Grocery E-commerce 2.0 - the search challenge
The rise of e-commerce in CPG
It is no surprise that e-commerce in the CPG industry is expected to grow, but you may be surprised to see just how much. Recent Nielsen Syndicated Data estimations project that by 2020 e-commerce will grow in dollar growth vs today by 49%. Furthermore when looking at ‘the digitally engaged food shopper’ Nielsen and FMI project that by 2025 e-commerce may drive more than 20% of food spend.
Source: Nielsen Syndicated Data (xAOC+C), Homescan, and Total Spend Report for period ended May 2017, Nielsen analysis, Industry estimates, ex-random weight items 1) 2020 Forecast based on weighted average combination of 4-year CAGR and last year growth. 2) Includes UPC items only. Note: Estimates include standard margin of error of +/-2%, includes projection and/or channel classification differences. Numbers may not sum due to rounding.
These aggressive estimations stem from a change in consumer behavior and the more recent demand for convenience, value, and health. This coupled with the recent developments from companies in the industry such as Amazon, Instacart, Walmart, and Kroger / Ocado, is shaking up the industry and creating both excitement and uncertainty for the future of grocery e-commerce - it seems we are already talking the 4th revolution!
Source: The Digitally-Engaged Food Shopper, Nielsen and FMI, 2017
This post will explore the evolution of the grocery e-commerce user experience (UX) and its role in the future disruption by first understanding why it has taken so long for e-commerce to grow. We will then look at what is needed, from a UX perspective, to unlock e-commerce moving forward.
The logistical challenges of grocery e-comm
In November 1999 a high growth grocery e-commerce company completed an initial public offering that valued the company at more than $4.8 billion USD. Up to that time, the company had reported cumulative revenue of $395,000 and cumulative net losses of more than $50 million. By June 2001, less than 2 years later, the company filed for bankruptcy at which point they had lost over $800 million and then laid off over 2,000 employees.
CNET named Webvan one of the largest dot-com flops in history.
Grocery has always been the golden goose, yet one of the biggest challenges in the e-commerce vertical. Grocery e-commerce is a golden goose because of the return visit nature of grocery shopping and the potential to develop loyalty through those visits. The fact that the products are perishable requires that the user establish a regular cadence to their visits and the hope is that with each visit the opportunity to increase basket size and loyalty presents itself.
There are however several challenges associated with grocery e-commerce. The perishable nature of the products makes storage and shipping a challenge. The fact that some products need to be refrigerated adds further complication to the process. And the cost of shipping relatively heavy, low margin products continues to complicate.
Lastly, and possibly most importantly, the decision-making process in grocery is nuanced and has not yet been mastered.
The challenge of a nuanced user experience
When buying a book online, the user experience is fairly straightforward. A shopper finds a book by its title, author, or possibly discovers it via a curated list of best sellers within a theme, then reads reviews to gain social validation that the book is what they were hoping for. The user experience and more importantly the data that powers it is focused on simple elements as title, subtitle, author, and genre.
When we consider the decision-making process in grocery it is much more complicated. For starters the decision-making process in grocery changes between different product categories. In some categories one may search for specific products or specific brands, where in other categories one may be more open to comparing products. When shoppers begin comparing products it becomes even more nuanced. The variables by which someone makes a decision between products in one category may be completely different in another category. For example, sustainability may be very important to a millennial mom when shopping for canned tuna, but when shopping for the bread to put it on, sustainability takes a backseat to allergen or nutrient content concerns.
In addition to this, different people may look at the same two categories in a completely different way. For instance Shopper A may desire low sodium soft drinks but then seek gluten-free canned soups. Shopper B may require sugar-free soft drinks and preservative-free canned soups.
The combination of needs across the population and across the different product categories has a long tail that’s almost Infinite - in here lies the challenge.
The opportunity with e-commerce in the grocery industry is to solve and address this challenge. Not to replicate the in-store experience but to leverage the natural assets of a digital experience to empower consumers to make better decisions more conveniently.
The early adopters: grocery e-commerce 1.0
The first push to address e-commerce in the grocery industry has resulted in a variety of different business models that address logistical challenges in a variety of ways. Even though Webvan was a failure, other companies such as Peapod (Chicago) and FreshDirect (New York) have adopted a similar model and have found a path to success by attaching themselves to high density populations of early adopters.
MyWebGrocer took a different approach by providing an e-commerce platform to existing brick and mortar retailers. This model had success across small to medium retailers by letting them extend their physical stores with online ordering and in store pickup.
And then there is Amazon who with the acquisition of Whole Foods Markets, has begun offering delivery services to more than 10 markets with promises of ongoing expansion in the US throughout 2018.
As a disrupter, Instacart has taken a completely new and innovative approach to addressing the final mile challenge of grocery e-commerce. They developed an “Uber” like, crowdsourced network of workers who pick and deliver groceries for a fee. This approach to grocery e-commerce provides retailers with a platform to not only extend their physical stores but to fully engage in online delivery. One interesting asset that Instacart has that other players lack is that they give the user the ability to shop from any store in their network and to have flexibility in that regard. This is a little like the aggregated approach to inventory collection that we see in the travel bookings industry. In that game, there are almost only aggregators left.
