Five Strategies for Success in US Grocery Retail: Leveraging First-Party Data To Offer a Connected Shopping Experience

Introduction

Succeeding in grocery retail is becoming increasingly difficult amid stiff competition and thinning profit margins due to the rise in e-commerce. It has become more important than ever for retailers to own and manage their end-to-end operations effectively. Moreover, consumers today are interested in new, innovative digital experiences focused on convenience and personalization. Grocery retailers need to focus on effectively deploying technologies that enhance the omnichannel shopping experience and connect shoppers with personalized ads, loyalty programs, coupons, digital shopping lists and advertisements.

With the increasing prevalence of omnichannel, it is imperative for retailers to meet shoppers across all touchpoints while ensuring consistent and unforgettable experiences. Retailers are increasingly turning to technology solution providers to bolster their digital presence.

In this report, we discuss five key strategies for grocery retailers to win customers while ensuring long-term retention, with a focus on using first-party data to drive personalization.

This report is sponsored by Swiftly, a US-based retail technology solution provider that offers retail tools, mobile platforms, analytics tools and a retail media network, enabling retailers to accelerate sales and build loyalty while enabling brands to reach more shoppers and amplify campaigns using the power of first-party data.

Market Scale and Opportunity

Coresight Research estimates that the US grocery retail market will grow at a CAGR of 3.3% between 2022 and 2030, reaching $1.9 trillion, presenting a huge opportunity for grocery retailers. The online channel is set to outpace total sales, growing at a CAGR of 8.4% in the same period, to $147.2 billion, we estimate.

Figure 1. US: Grocery Retail Market Size (Left; USD Bil.) and Online Food Retail Market Size (Right; USD Bil.)

Grocery retail market size includes sales of all products by food retailers and grocery sales of selected major mass merchandisers, warehouse clubs and discount stores
Source: IRI E-Market Insights™/Coresight Research

 

While stores are the go-to destination for grocery purchases, retailers are not undermining the potential opportunity that grocery e-commerce presents. We believe that inflationary pressure will continue to fuel omnichannel commerce as cost-conscious shoppers seek the best value across shopping channels—both online and offline—which increases the need for a seamless and connected shopper experience.

However, while online grocery sales continue to rise, the significance of physical retail stores cannot be undermined. US-based e-commerce giant Amazon opened its first physical grocery retail outlet in August 2020 and has focused on expanding the format since—opening 40 stores across the US.

We believe that grocery retailers should focus on building an omnichannel strategy that is streamlined and effective at every customer touchpoint.

Five Strategies for Success in US Grocery E-Commerce: Coresight Research x Swiftly Analysis

We present five strategies for retailers in the US grocery market in Figure 2 and explore each in detail below.

Figure 2. Five Strategies for Success in US Grocery E-Commerce

Source: Coresight Research

 

1. Offer a Seamless Omnichannel Shopping Experience to Customers

Consumers are using multiple channels to purchase and research products, plan their shopping lists and find the best savings. They gravitate toward retailers that provide a seamless and convenient shopping experience by carefully integrating online and offline channels and offering a digitized in-store shopping experience.

To succeed in today’s retail environment, retailers must offer a frictionless omnichannel shopping experience for customers that allows them to select the channel that best suits the purchase occasion––in-store, mobile app or website. By taking an omnichannel approach, grocery retailers can connect with customers and offer personalized experiences through the shopping journey. They can also attract and influence customers at the point of sale, where final purchasing decisions are made. This enables retailers to increase their share of customers’ wallets, which is critical as most grocery retailers operate with slim margins. According to a survey conducted by Symphony RetailAI of 421 million baskets purchased in the US and Europe in the first quarter of 2021, omnichannel shoppers shop more frequently and spend up to 20% more than in-store-only shoppers.

As part of an omnichannel approach, grocery retailers can implement multiple store-based strategies that leverage advanced technologies to remain ahead of their competition. These include, but are not limited to, endless-aisle solutions, which allow shoppers to purchase any product in a retailers’ online catalog for home delivery when they cannot find those products in the physical store. In addition, retailers can offer a truly blended omnichannel experience and increase customer loyalty by having an integrated mobile platform that offers personalized content to shoppers—such as product recommendations and promotions—based on their location.

In-store digital signage
Source: Spectrio

 

For small and medium-sized companies looking to catch up with the competition and gain greater market share in the future, partnerships with third-party technology providers such as Swiftly present a key opportunity to integrate online and in-store experiences and offer connected shopping experiences to their customers. According to Henry Kim, CEO of Swiftly, as the retail industry rapidly consolidates and consumers continue to struggle with rising costs, retailers need to act now to solidify digital customer relationships and build new margin-rich revenue streams. He highlighted that Amazon and Walmart are continuing to put pressure on retailers through innovation and the introduction of advanced technologies.

