Regional grocers operating their own eCommerce website and/or mobile app should reassess the role and relationship that various pricing elements can have in creating a win-win outcome for customers and retailers alike, reported Mercatus in new research.
The new study illustrates how much Walmart will continue challenging regional grocers’ eGrocery business.
According to Mercatus, Walmart’s advantages will continue to increase in the coming years as retail media monies are projected to climb at least 20% annually. At the same time, automation will lower the cost of fulfilling online grocery orders even further.
The low-price market leader enjoys, on average, a 15% price advantage online based on a large basket of groceries in the U.S.; it relies very little on service fees to support the cost of pickup operations; and it generates over eight times more net revenue from retail media per online order compared to some regional grocers.
“A key takeaway of this research initiative is that regional grocers need to consider pursuing a different path forward for online pricing because they typically have less ability to cover the incremental costs of these value-added services than Walmart,” said Sylvain Perrier, president and CEO of Mercatus.
“We recognize that grocers may view pricing as a third-rail topic, but the rationale and evidence for adopting a new online pricing paradigm continue to strengthen, and we want to help grocers navigate how they adapt to these competitive realities,” Perrier added.
The new online pricing paradigm shift also better aligns with why customers choose to buy from a regional grocer and points to a more sustainable path to competing online.
Last year, Mercatus found that most customers shop with a regional grocer because it is “conveniently located,” and this year, the company quantified what that means: Four in ten customers who say a regional is their primary grocery store indicated that it is the closest store to home.
In contrast, nearly half of those who say Walmart is their primary grocery store drive past two or more rival stores to shop at the mass discounter.
Although “conveniently located” primarily relates to in-store shopping, it also applies to online shoppers receiving orders via pickup since this requires a trip to the store.
The difference between regionals and Walmart reveals the implied trade-off between cost and convenience that customers make when selecting where to shop.
The new research initiative includes many other shopper insights, including how correctly customers perceived online prices compared to in-store, how various pricing elements affected repeat intent, and how many shoppers viewed the weekly ad before placing their most recent online grocery order. It also outlines how regional grocers can help customers save money when shopping online under the new pricing paradigm.
For instance, grocers can benefit from leveraging a variable fee structure that flexes up or down based on when the customer wants to receive the online order.
This approach achieves two things: First, it empowers the customer to choose whether “speed” or “fee” is more important to them relative to that specific order, and second, it creates more opportunities for the retailer to realize labor savings by batching together orders during the pick and pack operation.
In the report, regional grocers have access to an innovative framework that tackles the core challenges of gaining agreement, positioning, and managing the various pricing elements of this paradigm shift.
“Regional grocers are well positioned to help their customers save time, and they can also offer customers additional ways to save money based on how they want to shop,” explained David Bishop, partner at Brick Meets Click.
“Strategies like having lower prices compared to third-party marketplaces, price protecting ad items, offering digital coupons, and offering graduated fees based on pickup times are all ways grocers can help their customers save money when shopping online,” Bishop added.
The report also touches on protecting advertised and promoted products, with examples of how other grocers communicate about online prices. It reviews the potential benefit of offering a “free” pickup option to attract more cost-conscious consumers.