Lastly we have the direct-to-consumer offerings which are generally vertically focused solutions such as the Dollar Shave Club as well as small to medium sized brands selling directly to the consumers. These tend to suit those products that are consumed at a regular cadence.
The next wave: Grocery e-commerce 2.0 will address user experience
Across the ecosystem of grocery e-commerce 1.0 we can see solutions that address many of the logistical challenges that have held back e-commerce from expanding quickly in grocery. Curbside pick up is maturing. Instacart is expanding and solving the final mile for many brick and mortar stores. More and more verticals are being captured by innovative startups.
This has enabled the industry to capture the early adopters - those for whom the convenience of e-commerce is second to nothing else - who have been responsible for the early growth in grocery e-commerce.
However as noted at the top of this article the growth in grocery e-commerce has been slow. And although there are many unique logistic challenges, the biggest challenge seems to be developing a user experience that truly reflects and solves the complex needs of today’s customers - primarily the ability to easily find products according to one's personalized specific needs.
It is for this reason that the next wave of growth in grocery e-commerce will be focused around an innovation that enables powerful search and filtering capabilities.
Today’s e-commerce experiences are not set up to help us answer the questions we have about products. Part of the reason for this is that products, and their makers, are not set up to do it either. Asking questions about products in e-commerce like “Is it Paleo?” or “I only buy egg-free or Artificial Color Free?” returns disappointing results. This is because most e-commerce today is only able to answer questions based on keywords and product titles.
Search is complicated
So for instance when you search for 'gluten-free’ in pretty much any e-commerce experience you will receive results for products that contain the words gluten-free in the title. This will only return a small proportion of the products that are in fact gluten free.
Continuing with this example, a search for products that do not contain gluten in the ingredients may be significantly more effective than a search by title. However it also has its own complications such as the fact that many of the products that are returned are gluten-free by ingredients but are not relevant to the actual search. The search results are crowded with products such as bottled water - relevance is key.
A third way to discern gluten-free products is by filtering products by the various gluten free certifications. The challenge here is that there are a myriad of different certification programs which all have slightly different criteria. Discerning users will have their own criteria of which certifications are appropriate.
And then lastly there may be gluten statements in the product warnings, such as this product was manufactured in a factory that also manufacturers gluten containing ingredients.
From this one attribute example we can see that something that seems relatively simple such as gluten-free has many dimensions of complication and nuance. To make matters more complicated different people will have different requirements as to what they deem as being gluten free. So for instance someone who is trying to avoid gluten for dietary purposes may favor products with gluten-free in the title and perhaps with gluten-free marketing claims or certifications. However someone who has a more serious gluten intolerance will most likely consider all of the above.
The challenge for the e-commerce provider as well as the product manufacturer is aligning around all of the individual data elements that are required to power a user experience that considers all of the individual variables as well as all of the potential customer needs.
At the end of the day this is a data problem.
Enabling search with high-order attributes (HOAs)
When considering product data to power a differentiated search experience there are three dimensions that need to be considered to enable a successful experience: accuracy, comprehensiveness, and consistency.
Obviously, accuracy is critical when dealing with data that helps people make decisions about products relating to their diets. This not only means that the data needs to be correct but that it needs to be up-to-date, an often overlooked component of accuracy. The challenge with this dimension for CPG brands is ensuring that updates and changes to packaging and products is reflected at the appropriate time across all of the channels where the product is being searched. This is a significant challenge when you consider that large brands have several distribution partners, all of whom have different data needs that power different user experiences.
Secondly product data needs to be comprehensive. As the owner of a user experience it’s important to provide a credible search experience to your customers. For instance, when somebody searches for gluten-free products they must be shown all of the products that are gluten-free not just the set of products that say they’re gluten-free in the title. The challenge for CPG brands is ensuring that each different e-commerce partner has the right attributes they need to power this particular experience - each partner will effectively have different attribute needs.
And then thirdly, the need for consistency in a user experience is critical. When comparing products, a consumer needs to know that the definition for gluten in one product is the same as the definition in another product. Therefore, the product data powering a single experience needs to be consistent to serve this experience. Although consistency is a must within a user experience across different experiences there will be a need to differentiate to match a markets needs. For instance, how Walmart defines the user experience and search criteria will be very different from how Whole Foods defines their search criteria - to cater to vastly different types of shoppers. Each case requiring very different product data. The challenge is that CPG brands who sell products across multiple user experiences will be required to manage many different product views for the same product.
Here at Label Insight, we have spent the last 10 years developing proprietary technology with the aim of helping the industry meet these particular challenges and to master the next wave of innovation in e-commerce. Over this time we have developed a taxonomy of high-order attributes which act as a transformation layer between the typical product data that is contained on the package and all of the different needs that are required across different channels.
High order attributes such as Gluten-Free, Vegan, Organic, Non-GMO, Minimally Processed, Nutrient Dense, No Added Sugar, Sustainably Made provide context, searchability and improve assortment discovery by enabling shoppers to customize their trip to products they seek every time they shop. High order attribute data is quickly becoming a key differentiator in driving consumer preferences and decisions, and retailers offering this data to customers are setting a new benchmark for online grocery shopping experiences.
This is what is needed to enable the next generation of e-commerce user experiences. It is table stakes not optional.
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