Online grocery salesmay make up only a small part of the business today, but it’s growing fast (CAGRof 13.1% vs 1.3% for in-store sales), and this growth is critical to the futureof grocery operators of all sizes. It is also a relatively new business model,and everyone in the grocery industry needs to learn more about the factors thatmake online more successful and how to drive profitability.

Barry Clogan, whocurrently serves as President of Retail Solutions at MyWebGrocer , is a greatsource for just that type of guidance. Hehas extensive first-hand experience helping existing grocery retailers extendinto the online grocery space in the both the US and Europe. Here, he talkswith us about some of the key lessons and best practices he has learned as aresult of that experience.

This Q&A is part of the Brick MeetsClick Spotlight series. Special thanks to our sponsor MyWebGrocer (MWG).

1. Lookingback at your experience with Tesco, what did you learn about implementingecommerce that is helpful today for US grocers?

Barry Clogan: We learned a lot about what works andwhat doesn’t work when it comes to implementation. Across the eight countries where we wereinvolved, we were successful in five, but struggled in the other three.

When and where wesucceeded, it always came back to the culture of the organization and whetherthe organization could buy into the idea that ecommerce was an important partof the total business. Without solid commitment from top leadership, this kindof shift isn’t possible, because it requires getting people to let go of theirtraditional physical-store-only focus. Employees will actually resist the moveinto ecommerce if leadership isn’t fully committed.

To get buy-infrom the different functions like operations, merchandising, and marketing, it isuseful to focus on how customers are changing the way they grocery shop. Fromthe customer’s point of view, it’s the total experience – physical AND virtual– so the different functions need to realize they all have a part to play indelivering that experience, regardless of which channel the customer is using.

Essentially, you areupdating the idea of what the experience should be, and there’s a compellingbusiness reason to make this shift: Customers who shop online also shop in thestore, and those who do both spend more than customers who only shop thephysical store.

2. What would you tella successful brick-and-mortar leader about how to think about the onlinebusiness?

First,I’d tell them that a mindset shift is required in terms of operations. For example,don’t think that your online grocery business is closed when your physicallocation is open. These two parts of your store offer different types of serviceand different levels of convenience.

Second,I’d tell them that it’s a mistake to look at profitability by channel. You needto think about customer profitability. The lifetime value of your customer isthe fundamental driver of why you do ecommerce to start with, and you gethigher loyalty from consumers who shop both channels.

Finally,you need to work to understand how your target customers are changing anddesign a solution that fits into their lives. What matters to your customers?convenience? fresh? meal kits? delivery? This is what should drive your offer.When we’ve struggled, it was because we didn’t get the proposition right.

3. What have you found to be the keys to high operational productivity ingrocery ecommerce?

Forbrick and mortar retailers moving into ecommerce, the big thing to remember isthat online grocery is still a relatively new and immature business model, sochanges will be coming. To manage through these changes, it’s important tostart out with a framework that gives you total picture of the operationsinvolved.

When wehelp a retailer add ecommerce to their business, we think in terms of athree-year journey. This helps you recognize it’s a long-term effort. One thingis critical if you are going to systematically improve performance: You need tobuild a baseline operating model complete with costs that includes a balancedscorecard. The baseline model helps you identify the “size of the prize,” andthe scorecard helps you prioritize and focus your improvement efforts.

Here aresome of the things that baseline model needs to include in order to achievehigh productivity.

• The right equipment to deliveragainst your offer. For example, an offer focused on fresh will need differentequipment than an offer focused on the center store.
• A high level of shelf-edge service. Thisdirectly contributes to productivity. High availability of product means betteronline pick rates – and it also improves the experience for customers shoppingthe store.
• Strong plan-o-gram compliance. Thismakes it possible for order pickers to quickly and easily find the rightproduct.
• A balanced scorecard. There are lotsof numbers out there, and you need to make sure you’re looking at the rightones. Choose metrics and benchmark KPIs you can manage against in places whereit’s important to drive improvement, like pick rates, drop rates, and basketsizes.

Having a baseline operating model is essential. Once these pieces are in place, youcan drive improvement through training and then investment in technology.

4. What other ways have you found to improve the profitability of groceryecommerce?

Betterunderstanding the economics of customer acquisition is a big opportunity.There’s lots of poor practice in this area. For example, retailers often use ashotgun approach to promoting ecommerce by offering the same savings coupon toall consumers, but when you look at the results, this mainly attracts customerswho want to save $10 or $15 on a grocery order. There’s a big differencebetween spending to attract new customers vs. building a loyal customer base.The only way to increase ecommerce profitability is to grow your base of loyalonline shoppers.

Retailersalso need to track usage and shopper engagement. Customers are 60% more likelyto become regular online shoppers after their third order. So, use your data toidentify which consumers are more likely to become loyal to online shopping andthen go after them by nursing them through their first and second shop. Bottomline – if your loyal base is growing, you are succeeding.

