The grocery store industry has seen online ordering options gain tremendous momentum in the wake of the COVID-19 pandemic.
“In a 90-day snapshot beginning with March 2020, monthly online grocery users clocked in at 46.9 million people. Thirty days later, in April 2020, the online user base grew to 62.5 million users, [and there was] an additional 17% growth to 73.5 million users by the end of May,” Shirey said.
A growth plan for Instacart of two to four years materialized within weeks, Shirey added.
Demand quickly became the No. 1 challenge for the grocery store industry as the pandemic caused product spikes throughout the supply chain.
“Stores had to begin limiting certain items to one or two per person shopping, whether it was online or in person,” Shirey said. “Some of those items took weeks to resupply because the manufacturers were equally surprised by the surge.”
From curbside pickup to home delivery and online ordering, grocery stores found new ways to provide solutions for customers during the pandemic, and some of these changes may become permanent.
“The key to long-term success with online grocery ordering would be the integration of loyalty and transactional data,” Shirey said.
With improvements to the consumer experience, online ordering may be the future path for the grocery industry.
Hello, and welcome to the podcast today, everyone. I’m your host, Tyler Kern. Now COVID-19 has caused a huge shift in consumer behavior, which has necessitated a response from grocery and retail establishments.
And joining me to talk about this shift and the impact it has had throughout the industry landscape is Bruce Shirey. He’s the Senior Vice President of Business Solutions at Amaryllis. Bruce, thank you so much for joining me.
You’re welcome. Great to be here and thank you for the invitation.
Absolutely. It’s always good to talk to you Bruce because you have so much insight in this area. And we’re going to talk a little bit more about how Amaryllis fits into this whole picture and what that looks like here in a little bit. But let’s just start by talking a little bit about that shift in consumer behavior that we have seen. How have you seen behavior shifts amongst shoppers during this pandemic?
Well, the pandemic was a really interesting dynamic, I think for the entire world, and definitely for consumerism because of the stay at home orders and fear. Companies had to rethink quickly, pivot on their feet to say, “How are we going to maintain a supply to the public?”
Food is a very important staple in everyone’s lives, so it was fascinating to watch these grocery stores that made some quick changes. And the one that somehow just maybe, we’ll call it clairvoyant, but started this process a year earlier to say, “We’re going to kind of go down that path,” but not knowing where it was going to go and how it would be adopted. But the pandemic seemed to create an adoption rate that’s never been seen.
Yeah. I think that’s a good thing to point out is that what the pandemic did, probably just accelerated a shift that was already occurring to a certain extent but sped up and accelerated that timeline. Right?
Right. It created a near-immediate shift to online grocery ordering.
Yeah. That’s something that we’ve seen quite a bit of, the online shift. Do you have any stats or any underlying numbers that kind of illustrate for us this shift that has occurred when it comes to consumer behavior and shifting more to that online model?
Yeah. I do. I got to participate in a webinar, or listen to a webinar, particularly centering on grocery online ordering and just the dynamics that occurred, Let’s begin with a 90-day snapshot. March 2020 monthly online grocery users, they clocked in at 46.9 million people that were doing online ordering.
30 days later in April 2020, the online user base grew by approximately 33%, or 62.5 million users, capping at an additional 17% growth to 3.5 million users by the end of May.
That’s just staggering. And then if you kind of look back a little bit, Instacart’s two to four-year growth plan was materialized within two to four weeks, between late March and early April of 2020, so that’s just staggering in and of itself. Nobody could predict that.
And then many of the independent grocery software vendors saw upticks in demand for online software ordering tools and hosting and things to augment brick and mortar retail grocery stores to help with the online transition.
And their transaction volume, the software vendors were seeing a 1000% order increase in 60 days. So, some of these companies went on fast hiring sprees just to compensate for the increased demand because of the pandemic, people staying home and ordering food online.
Wow. That is incredible. Those numbers are staggering, just to see that massive growth in such a short period. And I’m sure that caused strains throughout the supply chain, as you mentioned, companies hiring kind of at a very accelerated pace, just to meet that demand that has occurred. So, what kind of effect has that had down the supply chain?
