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Classified in: Science and technology
Subjects: Photo/Multimedia, Survey, Economic News/Analysis

Regional Grocers Will Face Tougher Fight Online Against Walmart

New research illustrates how much Walmart will continue to challenge regional grocers' eGrocery business. 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 8 times more net revenue from retail media per online order compared to some regional grocers. The advantages will continue to increase for Walmart in the coming years as retail media monies are projected to climb at least 20% annually while automation will lower its cost to fulfill online grocery orders even further.

These insights are part of recent research from Mercatus, a leading provider of grocery eCommerce solutions, and the results suggest that regional grocers who operate their own eCommerce web site and/or mobile app should reassess the role and relationship that various elements of pricing can have in creating a win-win outcome for customers and retailers alike.

"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, 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 continues to strengthen, and we want to help grocers navigate how they adapt to these competitive realities."

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 Mercatus 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" largely relates to in-store shopping, it also applies to online shoppers who receive their 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 elements of pricing 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 released today, regional grocers will have access to an innovative framework that tackles the core challenges associated with gaining agreement, positioning, and managing the various pricing elements of this paradigm shift.

The framework, developed by Brick Meets Click, starts with documenting the cost to fulfill orders today, and the role of service fees and retail media monies in helping to cover or offset this value-added service. It then examines how grocers can improve efficiencies further by taking advantage of the interaction between fees and assembly activities before assessing an appropriate price premium for products online. And the waterfall chart illustrates where and how a regional grocer is likely only covering a portion of the direct labor cost related to fulfilling a pickup order today.

"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."

The report also touches on protecting advertised and promoted products, examples of how other grocers are communicating about online prices, and reviews the potential benefit of offering a "free" pickup option to attract more of the cost-conscious consumers.

For more information, and to access the free report, go to mercatus.com

About the research initiative
Mercatus commissioned Brick Meets Click to conduct the research and develop the framework. The research phase consisted of two parts: an in-market pricing study and an online consumer survey. The pricing study was conducted in the Plano, Texas trade area and encompassed eight retail banners (Aldi, Costco, HEB, Kroger, Market Street, Target, Tom Thumb, and Walmart). It tracked a basket of 40 commonly purchased products and captured both in-store and online product prices at stores located within 5 miles of each other, using the banner's first-party site or app and the same store as the pickup location for each respective banner. It also captured every day and promoted prices, loyalty card savings, temporary price reductions, and coupons March 15-16, 2023, and documented all related charges and fees associated with receiving a pickup order. The online consumer survey was conducted June 5-6, 2023, and collected the responses of 1,946 adults, 18 years and older, who participated in the household's grocery shopping.

About Mercatus
Mercatus helps leading grocers get back in charge of their eCommerce experience, empowering them to deliver exceptional retailer-branded, end-to-end online shopping, from store to door. Our expansive network of more than 50 integration partners allows grocers to work with their partners of choice, on their terms. Together, we enable clients to create authentic digital shopping experiences with solutions to drive shopper engagement, grow share of wallet and achieve profitability, while quickly adapting to changes in customer behavior. The Mercatus Digital Commerce platform is used by leading North American retailers, including Weis Markets, Save Mart brands, Brookshire's Grocery Company, Kowalski's Markets, Buehler's Fresh Foods, WinCo Foods, Smart & Final, Stater Bros. Markets, Southeastern Grocers' Fresco y Más, Harveys Supermarket and Winn-Dixie grocery stores among others.

About Brick Meets Click
Brick Meets Click is an analytics and strategic insight firm that connects today's grocery business with tomorrow's needs. Our clear thinking and practical solutions help clients make their strategies and customer offers more compelling and relevant in the changing U.S. grocery market. We bring deep industry expertise, knowledge of what's coming next, and fact-based analysis to the challenge of finding new routes to success.

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