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Disruption of Grocery Sector will Facilitate New Business Models, M&A, Report

November 02, 2018, 07:18 AM
Filed Under: Retail

Almost half (48%) of consumers in the U.S. now do some or all of their grocery shopping online, while 59 percent are planning to do so in the future, according to KPMG’s 2018 Grocery Retail Consumer Perception Survey.

“As the online grocery business is exponentially taking off, grocery retailers and consumer packaged goods companies (CPGs) alike need to adapt to factors that are important to online shoppers such as convenience and choice,” said Mark Larson, national leader of KPMG’s Consumer & Retail practice. “Already operating in low margin environments, winning retailers and CPGs should consider innovative approaches in strategic revenue management, as well as digital and M&A strategies to remain competitive in the online market shift.”

The survey of more than 2,000 grocery shoppers also indicated that product assortment (26%) and product quality (25%) are of primary importance to heavy online shoppers, outpacing price (18%) as a critical factor. However, price still remains relevant to online grocery shoppers as price transparency makes less price-sensitive customers more price savvy.

“There is increasing pressure to better understand the evolving buying habits and expectations of the growing number of online grocery shoppers, but also those customers that remain in store,” said Katherine Black, U.S. Consumer and Retail Strategy co-lead, KPMG LLP. “This knowledge will help grocery retailers and CPGs to successfully find new options to meet their customers’ needs.”

According to the survey, CPGs are also expected to face pressures on trade terms from grocery retailers. As customers are turning to online, retailers would need to invest in creating better customer experiences while offering competitive prices – passing such costs on to CPGs.

Investing in Multiple Digital Strategies

The survey identified four key shopper segments as grocery retailers and CPGs build their digital strategies:

  • ‘Online pioneers’: under 35 years old, 80 percent spend more than $250/month on groceries online, 60 percent have a club membership. 
  • ‘Next-in-line adopters’: do less than 20 percent of their shopping online but have plans to increase, product assortment is their most important shopping criteria.
  • ‘Online dabblers’: do a limited amount of shopping online, and
  • ‘In-store crowd’: do almost all their shopping in brick and mortar stores and plan to continue, 80 percent over the age of 35, 40 percent spend less than $250/month on groceries.

“Online grocery retailers and CPGs need to leverage technologies to simplify and diversify their supply chain and build their digital brands,” added Black. “Implementing multiple digital strategies to accommodate the key shopper segments, from online pioneers to the in-store crowd, can improve customer profitability and drive margin growth.”

Driving Growth Through M&A

The entry into new growth strategies, new product lines and new technologies is expected to continue to fuel M&A activity.

“Targeted M&A can strengthen existing infrastructure, drive consumer awareness and rapidly accelerate digital capabilities for grocery retailers and CPGs thus better positioning them to compete with leading and emerging retail private labels and digital natives,” said Mark H. Belford, managing director & co-head, Consumer & Retail Investment Banking, KPMG LLP. “Therefore the recent surge in highly focused, need-based M&A activity is expected to continue in order to win in the online grocery game.”

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