One of the pieces is that it just puts such a severe demand across the entire supply chain it created shortages and scarcity. To kind of put it in perspective, six months earlier in August of 2019, online user activity was only measured at 16.1 million users. So, you think about this, which equates to almost a 192% increase in new user ordering activity. Now that’s not just because that’s coming from the online. You still had people with masks going to the physical locations and buying staples, food, whatever, all the things that they needed.
Right. Yeah. So, you kind of had two sides of the business, where you have online ordering, and then you still have people going into the store as you would normally expect. So yeah, there was certainly a lot of demand that was created by that. So how did grocery stores respond to that increase in demand? Did it come in the form of investing more in that eCommerce side of the business? What did that look like for them specifically?
Many grocery stores had multiple fronts of challenges to contend with. Many of the stores had to quickly rethink how to get out in front of the spike in demand, not only at the physical level but the online ordering level.
They had to begin limiting certain items, to one or two per person shopping, whether it was online or in person. Some of those items took many, many weeks to be resupplied because the original manufacturers were equally surprised by the surge.
Some people call it hoarding, but it created a disruption everywhere. Some people just got out in front of things, at the cause of other people that were suffering because they couldn’t have it. So the whole ecosystem, you think about anything from food to cleaning products, became a shortage. Some things just were not available. And now you’re slowing starting to see it come back.
Yeah. I think of the great toilet paper shortage of 2020, where everyone’s posting pictures online of empty shelves there. And you’re right, it took time for that to restock after that period when there was such a rush and a shortage of those types of things.
What kinds of infrastructure changes can be made to online ordering and the delivery process moving forward that you see, Bruce? Just if this pattern continues, and if people that have realized, hey, this is a convenient way for me to get groceries if I do the online ordering, whether it’s delivery, or park in a spot and they bring it out to you, that sort of thing. What kind of infrastructure changes can be made to this process moving forward that will be beneficial?
One of the things about living in the good old USA is that the American people are very innovative, and they come up with great ideas on short notice, especially if there’s a crisis. As an example, many major brand grocery stores began providing their unique versions of online grocery experience.
For example, stores created their curbside pickup and home delivery. In some cases, stores began to offer pre-ordering and pick up or home delivery dates.
But when the shortages got extreme and the supply chain got so disrupted, they kind of got away from the pre-ordering and pick up or home delivery dates because they couldn’t predict it. So they put that on hold.
The key to long-term success with online grocery ordering would be the integration of loyalty and transactional data. Some people have loyalty cards at the grocery store. They put in their phone number. It tracks everything that they bought. Right?
So now they have some loyalty user history of products and services that they’re consuming. And they tie that with transactional data, ultimately to make an online experience even better. They can start to curate bundles to accelerate the consumer online ordering experience, so you’re not having to hunt through it. They can say, “Here are logical bundles of things that people would buy together,” so you can go, “I’ll take that,” You click, you get the five items.
Ultimately, improving the overall user consumer experience will be the key in the long run. Things like simplifying user registration, you have to get the friction out. Providing new capabilities, such as the ability to turn off items or SKUs of certain products or services that you would never use in a million years. So why present it?
So you should be able to go, “I don’t want to see that.” You should be able to turn them off. And these types of overall improvements and innovation will help eliminate the inherent friction in the process, and a nexus in evolution. Everybody’s going to go through it. They’re going to figure it out. And the guys that step back and look at it from a user experience, the consumer experience first, they’ll build the right model accordingly.
Yeah. That user experience, that customer experience, seems to be the golden goose that everybody is striving for. It’s improving that overall customer experience. And that’s something that everybody is striving for on some level. And it’s a buzzword and the key thing that everybody’s focusing on right now.
Hopefully, they go from talking about it to implementing it. If you look at the old days of Proctor and Gamble, some of these large organizations, they did focus groups to market a product. I would think at some point, maybe there’s a better way to do focus groups on the user experience. If I go in to order something through a grocery store. What’s the best way to approach it? And I think that’s going to take some time, a little bit of evolution.
