Let's consider what we've learned and imagine the perfect grocery retailer for Covid. It would be a retailer that wouldn't have a building so shoppers could avoid lining up to get in, navigating one-way aisles and meeting potentially infectious crowds. It would be a retailer where shoppers could save time and avoid a slow, laborious trip to the store, a trip during which they might even find the items they were looking for are out of stock. It would be a retailer where shoppers could avoid encountering the Coronavirus by buying groceries from the safety of their own homes. As a bonus, this retailer would have great price perception, because why not save money as well as stay safe and save time?
Turns out we don't have to imagine this retailer. We just have to look in our pockets and touch an app on our phones to find it. Or reside in one of the cities with Amazon Go or Amazon Fresh stores with smart baskets and walk-out and pay technology for speedy check-out.
Covid created a perfect storm that played right into the unique strengths of Amazon's customer value proposition. Amazon easily blew every other retailer out of the water on our Covid Momentum Metric and customer Safety ratings. The distance between Amazon and second place on these measures is much wider than the distance between second place and the rest of the pack.
Edge Ascential estimates that Amazon will grow grocery market share easily more than any other retailer in the U.S., picking up +0.731% of the U.S. grocery share (this increase is just for Amazon.com). This increase – about 3x higher than 2nd placer retailer Target on the Covid Momentum Metric – equates to $5.8B, compared to if Amazon had just held market share steady. And Edge Ascential may be underselling Amazon's potential 2020 performance, since they predict a year-over-year grocery sales growth rate of only ~33%. In Q2 of 2020, Amazon reportedly tripled their online grocery sales. In Q3, only online sales in total were stated, but this rose 49% for Amazon, and online grocery has been growing faster than general eCommerce.
For retailers who aren't Amazon, does this mean they should rush even faster than they already are to expand their click and collect and delivery capabilities? Not necessarily. Online grocery shopping is still a hard place to make profits for most, and from the ability to subsidize their grocery business with profits made in other business units like Amazon can. Additionally, we've covered in previous versions of the RPI what prerequisites are for a great eCommerce platform to also deliver great overall top line growth. Many regional grocers struggle with these prerequisites, namely great Price perception and a product category DNA that is strong in center store, non-perishable items. Lastly, eCommerce's share of grocery sales was ~5.0% in 2019 according to Edge Ascential, and even though it is set to grow ~50% for 2020, that still puts eCommerce's share of grocery sales. So, if you're a legacy brick and mortar retailer, your customers, even after the Covid eCommerce bump, will be getting most of their groceries from your physical stores. If you do invest in eCommerce to chase top line growth and provide a competitive response to Amazon, there must not be any drop-off in the Quality of the store experience or an increase in Prices – two things which would harm a retailer's Value Core and hinder their chances of long-term success with customers.
Each of the retailers in the First Quartile on the Covid had their own special recipe for driving momentum during 2020. Target ranks second in Digital and 9th in speed, while also ranking decently in Operations (16th). Fry's Foods and Kroger rank first and second respectively in Discounts, Rewards & Information, while also securing a decent competitive position in Digital (17th, 10th) and Operations (7th, 18th). Fareway and Publix leaned on Speed and Operations as their strengths for success during Covid.
A retailer may be wondering why they didn't make the First Quartile on the Covid Momentum Metric, especially since they may be experiencing what is for them explosive year-over-year growth. Aside from keeping in mind that most retailers are experiencing explosive year-over-year growth, an examination of the customer value propositions of the average retailer in the different Momentum Quartiles offers some answers.
In the instance of the typical Second Quartile Covid Momentum Metric retailer, you may be performing better than most on Speed, Digital and Discounts, Rewards & Information, but the retailers in the First Quartile are just performing better. Additionally, you could be doing better at Operations – perhaps you suffered from more out-of-stocks or price volatility than the competition. If you're a Third Quartile retailer, you're really strong at Discounts, Rewards & Information, but your Speed to shop and/or your Digital offering are holding you back from additional market share momentum. If you're a Fourth Quartile retailer, you're performing too far below average on either Speed, Digital or Discounts, Rewards & Information – or some combination of the three – to hold or improve your market share during Covid.
Looking at performance on Prices, Quality and Convenience, there is no clear pattern by Covid Momentum Quartile. Those who are in the First Quartile for Momentum, on average, score worse on Price than those in the Second and Fourth Quartile. (Of course, there are always exceptions to the average.) They also score worse, as a group, on Quality than any other Momentum Quartile. All Quartiles score about the same on Convenience.
Why would Target move up in the rankings, while Walmart would slide? Why would BJ's increase, while fellow wholesaler Costco moved down? Why do the traditional, regional Kroger and Food Lion banners have one of the best Covid Momentum Metric scores in the market, while the traditional, regional Safeway banner doesn't? Answering these questions helps get at the heart of why certain retailers gained more momentum than others during Covid.