As supply chain challenges rack the grocery industry, the merchants that stand out are those that can ensure that the items that consumers want are available for purchase. Whether they are shopping in-store or online, consumers are looking for a consistent, reliable experience.
In an interview with PYMNTS, Chieh Huang, CEO of membership-free wholesale eTailer Boxed, argued that inventory management is a key differentiator for today’s online grocers.
“Right now, given supply chain constraints, I think the ability to be in stock, the ability to deliver your entire basket on time and in full [is key],” he said. “It’s something that sounds so simple, but because of supply chain constraints, because of inventory management technology issues with a lot of the legacy brick-and-mortar grocers, it’s easier said than done. And I think just simply being on time in full can really help you stand out.”
Indeed, inventory management is important to the majority of consumers, according to research from PYMNTS’ January study “Decoding Customer Affinity: The Customer Loyalty to Merchants Survey 2022,” created in collaboration with Toshiba Global Commerce Solutions.
Get the report: The Customer Loyalty to Merchants Survey 2022
The report, which drew from the results of a survey of more than 2,000 United States consumers, noted that 51% of shoppers said ensuring that the grocery products they want are in stock and available for purchase is key to their continued patronage of a given merchant. Moreover, 6% of shoppers listed this factor as the single most influential driver of merchant selection for them.
Sticker Shock
Food prices are on the rise. The U.S. Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) showed that in March, food away from home (i.e., grocery) prices increased 1.5% over February, and they were up 10% year over year. These increases are well above those seen in the restaurant industry, with food away from home prices increasing just 0.3% over February and 6.9% over 2021.
“In the beginning, a lot of folks including us absorbed the costs,” he said. “You started then to not be able to absorb all of it as you’re looking at inflation rise by mid- to high-single-digits.”
Huang noted that the inflation is compounded by a range of factors across the grocery supply chain, pointing out that not only food costs but also transportation difficulties, labor challenges and the consequent wage increases are playing a role. Now, retailers are challenged to offer lower-cost options for consumers.
“Now’s the time to take a look at a private brand,” he argued. “A private brand is 10%, 20% cheaper than the national brand and offers great quality and a great value.”
He added that the company is “hoping that” this inflation will actually “become quite a tailwind” for wholesale retailers such as Boxed, for which cost savings are part of the value proposition for consumers.
The Ultrafast Shakeout
“The other thing everyone is talking about is also the rise and potential fall of this ultra-quick small-basket, 15-minute delivery phenomenon,” Huang said. “Where does that go? How does that reshape the online grocery world? Is it just a fad, or is it here to stay?”
For his part, he predicted “a lot of consolidation,” arguing that there are “not enough gross profit dollars” for all the players in the space. He predicted the entire space would winnow down to “one, at most two” ultrafast delivery services.
However, he predicted that some of the innovations that the model has brought with it will stick around in a more lasting way. For instance, he said he believes that dark stores will “absolutely” remain a part of the industry, enabling more cost-efficient grocery delivery.
The Crystal Ball
Huang argued that Europe provides a glimpse into the future of eGrocery in the U.S.
“When you look at online grocery, especially in other parts of the world, you can start to see what might happen here,” he said.
Certainly, adoption is further along across the pond. Research from PYMNTS’ November study, “What U.K. Consumers Expect From Their Grocery Shopping Experiences,” created in collaboration with ACI Worldwide, found that nearly one in three shoppers in the country preferred purchasing groceries online over buying in stores, while only 18% of U.S. shoppers said the same.
Read more: 52% of UK Consumers Shop for Groceries Online More Than They Did in 2020
Huang noted that European shoppers tend to place a greater priority on environmental, social and governance (ESG) concerns than their U.S. counterparts, arguing that increasing prioritization of ESG issues in the U.S. suggests that the country will follow in Europe’s footsteps.
“Right now, some of the people that care most, they might still be too young to be shopping for [themselves], but you fast forward five years, these folks are going to enter the workforce. … So, that might be another point of innovation that no one’s really talking about that will matter.”
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