So Bruce, when it comes to Amaryllis, you’ve been a part of this eCommerce revolution since its inception. So how has your experience in this area helped inform your thoughts on these current trends? Just from having that historical context of where the industry has been to where it’s going. How does that help inform your view of this current trend?
I’ve been part of the Commerce evolution ever since the beginning in early 1995. And all aspects of early eCommerce selling have changed substantially for the better because it’s getting to a point where eCommerce will outpace retail, brick, and mortar.
It took about 10 to 12 years after the inception of eCommerce for people to learn how to spell it and embrace it, that the fintech revolution started to appear. And they were bringing new ideas, innovations, better technology, software, and processes.
Also, without the technical innovation and improvements made to the internet speeds by the TELCOs, which back then was incredibly lethargic by today’s standard, eCommerce most likely would’ve never evolved so fast.
So fast forward. Today, you take something like what Amaryllis has designed- an enterprise platform, or technology stack. They’re bringing toolsets to people that when they think they want to go into certain markets, such as eCommerce, and they want to bring brick and mortar together, and you want to be able to reconcile against this.
Amaryllis built a technology stack that just solves that. So now people don’t have to go build it. They can license this. They can just kind of, so to speak, bolt it up. And they can make it theirs. They can white label it. They can do many things. But it improves how they look to approach a marketplace.
Let’s go back to online ordering, they needed to think through the user experience. Well, now I need to through all the parts in the middle. How I want to make this smoothly work and be able to account for everything from reconciliation and accounting perspective.
Yeah. Absolutely. I want to talk through that enterprise platform a little bit more and the technology stack that Amaryllis provides. Kind of gives me more of the details there on what it’s capable of. And if you have an example of successful deployment in a nationwide chain or something like that, kind of talk me through some of those details.
The platform is designed for any type of business operation. It’s stellar for large organizations that are looking to enter the world of payment facilitation. That’s just a different payment model and how it works.
And then there are just organizations that say, “Look, I’m going to go to an endless aisle model, so let’s talk about that.
So there was a nationwide grocery chain with over 150 plus stores. And they at some point in their strategic planning sessions, they decided we’re going to go endless aisle. We want to create an online marketplace. How are we going to do that?
Part of what they thought about is they first said, “Well, we need to get a marketplace.” So what they smartly did is they went out, scoured the market, and found a software company that builds marketplaces, so they bought it.
Once they bought it, they decided how they were going to launch it. Then they started the recruitment process of third-party sellers to come onto this new platform. And they saw it quickly became apparent that all these third-party sellers have very different commerce models, requirements, and needs because complex commerce is unique to each business. And so, they all required the ability to solve for that complex reconciliation down to the SKU level.
Additionally, they required numerous other financial proficiencies to manage different reserves, delayed funding requirements, all based on SKU types, which is very important to help mitigate fraud and consumer happiness.
Furthermore, they needed the ability to manage multiple billing structures, fee splits, payout schedules. This is a major strong suit and feature of the Amaryllis technology platform. So, this organization, within six months of launching this new marketplace, successfully hit the hockey stick growth curve in sales, new revenues, and adding new merchants to the platform.
One of the merchants that joined this online marketplace was a high-end patio and lawn furniture company. And they stated that sales increased by 1000% over the year prior just because of this marketplace, sandwich in the pandemic a little bit. It just created this whole new dynamic for this business. It was a great challenge for them to solve. They love it.
So the strategic pivot to engage in endless aisles is proving to be a fabulous innovative idea, and it’s working quite well in achieving the intended desire to gain new vendors, attract and retain new consumers. And that is really why they sort of said, “We’re going to go endless aisle.” We want to retain customers. We want new ones and we want to be able to retain them, provide that positive experience.”
So it will be interesting to witness over the next one to two years the positive infrastructure changes that will be made to the overall online ordering, fulfillment, and delivery processes.
Now, are there pitfalls that these retailers should be aware of when it comes to going to eCommerce? Have you seen stories of people trying to launch something and it is unsuccessful? And if so, what are some of the underlying reasons for that, that retailers should be aware of?
