers need to focus on opportunities to retain those customers who already are shopping with them, as well as on opportunities to convert those who are light users of online services into heavier users. In addition, 31% of those who have tried online shopping have been dissatisfied and said they would definitely, or most probably, not go back to the same provider.

“The satisfaction levels aren’t great, so the churn of people in terms of where they’re going to shop is fairly significant,” Bishop said.

Casting a Wide Net
Retailers are taking a broad-based approach to become the online provider of choice for their customers, focusing on offering a variety of options to fulfill their grocery and consumables shopping needs.

“We are moving towards an omnichannel future,” said Narayan Iyengar, senior vice president of digital marketing and e-commerce at Boise, Idaho-based Albertsons, which has a range of initiatives under way that seek to enhance the retailer’s accessibility to customers.

In Albertsons’ first fiscal quarter, the company reported a 108% increase in e-commerce sales, which reflects in part its acquisition of the Plated meal kit company last year. In addition, Albertsons offers home delivery from its own dedicated fleet of refrigerated delivery vehicles, as well as through Instacart, and is in the process of expanding its Drive Up & Go click-and-collect service to 500 locations this year.

Consumers may be looking for different online solutions at different times and during different stages of their lives, Iyengar said.

“I think you have some customers who predominantly shop online, but they come into the store once in a while; and some customers who predominantly shop in-store, but go online every once in a while,” he said. “The reason all these capabilities are needed is that through a customer’s life cycle, they will move from one end of the spectrum to the other.”

A college student on a budget might opt for the cheapest channel available, for example, but then when they become a busy young professional, they are more likely to try shopping online with one-hour delivery, Iyengar said. Later in life, that person might have a family and opt for a scheduled delivery, or combine online and in-store shopping.

“It becomes really important for retailers to build a lifelong relationship with that customer, and serve them in the way they want to be served as their life situation changes and as their preferences change,” he said.

One way to optimize the omnichannel experience is to make it as easy as possible for customers to use their loyalty-card memberships across different channels, Iyengar said, which also helps the retailer personalize its communications and marketing with each customer. “We need to make it very very easy for customers to switch channels, with universal IDs and so forth,” he said.

Albertsons is one of the few retailers that has a captive delivery service, using its own refrigerated trucks for home delivery and having its drivers actually bring product directly into customers’ kitchens. Maintaining a captive delivery fleet helps Albertsons control quality in the last mile, Iyengar said. “Our drivers really are brand ambassadors,” he said. “We almost see them as an extension of our store into the homes of our customers.”

Another element of Albertsons’ model involves its new online marketplaces, through which customers can shop for items that might not be found in the stores. The marketplaces also give small vendors an opportunity to get their products out in front of customers that might not have found them otherwise, Iyengar said. Products that succeed online in the marketplace could theoretically find their way onto store shelves. “This becomes online-to-offline access for the vendors,” he said.

In addition, product sales data through the online marketplace gives Albertsons insights into niche trends and preferences by geographic region, down to the ZIP code, Iyengar said.

[caption id="attachment_593344" align="alignright" width="351"] Photos from the Target Store Opening - Glenview, IL, Thursday, Nov. 9, 2017. (Jean-Marc Giboux/AP Images for Target)[/caption]

Translating Data into Content
One of the advantages traditional food and drug retailers have over Amazon is the ability to leverage data into content that enhances community, said Sylvain Perrier, president and CEO at Mercatus, which provides digital solutions for food retailers.

“First and foremost, retailers should be using implicit and explicit data points to serve up content,” he said.

Implicit data points could include information around past transactions obtained from loyalty cards, for example. This data provides a broad picture of a household that can be used to serve content, while more explicit data points — information about preferences that customers have shared with the retailer — feature such inform