4 Challenges of Channel Optimization in the Digital Grocery Industry
At A Glance
- Pandemic fast-tracked digital transformation in the grocery industry
- Grocery retailers are continually trying to differentiate themselves from their competitors
- One such differentiation is channel optimization, allowing grocers to reach customers regardless of their channel preferences
- To fully reap the benefits of channel optimization, grocers also need to cross many hurdles in the path
- This article looks at some of the biggest challenges faced by grocery retailers
The pandemic fast-tracked digital transformation in the grocery industry, with digital sales projected to reach 20.5% by 2026. This rapid digitalization drives grocers to adapt to ever-changing customer expectations and needs. Grocery retailers are continually trying to differentiate themselves from their competitors to stay ahead in the game.
One such differentiation is channel optimization, allowing grocers to reach customers regardless of their channel preferences. An ideal channel optimization approach should ensure a seamless customer experience, even if the customers switch from one channel to another during a single purchase journey. However, to fully reap the benefits of channel optimization, grocers also need to cross many hurdles in the path. Below are some of the biggest challenges faced by grocery retailers:
Traditional systems cannot support a multi-channel operation since their siloed approach provides limited visibility into the customer journey. Grocers, thus, find it challenging to predict order density accurately and manage inventory accordingly. As grocery retailers expand their channels, the number of variables affecting retail operations becomes more complex. Creating an ecosystem that considers various attributes like order density, inventory stock, and multiple fulfillment options is imperative. Additionally, the grocery network is not static; a continual evaluation must be done as customer expectations and demand evolve.
As per Incisiv research, 71% of retailers have cited real-time inventory as a significant hurdle in onsite inventory management. Furthermore, 56% of grocers report that inventory accuracy is problematic for their omnichannel program. According to Inside Big Data, 51% of consumers faced the challenge of out-of-stock products in 2021, which led to a loss of $3 billion for grocers in the US. A more robust channel optimization strategy can help overcome such challenges.
Traditionally, every department collected customer data in silos, meaning that physical stores had no information about digital sales and vice versa. Grocery retailers have come a long way, with most grocers maintaining more unified customer data. However, to achieve a seamless channel optimization strategy, grocers must ensure every channel has complete visibility across the entire customer journey funnel.
Personalization and transparency have gradually become the two critical pillars of customer satisfaction as the adoption of omnichannel strategy increases. According to Epsilon, 80% of consumers are more likely to purchase from a retailer which provides a tailored experience. To fully leverage consumer data and ensure a personalized experience, retailers must break free from data silos.
Elevated consumer expectations
As pandemic-related restrictions subsided, the likelihood of stores becoming the primary shopping channel again increased. However, online habits formed during the pandemic will continue to advance. Nearly 75% of shoppers will have purchased groceries online by 2025, as per Incisiv. Furthermore, according to McKinsey, customers also prefer home delivery when making online purchases, which differs from the earlier preference towards click and collect in 2020.
However, these elevated customer expectations bring their own set of obstacles. From having a consistent value proposition across physical and online channels to a seamless user experience on applications to personalization and loyalty becoming even more crucial, customer expectations put added pressure on grocers to keep experimenting with new omnichannel shopper engagement strategies.
Changed dietary preferences
Customer preferences have shifted from packaged food to fresh and healthier options. According to McKinsey, customers will continue to eat more nutritious and healthy food. There has been a 39% increase observed in focus on consuming healthy and nutritious food, according to McKinsey.
However, this change in customer preference makes it more challenging for grocers to build an omnichannel strategy since ensuring quick delivery becomes complex and expensive for them. Additionally, online consumers can be more particular about the freshness and expiration date of delivery products since they cannot physically check the product before purchase.