Gain Full Control of the Customer Relationship

We think that, in the long term, retailers will focus on building their own end-to-end capabilities to own the customer relationship. This is important because it enables retailers to control their messaging and brand image across the entire customer journey, from product discovery to delivery to returns, as well as offer a seamless shopping experience via their own websites and mobile apps.

• US-based grocery retailer The Save Mart Companies (TSMC) partnered with Swiftly in December 2021 to improve its existing mobile application. According to the CMO of TSMC, the improved user-friendly app provides an integrated loyalty and e-commerce experience designed to make the shopping experience even more convenient.

While partnering with third-party delivery companies has the upside of not missing out on order volume to competitors, the downside is that it costs retailers end-to-end control over the customer relationship. For instance, with delivery partnerships, any negative experience (such as delays) that are outside of the retailer’s control can be detrimental to their relationship with the customer. Additionally, third-party delivery companies charge high commission on every order they fulfill—which can be 8%–12% of the transaction value, leading to deep cuts into retailers’ profit margins.

Larger retailers realize this and have taken steps to gain full control. For example, Walmart has focused on owning the last mile through its Spark Driver delivery platform and InHome delivery service. We believe that it is equally important for retailers of a smaller size and scale to take control of the end-to-end customer relationship, including the last mile.

3. Collect and Manage First-Party Customer Data

A critical component for retailers in gaining control of the customer relationship is the collection and management of first-party customer data. The importance of owning first-party customer data has increased due to the tightening of consumer privacy laws and the gradual phase-out of third-party cookies. For example, Google plans to phase out third-party cookies in its Chrome web browser in 2024.

First-party data can be a retailer’s most valuable resource in driving customer loyalty if collected, managed, and used effectively. This is because, collected directly from consumers, such data are reliable and enable retailers to generate accurate and unique customer insights that can help create a more seamless and personalized shopping experience. By tailoring the shopping journey—including marketing—based on customer data, retailers can improve conversion rates and increase the likelihood that customers will make repeat purchases.

• During an interview with CNBC in September 2022, Yael Cosset, Senior VP and CIO at Kroger, said that the retailer is leveraging data to engage with customers across its digital channels, including apps, and websites to make relevant customer interactions and offer personalized shopping experiences.

According to a Coresight Research survey of US-based executives whose organizations use first-party data for marketing, conducted in November 2021, driving sales (online) is the topmost benefit of using first-party data—cited by more than half of all respondents (see Figure 3). While driving sales is the topmost benefit, sharing targeted information (promotions, etc.) and building brand recognition can help retailers reap higher conversion rates and a larger average basket size from a more loyal customer base.

Figure 3. Benefits of Using First-Party Data (% of Respondents)

Base: 142 US-based executives (managing omnichannel operations) whose organizations use first-party data for marketing purposes
Source: Coresight Research

 

Retailers can capture some data through loyalty programs in third-party delivery apps (which we discuss further in the next section), but access is limited, resulting in a less-than-complete picture of the consumer. Third-party companies, on the other hand, can collect information on what shoppers are searching for, orders that are added to the cart, the number of times items are added and what was placed in the cart but not purchased.

This level of customer insight positions delivery companies well to present direct competition for brick-and-mortar grocery retailers, with extensive knowledge of shopper behavior and the ability to personalize the purchasing and delivery process. For example, DoorDash and UK-based food and grocery delivery company Deliveroo have each opened brick-and-mortar grocery stores—in August 2020 and October 2022, respectively.

The growing quick-commerce market is seeing vast amounts of customer data being made available to third-party delivery companies, driving the imperative for retailers to find the right balance between partnerships and establishing their own sources of first-party data.

4. Leverage First-Party Data To Optimize Loyalty Programs and Drive Personalization

Succeeding with long-term customer retention requires brands and retailers to offer a seamless and personalized shopping experience. However, there is a gap between brands’/retailers’ perception of their personalization capabilities versus how consumers perceive them. For example, around seven in 10 (71%) brands and retailers based in the US and the UK think they excel in marketing personalization, but only 34% of consumers agree, according to recent Coresight Research survey findings.