Success is measured on many scales. But I think initially, a lot of the missteps possibly taken were not fully thinking through or approaching the solution from the lens of the user. We talked about it a minute ago. You have to come at it from the user experience. And then that has to be able to dovetail in your capabilities to meet that experience by shifting how you operate at your internal processes.
And it’s a shifting of cultural norms inside the business to meet changing demand. So if you don’t do this, there’s just too much friction. That creates an abandonment rate that skyrockets. And then it translates not only into lost sales, more importantly, loss of the customer.
You really can’t get them back because you didn’t know who they were in the first place. So those are expensive lessons learned, and I think the difference between the ones that are successful and the ones that are not.
Right. So another big topic of conversation, another big trend to discuss are third party sellers. Right? So, what do you make of retailers like Wal Mart bringing in more third-party sellers to try to compete with Amazon on an eCommerce level in that kind of the same arena? Is that going to be beneficial for the retail landscape in the long-term? Kind of talk me through a little bit more about what you see as far as third party sellers go.
Marketplaces are here to stay. I think it’d be great if there’s more of them. Amazon is the dominant eCommerce organization. Right? They rank number one, and they control approximately 40% of eCommerce sales. Wal Mart ranks number two. They recently displaced eBay as number two. But they’re down in approximately 5% of the eCommerce space.
So if you kind of look at the number of sellers they’re supporting, Amazon reports around 1.1 million third-party sellers. And Wal Mart is reporting around 46,000. They recently partnered up with a company called Shopify that does some great eCommerce platform work. And their idea is to bring on an additional 1200 small to medium businesses into the Wal Mart online eCommerce platform.
So they’re looking at it and they’re saying, “Well, maybe nobody knows what those 1200 comprised of.” It could be a vertical they’re looking at. It’s hard to say.
But you’ll see changes. And there’s going to be other organizations that are trying to do this. And this is something funny about the marketplace today is that technology now allows it. But back in the late ’90s, going into the 2020s, when eCommerce was starting to catch a stride, the marketplace is what everybody was trying to figure out. And it took a long time to perfect this. Amazon has done a wonderful job of doing that. They solved for it early, and then they got the first-mover advantage.
And one of the things that I think you mentioned earlier, but if you could just expound upon it a little bit, is the Amaryllis technology platform. Does that help when it comes to bringing in third-party sellers and having that platform already ready and prepared from a technology perspective?
Yes, because if you’re going to do that, we bring that difficult middle piece that they need. They can bring the front-end parts of how they’re going to attract the customer, how they’re going to get them boarded, and all that. And then that information ultimately lands on our platform.
Then all the transactional data and all the ordering data, all that kind of information can flow into our system. And what our system does, what it’s just excellent for, is the reconciliation pieces of all that disparate data.
We can take a ton of data and make sense out of that. And at the end of the day, you kick out the output. And within that structure for reconciling a transaction, for example, an SKU or some product has been bought, you can set different fee structures up. You can put different constructs around that. And then you can set up within that food chain of delivering that item, you can put splits on that.
What that means is you can pay all these different people in line that participated in providing that service or product, all seamlessly. And then you create instruction sets. And that instruction is passed off to settlement banks. When all said and done, when the merchant closes out for the day, here’s the money that’s due them, minus fees that are inherent to the process.
We create that whole breakout for them, give them some accounting tools for that. And then they can distribute funds, and they can time it to any way they want to do it. They can set dates, times, amounts. They can hold reserves. They can set up escrows.
So we give all these tools that will be very difficult for somebody to go build, number one. It takes time, number two. And then if you don’t know everything you need, you end up finding out you need it, you’re constantly building and you’re not growing your business. So it slows down your overall acceleration to some kind of unique go to market strategy.
Amaryllis’s technology and its platform is there and is designed to accelerate any company’s go-to-market strategy. And it just helps them get there because we have all those tools already built. It’s a proven platform. Many companies are using it. And it’s a wonderful service that you can give to people and allow online marketplaces to flourish because we’re going to take out a big chunk of that development time.
Yeah. As we said, you don’t know what you don’t know. So if there are things that you’re in the dark about, having an expert like Amaryllis built the platform and knows exactly what your needs are going to be, that’s going to be a beneficial thing just so that you can focus on running your business successfully and doing the things that you know how to do well.
