5 things that should worry any category manager about the future of margins as online shopping continues to grow

I was looking at data from our recent Shopper Intelligence measurement programs in Australia where recently we compared shopper views of their category online shopping experience compared to the equivalent shopping trips in physical stores. To be honest, I didn’t expect to see quite such big differences. It’s apparent that an on-line shop triggers very different perceptions, responses and behaviours to the traditional supermarket trolley ‘dash’, so evidently, there is far more to the experience than pure “convenience”.

As we, the global category management community, wrestle with the implications of the growth of online shopping, there are factors we can’t ignore if we are going to both meet shopper needs and keep maximising profitability…..

1. The online shopper is younger, more affluent and has bigger families. That’s right. It’s a critical, more profitable slab of the market
2. It’s the larger “main shop” that’s migrating online quickest (online is 50% more likely to be a “main shop”) and we know from all our data globally those main shoppers spend more and are more influenceable to up trade and will more readily spend extra. So that means if we can’t replicate the enticement of the physical store online (something that’s taken decades to perfect), margins could drop; fast.
3. The on-line shopper shops less frequently (20% less) so there are fewer opportunities to sell the extra item. Maybe these people are better organised, maybe they plan ahead more, or the lifestyle of the on-line shopper means they need less “stuff” at home; whatever the cause (more to follow), each individual shop has to work harder to maintain overall revenue.
4. Here’s a big one. There is strong evidence in our data of far greater penetration of promotions within the on-line basket than in a store. In Australia, the percentage of people that said they’d bought on a “deal” was 54% on-line compared to 44% in store. We have seen for years the way we are training shoppers to look out for or wait for promotions. So it’s potentially bad news in this one respect that we could immediately see 10% increase in promotion levels in the growing online sector. What’s more, fewer category purchases on-line are “Impulse”. All this extra promotional activity is failing to achieve the same level of unplanned buying as in-store.
5. A predictive learning: Online shoppers are today way more satisfied. Using our proprietary shopper satisfaction metrics we see a 6 full % point difference to the positive from the average online shopper compared to the average physical shopper. And the key driver is……Enjoyment. People find the online shop more enjoyable than those visiting a store (36% versus 15% Net Positive). What does that mean? Well, one might confidently assume on-line is going to grow!
6. What’s one thing that physical stores need to do better to compete? The answer (from our data) is in responding to two shopper needs. The online shopping experience at a category level is seen as simpler/easier (“easier to find what I am looking for”). Stores need to make the process equivalently painless (mind you I note that online shoppers find it relatively harder to find the actual category itself!) Second, on-line fails on one dimension – shoppers desire to understand and know more about products. If the physical store acts as “informer” then that’s, so far, the Achilles heel of on-line.

More analysis would lead to further conclusions but at this headline level it seems to me what in-store has to get better at is delivering a richer experience and exploiting its greater ability to add the extra unplanned purchase whilst we are going to need to be very thoughtful about to what extent we make promotions quite such a “hero” of the online shop.

For more information about this or any aspects of our unique shopper measurement programs please get in touch.