Figure 4. Areas of Personalization in Which Brands/Retailers and Consumers Believe Brands and Retailers Excel (% of Respondents)

Base: 5,014 US and UK consumers and 260 US and UK brands and retailers, surveyed in October 2021
Source: Coresight Research

 

The key to effective—targeted, tailored and timely—personalization lies in how well retailers can use their first-party data to draw insights. Loyalty programs are a key source of first-party data, which grocery retailers can leverage to tailor offers and promotions and therefore increase customer loyalty and basket size.

Additionally, retailers should focus on leveraging all data available to continue to improve their loyalty programs. When used effectively, purchase data, for example, can help retailers optimize their tiered loyalty programs and improve promotion targeting. There are two primary ways in which retailers can effectively leverage first-party purchase data:

1. Having an integrated approach to data collection from various sources such as retailer apps/websites, POS (point-of-sale) systems and, in some cases, in-store beacons enable retailers to draw unified insights in real time that can strengthen their promotion and marketing management.
2. Having a single view of the customer through data from multiple sources can help retailers make more informed and effective decisions and yield better shopper targeting.

We believe that grocery retailers that own and manage proprietary customer data can derive better insights about shopper behavior that allow them to build personalized loyalty programs, which can boost sales. According to a Coresight Research survey conducted in March 2022, almost half of US consumers who are members of a retail loyalty program reported that they now spend more with that retailer than before they joined its loyalty program—indicating the revenue-generating opportunity of loyalty programs for retailers.

Figure 5. US Consumers with a Loyalty Program Membership: Changes in Spending Levels Since Joining a Loyalty Program (% of Respondents)

Base: 329 US respondents aged 18+ who are members of a retail loyalty program, surveyed in March 2022
Source: Coresight Research

Retailers should continue to mine data from loyalty programs to understand, segment and reward their customers, including fine-tuning personalized recommendations based on their interests.

5. Build Customer-Centric Retail Media Capabilities

Retailers can use first-party data and customer loyalty data to increase personalization in retail media—a form of advertising where brands utilize retailers’ digital and physical channels to showcase their products and increase revenue. Expanding their retail media capabilities adds a high-margin advertising business to grocery retailers’ revenue streams, providing an innovative way to combat declining profit margins amid rising delivery and fulfillment costs fueled by labor shortages, inflation and supply chain issues. Providing a more targeted retail media experience can drive a higher return on ad spend (ROAS) for brand partners, allowing grocery retailers to command higher advertising rates—i.e., CPM (cost per mille [per thousand impressions]).

• US-based retailer Dollar Tree’s Family Dollar brand partnered with Swiftly in April 2021 to launch its retail media business, Chesapeake Media Group. The retail media business allows CPG brands to utilize onsite and offsite retail media to reach targeted customers. The onsite platform enables advertisers to use dynamic ad placements, sponsored searches and product recommendation tools.
• In 2021, Amazon and Walmart reported global retail advertising revenues of $32.1 billion and $2.1 billion, respectively, highlighting the huge market for retail advertising.

Coresight Research estimates that the global retail media industry was worth $75.1 billion in 2022, up 80.1% year over year.

• For more insights on how to capitalize on this emerging opportunity, read Coresight Research and Swiftly’s separate report, A Guide to Multiplying Retail Media Dollars.

What We Think

Grocery retailers that offer omnichannel shopping experiences to customers, and are constantly investing in advanced technologies focused on offering seamless shopping experiences for customers, are likely to emerge as winners. The tightening of consumer privacy laws and the gradual phase-out of third-party cookies further drives the need for retailers to collect and manage first-party customer data.

As personalization is critical to driving sales, and competition is increasing in the grocery space, retailers need to plan and implement initiatives to gain control of customer data and customer relationships.

Implications for Brands/Retailers

• Grocery retailers should focus on implementing an omnichannel strategy that provides a connected experience for customers––and the right technology solutions can help facilitate these experiences and services.
• Grocery retailers should expand their end-to-end operations and take control of their customer relationships and data.
• Grocery retailers should leverage customer loyalty programs to access first-party data and generate insights into shopper behavior, preferences and demand.
• Grocery retailers should build their retail media capabilities to generate incremental revenue.

Implications for Technology Vendors

• Technology solution providers that help retailers offer a truly blended omnichannel experience to shoppers can work with grocery retailers to build and manage their end-to-end operations.

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About Coresight Research Custom Reports

Coresight Research Custom Reports are produced as part of commercial partnerships with leading firms in the retail, technology and startup ecosystems. These Custom Reports present expert analysis and proprietary data on key topics in the retail, technology and related industries, and enable partner companies to communicate their brand and messaging to a wider audience within the context of brand-relevant research.

This Custom Report is sponsored by Swiftly, a US-based retail technology solution provider. For more information, visit Swiftly.com.