Right? And so, having an expert like Amaryllis provide that technology is certainly something that would be beneficial
Indeed, because our whole platform was designed at its inception to be white-labeled. So there’s nothing about Amaryllis’s technology powering somebody’s online marketplace. That’s not what we’re here for. We’re there to power their success. Their success becomes our success.
Absolutely. So, Bruce, I want to wrap things up today just talking about the changes you foresee coming over the next several years that are going to continue to shift this retail landscape. We’ve talked about what’s going on now. How do you see this moving into the future?
You mentioned something earlier about just being interested in seeing how things develop over the next one to two years. What do you see happening over that time-period?
Well, eCommerce is here to stay. And it’s improving all the time.
I use Amazon again as an example. Me personally, if I’m thinking about or looking for something I want, my first inclination is to go to Amazon and look for it before I would ever think of getting in a car and going somewhere. That’s just me, that habit, and behavioral training is highly ingrained in me now.
We’ll just stay on the subject of online grocery ordering- that’s something new that’s going to continue to evolve. And this is where I think FinTech gets involved because the highest users in the online grocery ordering space from the beginning are the 25 to 35-year-old age groups.
And they’re mostly young families. They both work. They don’t want to take the time to go to the store. They’re quite comfortable with online ordering and having it delivered. It becomes part of their DNA, so that’s a given there.
So then you have the other age groups as you move up. And let’s just take the over 60 population. There are plenty of people in that age group that are highly technical. They have laptops and smartphones, and they do all this stuff. But they haven’t fully engaged in “Am I going to buy food that way?” You still have that. Somebody made a joke of the roulette of tossing around and touching a ripe avocado.
There is an experiential piece of seeing what you’re buying, rather than relying on somebody else to do that for you. So I think for certain products- if you need toilet paper, paper towels, all those kinds of things, that’s a no brainer. But if you slide over to the food you’re going to consume, it’s a little different. And I think it’s going to be just a little bit of education and an experiential process for people to adapt to- but I think it’s all possible.
And there’s going to be those that are not going to do it. But at the end of the day, it’s growing. And it’s becoming more convenient. The applications that run on your phone are so slick that you look at, if you scroll through that, the food looks great. Bananas look great, so you just click, click, click, click, click. You don’t think much about it anymore. You go, “I’m buying it. It’s going to be delivered to me, or I’m going to go pick it up.”
So I think that’s just a kind of genesis. And that genesis in this whole process over the next two years is going to get stronger as it becomes part of the environment in the grocery business.
I’m sure all these guys are well down that path of strategic planning as think about:
- “What if this happened again?”
- “What would we do?”
- “How do we prevent supply chain interruptions?”
- “What can we do to flatten out the process?
- “How can we speed it up?”
- “How we can make it a better experience for everybody while they protect their employees in the process?”
I think that’s why we have something to look forward to as we see how these guys engage with that, and produce these nice, fluid systems.
It’s going to be fascinating to see this evolution continue and to watch how these outlets continue to innovate in this space. And so Bruce, thank you so much for taking some time to join me today here on the podcast and talking a little bit about these trends that you’re seeing, and how Amaryllis fits in and enables success in this area.
Thank you very much. Yeah, we’re looking forward to Amaryllis being recognized as the platform that large organizations, when these large grocery chains say, “Yeah. I’m going to go endless aisle; I’m going to improve online ordering. I’m going to do this, but I need this toolset to help me reconcile all this movement.” Amaryllis will be the platform of choice as they look for that solution. they’re going to look for.
Thank you very much. Enjoyed the conversation with you today, Tyler.
Absolutely. Well, I enjoyed it as well. And all our listeners out there, I hope you enjoyed it as well. Thank you so much for joining us for this episode of the podcast. We’re going to be back soon with more episodes. But until then, make sure you subscribe to Apple Podcasts and Spotify to listen to previous episodes and to stay up to date with everything going on in the retail landscape. I’ve been your host today, Tyler Kern. Thanks for listening. We will talk again soon.