Direct-to-customer: A pandemic shifts consumer habits

Article

15, Jun 2020. 14:23pm

In 1989, the Internet’s first grocery delivery company, Chicago-based Peapod Online Grocer, fulfilled their community’s needs with the click of a button. A pioneer in online grocery, their success didn’t come easily. At the time, most customers had dial-up internet, their user interface was clunky, and inventory came from a variety of sources, making it hard to streamline operations.

31 years later, I think it’s safe to say that Peapod has overcome the stigma of online grocery sales, growing significantly in sales volume and gaining considerable market share. The company’s net sales in 2019 were approximately $100.9 million. For decades, it was difficult to convince the larger population to order groceries online or through an app on their smartphone. That has changed.

Shelter-at-home orders push consumers online

COVID-19 has been a catalyst for digital transformation and changing customer behavior. Social distancing and shelter-at-home has forced customers to adopt technology to meet essential needs, like food and toilet paper. App Annie reported that in the month of April Walmart Grocery saw an all-time high in downloads, which gave them the No. 1 rank in shopping apps in the U.S.—surpassing even Amazon by 20 percent.

As of April 5, Walmart Grocery experienced a 460 percent growth in average daily downloads by comparison to its January 2020 performance.

Whether customers will stick with picking produce from a computer screen instead of a grocery bin is still unknown. Digital Commerce 360 finds that the system for purchasing grocery goods still has a few bugs. Add to that the facts that the operations are expensive to run, and there is a limit on inventory as supply chains are still affected by the public health crisis.

This new wave of online shopping is pushing another option that has become popular (and at this point, somewhat of a necessity): buy online and pick up in-store—or at the curb. Nonessential businesses and others that have remained open have also offered shoppers this option. We can see this way of shopping continuing well beyond COVID as retailers arguably save on labor costs and shipping costs. In Salem, N.J. a Walmart store is already using a robotic system that collects grocery items to assemble online orders, saving on labor costs. The customer on the other end benefits from the convenience of picking up their purchases in their own time.

The growth in eCommerce and other non-store sales is a silver lining among the dismal effects of the crisis on the economy

Digital Commerce 360 conducted an analysis of the Commerce Department’s advance monthly figures and found that consumer spending in non-store channels jumped 20.5 percent year-over-year in April—the second-highest growth rate ever recorded for that month.

Unfortunately, due to the closure of nonessential businesses, many retail brands filed for bankruptcy including J. Crew, Pier 1 Imports, and Neiman Marcus. It’s estimated that retail sales plunged 9 percent year-over-year, the largest decline for any recorded month.

Customer spending patterns change

While non-retail online sales are soaring, we’re also seeing a shift in where the dollars are going. For many Americans, the scale of the coronavirus and its impacts have triggered the not so distant memory of other life-shaping events such as 9/11 or the 2008 financial crisis. According to the U.S. Bureau of Labor and Statistics, during the financial crisis households cut spending, shed outstanding debt, and increased their rate of personal savings in response to reductions in income, wealth, confidence, and credit access.

What we can learn from those events and their outcomes is that people alter their spending habits and the kinds of things they purchase.

These experiences can even change our brand loyalties. In a study done by Richard Shotton—author of The Choice Factory: 25 behavioral biases that influence what we buy—he and a colleague surveyed 2,370 nationally representative customers to understand the correlation, if any, between watershed moments and their effects on consumer brands. Shotton found that customers were more likely to switch brands when they had undergone a life event. On average, during normal times, 8 percent of consumers switch brands. That average rose to 21 percent among people who had had such an experience. For many, the public health crisis is a significant life event.  

eCommerce has steadily grown over the years and continues to thrive today for a number of reasons. Currently, the main driver for many customers is convenience—not having to leave home, and contactless payment. We’re likely to continue seeing this uptick well beyond the crisis.

Getting your product in front of cautious spenders

Unemployment has increased exponentially in a matter of months. A disruption in an individuals’ or an entire household’s income obviously leads to changes in spending habits.

McKinsey & Company surveyed consumers globally and found overall spending intent is down by two-thirds across all of the countries surveyed. In the United States, data shows consumers are somewhat optimistic about the country’s economic recovery after COVID-19, but many households plan to decrease spending anyway.

However, McKinsey is also seeing a positive trend for certain product categories. U.S. customers are likely to increase shopping online for groceries, takeout delivery, snacks, household supplies, personal care products, non-food child products, entertainment at home, and books, magazines, and newspapers. 

As you continue to build your online shopping presence, or begin to create an online shopping experience, keep in mind the customer’s shifting behavior.

  • Ensure that your digital shelves are stocked with products that are popular with your customer base and ready for purchase. Pay attention to search, sales, and online behavior data to prioritize products your customers are actively seeking.
  • Understand your customers’ new and future routines—what products are relevant to their lives today? And how will that change based upon these life altering events.
  • How is your brand meeting the concerns of your customers? How is your marketing showing empathy toward your customers’ current situation? Don’t guess. If you’re not sure, dig deeper with qualitative interviews and customer sentiment analysis through online reviews.