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How Grocers Can Bite Back

March 27, 2017

Online delivery and meal kit services such as Blue Apron are changing the landscape. But traditional grocers can capture more of consumers’ path to purchase with ‘grocerants’ – part dine-in experience, part traditional store.

By Tom Colven, Senior Analyst, Alliance Data Strategic Insights Group

The rise and convenience of e-commerce is forcing marketers in several consumer-facing verticals to change their views of how to target shoppers. While brick-and-mortar sales still make up roughly 90% of all U.S. consumer spend, the 10% representing online is growing at a much faster pace.

Not only has it become easier for consumers to shop anywhere with their devices, but the delivery time and cost of shipping continue to provide better value in their favor. Discounted shipping and speedy deliveries have historically been used for traditional gift items like apparel, toys and electronics, but groceries are becoming the next popular purchase getting delivered to front doorsteps.

Along with Amazon’s Prime Now service, several internet retailers have entered the grocery delivery space, including AllSuperStore and Netgrocer. Traditional supermarkets are still attempting to compete with these new entrants: Whole Foods and Safeway are among some of the chains now offering an online delivery service. Additionally, companies like Blue Apron, Plated and even Martha Stewart now deliver meal kits, which include recipes, photos and ingredients to cook several healthy meals within a week. These services have been most popular in dense, urban areas, particularly among millennials; however, the convenience of ordering from home could potentially catch on in very rural areas where grocery stores are miles away from home and require a lot of gas money.

With the online grocery delivery market quickly becoming crowded with new entrants, supermarkets have been forced to look for new ways to keep their foot traffic up. One developing concept that many grocers are either trying or considering adding is the grocerant, which is exactly what it sounds like – a store that offers not only groceries but prepared meals as well and, in some instances, in-store dining. Grocerants have been gaining in popularity as they offer fresh and better-quality prepared foods than what is offered at fast-food chains and quick-service restaurants and, in some cases, at a better price. H-E-B, Hy-Vee and Whole Foods are a few examples of supermarket chains that have embraced the grocerant concept.

Grocerants have been around for several years, to various degrees. In my hometown of Dallas, I frequent Eatzi’s, a store I would classify as “grocerant- lite.” It offers mostly prepared meals, along with limited seating to eat outside. However, its selection of more traditional grocery staples, such as fresh produce, is limited. What attracts me to Eatzi’s is the convenience. I can stop by after work and purchase a few meals to eat throughout the week, or order a sandwich or salad with a friend and then immediately sit down and enjoy our meals together. What would save even more time would be the ability to purchase a couple of prepared meals (that I could choose to eat on-site or take home), in addition to fulfilling my grocery list, all in one location. With a Whole Foods recently opening near my house, my shopping behavior has already started to change, as its grocerant concept fulfills all of these needs.

Convenience is the connecting theme that grocery marketers can seize upon by developing more integrated grocerant concepts to drive more shoppers into their stores. Online delivery of groceries and meal kits, while offering the luxury of not having to leave home, still requires a waiting period, no matter how short it may be. Supermarkets embracing grocerants give their consumers one destination for the immediate satisfaction of not only shopping for their food needs, but also the option of not cooking at all. Chains that do not offer prepared meals and in-store dining today will likely lose sales to those that do, or to online delivery services.

From 2013-2016, U.S. sales from eating out at food and beverage locations increased 21% to approximately $659 billion, and they are expected to grow even higher. The rise of this segment indicates the popularity of paying for prepared meals. Over the same time, all U.S. grocery store sales have only risen 10%.

Adapting the grocerant concept gives brick-and-mortar supermarkets an opportunity to gain a portion of the dining-out spend, while continuing to offer traditional services. By capturing several different paths to purchase for how consumers select their meals, developing a grocerant can help traditional grocers compete with the growing online food delivery market, which is only expected to increase in both reach and sophistication.

Tom Colven is the Senior Analyst with Alliance Data Strategic Insights Group. He can be reached at Thomas.Colven@alliancedata.com.

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