Another wayto increase profitability is to increase the size of the basket by promotinggreater participation when online shopping.You do this by encouraging more impulse purchases and by shifting themix of purchases towards higher margin products. Retailers do this all the time in theirstores, now they just need to use the same skills online.

Ecommercegenerates a lot of data that retailers can use to make the shopping experiencebetter for their customers. Mining thisdata helps retailers understand where and when people are shopping with themand how they are using their services.It’s a way to identify opportunities to solve problems for customers andto make their lives easier. Thechallenge is to use as much of this information as possible.

5. Looking ahead, what changes in the user experience do you expect?

I thinkthe biggest changes will be in improving convenience. This is a straightforwardidea with a lot of up-side. Sometimesonline shopping is more difficult than it needs to be. Making it moreconvenient may involve making search easier and/or reducing the number of pagesthat need to be visited to complete the trip.

Also, itwill involve doing more work for shoppers, like curating lists of products byattributes that are important to individuals. These added conveniences aresolutions to consumer problems and that’s a wide open window of opportunity.

Manyconsumers have already shifted to mobile for managing their lives, so this isanother place where we expect changes in user experience. We think getting this right means keeping itsimple – in other words, not overpopulating the mobile device. Limit mobilefeatures to only those that have an impact on shopping behavior. If it doesn’t move that needle, it probablydoesn’t belong.

6. Do you see any big changes in the marketplace where MyWebGrocer is ina good position to help grocery retailers respond?

Two bigchanges definitely have our attention, and we’re ready to help retailers inboth areas.

First, abig step change in the economics of online grocery is coming in the next severalmonths for some of the largest grocery retailers. These involve new technologyin the form of robotics, and a new maturity of the online model. For example, Ohio-basedKroger recently announced a partnership with Ocado to ramp up its deliverybusiness with the construction of robotically automated warehouses, a directresponse to Amazon’s Whole Foods purchase.

Thesechanges will create challenging questions for many regional grocers: Do theymove quickly to automate, do they decide that they can’t compete and pull backfrom ecommerce, or do they keep moving forward, but follow their own strategy?

We’ll beencouraging our customers to take the third approach. Regional chains don’tneed to rush to buy robotics, they need to get their baseline model in order.We will be helping them adjust baseline operating models and roadmaps to layout what to do next and identify when they’ll be ready to invest in automationtechnology.

Second, bigchanges are also coming is the adoption of dynamic pricing; i.e., faster pricechanges driven by shifts in demand and competition. Pure-play online retailers have been doingdynamic pricing for some time, but most brick and mortar retailers still changeprices on a slower cadence – typically weekly for promotions and lessfrequently for regular shelf prices.

Weexpect pricing practices to change quickly as grocers compete more directlywith pure-play online retailers (moving into the physical market). As this unfolds, personalized dynamic pricingwill play a much larger role – one that allows a retailer to sell to eachcustomer at prices that the customer is willing to pay. This is a new ball game, and we are ready toequip our customers to win.

7. How are CPG brands looking at ecommerce and what does this mean forgrocery retailers?

CPGbrands are certainly interested in targeting their marketing messages toconsumers who are now spending so much time online. They also want and need grocers to grow theironline business since brick and mortar retailing is still their main marketingchannel.

At thesame time, CPGs have concerns about their future in an increasingly digitalworld. Some are experiencing rapid sales growth with key pure-play onlineretailers, and others see online sales increase faster in some of their categoriesthan others. This has them thinking about which marketing channels toconcentrate on in the future. Grocerywill be impacted, one way or another, by their decisions.

Moving forward, these shifting dynamicsmake it even more important for grocery retailers to develop digital assetsthat serve their customers, and at the same time, attract brand support. Withour suite of retail and brand solutions, we are uniquely positioned to enablegrocery retailers to digitally extend and amplify shopper marketing programs todrive both in-store and online sales.

The result is a win-win, where we helpgrocery retailers and brands work together to attract, engage, transact with,and ultimately retain the modern omni-channel shopper.

About Barry Clogan

As Presidentof Retail Solutions, Barry oversees the development and implementation of MWG’sgrocery retail solutions. Prior to this role, Barry led a team focused onhelping grocers navigate the challenges of launching online grocery services,guiding companies as they formulate and execute a multi-channel strategy.

Beforejoining MWG, Barry spent five years at Tesco, where he led the ambitious onlinegrocery rollout across eight countries. Already established as the world’s mostsuccessful online food retailer through its UK business, Barry is credited withdriving their international expansion and contributing to the significantgrowth it has seen in its online business.

If you are interested in speaking with BarryClogan or wish to learn more about how MyWebGrocer can help you to drivegreater profitability in online grocery, please email Sales@mywebgrocer.com .

Editor's note: Thanks to the team at MyWebGrocer for sponsoring this Spotlight blog interview, in which our questions are designed to show how retailers can benefit from using new technologies to meet the needs of today’s shopper and drive profitability.