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MAG Sponsor Spotlight: The Key to the Future of Grocery is Learning From its Past (MAG Quarterly- Volume Five, Issue Four)

By Maureen Elworthy, Executive Director, Merchant Services and Shaun J. Abraham, Vice President, Merchant Services

December 7, 2017

The proliferation of digital technology in today’s marketplace presents Grocers with an opportunity to reimagine how to engage customers through online and mobile channels in secure, scalable, and insightful ways. Industry best practices from the past serve as key learnings for Grocers in developing a path to the future.

The grocery industry has long been a pillar of commerce for the U.S. economy and a routine shopping destination for consumers. To relive the early days of grocery one remembers a world where consumers would walk into their local general store, hand a list over the counter to the attendant who would use expert knowledge to quickly fill the order by navigating through a myriad of shelves and aisles.

It wasn’t until 1915, when an innovative grocer reinvented the grocery experience by designing stores that allowed consumers to become the experts in self-selecting products, and transporting to checkout themselves. Today’s consumer expectations of “on-demand”, anytime, anywhere access and service, is poised to further evolve the grocery shopping experience into the future.

1 out of 3 consumers will order groceries online in 20171

68% of online grocery shoppers said they were somewhat or very likely to switch grocers to one with a better overall online shopping experience and process2

Grocery: A look ahead

In many ways, the Grocery industry is going back to its roots before self-service models existed. Digital capabilities are allowing Grocers to engage and influence customers early in the shopping experience, fulfilling orders behind the scenes and delivering goods where and when needed. In this new construct, the attendant in the general store is being replaced by a network of fulfillment stations with dedicated workforces and in-house or in contracted delivery layers that serve as the last mile in a modern-day fulfillment effort. What remains the same is the customers, the grocer, and the shopping list.

Three distinct categories of digital grocery shopping has emerged:

  • Enhanced in-store shopping – Leverage the customer’s mobile device to identify, engage, and enable seamless in-store shopping experience before, during, and after the transaction. Grocers are experimenting with Scan and Go services where the customer scans as they select items, skip the line, and checkout via their mobile app.
  • Curbside pickup – Enable mobile and online pre-ordering of groceries with a designated time of pickup. The customer gets their products at a designated pickup area. In many cases, a QR code is presented and scanned by the merchant to complete the purchase.
  • Online ordering, home delivery – Enable mobile and online ordering of groceries and delivery within specified time windows. The delivery component is provided for a fee by a third-party service provider or in-house delivery division.

More opportunities will emerge to engage the consumer in contextual shopping experiences powered by the Internet of Things (IoT) that will bring connectivity to our physical surroundings and ultimately shift shopping to a passive experience with little to no human action required. Though this will take time to materialize, Grocers should formulate a successful long-term strategy that incorporates emerging technologies. 
Retail as a harbinger of change

Using the evolution of retail as a proxy for the grocery industry, one sees an industry where physical retail dominated the landscape (and still does from a volume perspective). In-store shopping is an experience, a thrill that the consumer looks forward to. Even in the early days of ecommerce, pundits and industry experts assured retailers that consumers might purchase paper towels online, but never clothes and shoes.

Today, the retail industry faces substantial challenges to right size their footprint and adapt to shifting consumer behavior that now demands convenience without compromising quality and availability. According to a recent IBM study, 84% of retailers do not offer any in-store mobile services and only 31% allow customers to access and manage their account details through a mobile app.3

On the other hand, strategic bets made by online retailers to offer free shipping and provide exceptional customer experiences has given today’s consumer a way to enjoy the same thrills of traditional retail by shopping on their phones while on the go, with goods waiting for them when they come home. This further highlights the formidable task traditional retailers face to right-size their business and deliver omnichannel services.
The fact that many traditional retailers thought certain categories would never go online, should serve as proof that in a digitally connected society there are no hard lines on what a consumer is open to purchasing via a digital medium. History has shown us that innovative merchants always find ways to offset friction, and the grocery industry has proven to be a stellar example of that fact.

“Online Grocery spend is predicted to reach $100 billion or 20% of total spend by 2025”4

Online Grocers have fundamental challenges to overcome in reaching the tipping point of mass adoption. Grocers are overcoming common industry challenges to bring about a digital shopping reality:

Common consumer remark: “I like picking my own produce”
The shift has started with non-perishables such as consumer packaged goods, but as clothing and shoes in retail, perishable items will quickly follow. In fact, online grocers tend to select and ship the freshest produce, direct from their warehouses, to fulfill curbside and online grocery orders eliminating the risk of subpar items reaching their customers.

Common grocer challenge: “If customers do not come into my store, they won’t buy as much”
The impulse purchase at checkout or the aisle-by-aisle cross-sell opportunity is critical for grocers to grow basket size through higher margin items. The loss of impulse buying would be disastrous to a grocer’s bottom line. Grocers who have embraced mobile and online ordering have not only kept the basket sizes the same, but are experiencing a “set it and forget it” behavior. Consumers often have a subscription mindset to continuously order core groceries and often are enticed with in-app or digital ads for weekly specials increasing their average ticket.

Key implications and Best Practices for Grocers

Invisible payments still have visible costs
New digital experiences such as curbside pickup and online ordering and home delivery require significant investments by Grocers to re-engineer supply chain operations and would likely include additional online and mobile transaction costs. This is not ideal for a compressed margin business that is simultaneously investing in capabilities. Grocers need payment providers that provide a holistic view to payment acceptance to ensure omnichannel pricing that fits their new digital environment.

Mitigate rising Card-Not-Present Fraud
As predicted, the deployment of EMV in the US has driven down in-store counterfeit fraud. Unfortunately, fraudsters have turned their efforts towards the online channel which has seen a spike of nearly 40% in the past year.5 As grocers accept online and mobile payments, managing a growing pool of fraud requires a distinct set of tools and payment acceptance practices. Critical examples are proxy piercing and geolocation, which can pinpoint a transaction's origin in real time, and dynamic order linking, which can analyze orders for fraudulent characteristics. Additionally, payment solutions exist that provide zero fraud liability, alleviating the risk of being impacted all together.

Know Your Customer (like never before) 

The future of grocery presents clients with a rare and significant opportunity to take back control of the shopping experience and more importantly their customer relationship. Prior to the rise of online and mobile ordering, grocers were limited to card numbers and loyalty program data that often reflected inaccurate and incomplete customer profiles. Today, the data stream from mobile devices is seemingly endless. Clients have an unprecedented opportunity to “know” customers and influence their shopping decision before they ever leave home and long after they transact. Key solutions to help clients capitalize on this opportunity include profile management services where payment providers can store cardholders’ credentials for online and mobile purchases and account updater services that keep the customer payment information up-to-date as part of an seamless experience.

The landscape will continue to evolve as more opportunities and challenges present themselves leaving Grocers to ensure they have the right solutions and partners to win in the marketplace. As grocers move toward online and mobile shopping solutions, taking into account past and parallel lessons could make all the difference in realizing successful outcomes.


  1. Unata research:
  2. PSFK research:
  3. IBM survey:
  4. FMI:
  5. Javelin Fraud study: