Winning Strategies for Online Grocery Shopping

April 20, 2021

Dimo Kostopoulos & Lucien van der Hoeven

Retail Marketing, Sales & Supply Chain Analytics Practice - Strategies to make Europeans’ new grocery-shopping habits stick, now that the COVID-19 pandemic seems to be ending in 2021.

By Dimo Kostopoulos and Lucien van der Hoeven – April 2021

What - The Pandemic has skyrocketed online grocery shopping

Does anyone still remember the day that people said shoe sales would never go online? Fortune favored the brave that nevertheless went online.

The crisis has triggered a shift in many consumer behaviors, one of which is the move to online food and grocery shopping. Despite the nightmare that 2020 has been for most retailers, it has been a record year for food retailers. Online grocery shopping, meal boxes, meal delivery, and take-away food rocketed to record heights never seen before. For example, in the UK, the number of consumers who do a weekly grocery shop online has doubled since the coronavirus lockdown. The most striking increase in online grocery shopping is in the over-55 age group. Although urban deliveries of online groceries make up the largest percentage of sales, rural and suburban are fast growing segments as well.

As a result of the extensive limitations imposed by the lockdown, home is the new pub and restaurant, which in turn drives more indulging home cooking and drinking. Fresh categories used to be limiting online grocery shopping’s growth in the past. During COVID-19, the market saw a significant increase in the number of online shoppers buying fresh fruits and vegetables, meat, fish, dairy, eggs, and baked goods. With so much time at home, a focus on health, and also fun, like cooking from scratch has been prevalent behavior during the COVID-19 pandemic. This also drove the higher demand for food and vegetable boxes.

So What - Huge opportunities to grow, challenges with supply chain and shopper expectations

Online groceries are now a hot commodity. About 40% of orders come from first-time shoppers, according to market research. But the expectation of fresh groceries and food, straight to a customer’s door, a la Amazon packages, is failing across the board. According to several market research studies, one out of two new online grocery shoppers say they would never use their provider again.


One reason for this is that traditional grocery stores were not ready for this new scheme of things. For most of them online delivery used to be a low priority. Some retailers offered it as an add-on service, but it was not a core part of their business. The cruel reality is that online fulfilling still remains wishful thinking for most retailers as it is not a cheap operation. It requires a significant amount of investment in automation technologies, such as storage and retrieval systems via robotic handlings, for retailers to improve efficiency and speed of their deliveries and therefore remain competitive in terms of their selection and pricing.

Unfortunately, the business of online groceries remains a puzzle for retailers that needs to be solved. To better understand the challenge, we need to do a deep dive into what drives this growth in the online grocery sector, identify risks and propose strategies that describe how traditional grocery retailers can capitalize on this unique opportunity.


Online grocery deliveries have been growing at double digits every month. This has nothing to do with new product innovation. This is mainly due to the change in consumer behavior pre and post the pandemic. Once shoppers get used to the convenience of having their groceries selected for them, and delivered on their doorstep, these habits will certainly stick and spread through the population.

Even before the pandemic, there were few retailers that would not have predicted the continued growth of e-commerce relative to physical shops. But what would have previously been a gradual upward climb in demand, has suddenly turned into a trajectory more reminiscent of scaling Everest, triggering a huge jump in market size, fully new shopper segments and suddenly profitable new catchment areas.



One wants to make hay while the sun shines but scaling up the supply chain, especially for online groceries, remains the biggest bottleneck for most online retailers. First, highly perishable, low priced grocery products (e.g., milk, fruit, veggies) cannot be shipped today by traditional fulfillment networks. Traditional fulfillment centers are effective because they get density by fulfilling orders anywhere in the country. However, for perishable groceries, delivery must be fulfilled from local nodes and it takes much longer to reach sufficient density, hence achieving a decent return on invested capital is more challenging.

Moreover, if you cannot maintain the freshness, there is no way to get it to market. That is where the stories about dairy farmers dumping milk, and $5 billion of fresh fruits and vegetables gone to rot come from. The majority of the products that are available today were planned six to eight months ago. Supply chain is a system of moving parts, including sourcing, manufacturing, warehousing, delivery, and support. Each part has a specific activity. When you change the output — such as more storage, or delivery trucks—it needs to be sequenced, and this takes time. Second, customers have different expectations in terms of variety, quantity, and frequency of their orders. Given the complexity of the customer experience and cost challenges with local grocery delivery – customers want the products within hours, delivery costs per order are high – that is the main reason online penetration remained at relatively low levels prior to the pandemic.

Effective Strategies for traditional grocery chains and stores:

Traditional discounters and grocery chains who want to tap into this opportunity should familiarize themselves with the economics of the subscription operating model, which is totally different from the discount retail, every day low price, few assortments/one-size-fits-all type of business.


One way to do that is by launching a loyalty and perhaps a paid subscription type of delivery service. On the supply side, that enables them to improve their learning curve on the mechanics of personalized fulfillment in a relatively safe fashion as they will be able to manage demand volatility more effectively by planning delivery operations in advance.

On the other hand, they will be able to learn how to collect and use data to make more informed decisions. By leveraging loyalty program data as well as mobile app, mining customer reviews and applying predictive personalization technology and AI, retailers can leverage analytics.

Analytics helps retailers to learn how to forecast demand and serve up more relevant search results to notify shoppers of deals and specials on products they have bought in the past, personalize offers and remind their customers of products they may have forgotten.

Another approach for the excess-cash-not-sure-where-to-invest ones would be to invest heavily in hybrid type of stores i.e., like Amazon Fresh’s case. For example, prior to the pandemic most grocery stores were not designed for quick in-and-outs. Their layouts were designed to maximize shopper spending. Stores cared about the shopper experience and deliveries were not that important. Their layouts were not set up for e-commerce.

New stores operate as micro fulfillment hubs and emphasize more on delivery capabilities than in store customer experience. They occupy less shelf space than traditional stores, meaning a smaller “but curated” selection of groceries; a thousand or so items, instead of 30K+ product codes found at major chains. Inside, items are sorted by popularity, not mandated sections; the goal is quick fulfillment, not browsing.

Because of this setup, new generation grocery stores can ship more orders with small teams bagging orders and working on multiple orders simultaneously for hundreds of customers a day. With hybrid stores traditional grocery chains can supplement delivery density with in-store shopping to drive more density and leverage fixed costs. Those stores usually serve five main purposes:

  1. A traditional physical store that customers shop
  2. A drive through type of store where customers pick up a grocery order they’ve placed online
  3. Turn your cost center into revenue driver i.e., leverage the store as a warehouse
  4. A place to return goods / customer service operations
  5. A potential high quality / organic prep food cooking hub like restaurants where customers can pick up their freshly cooked food, etc.

New online grocery shoppers massively experienced waiting queues to even become a client, whilst existing clients suddenly experienced a huge shortage of available delivery slots, even with their increased flexibility when working from home. Next to their supply chain challenges, retailers also struggle with the profitability of their customers, as the cost for the expensive “last mile” are typically only made up for when serving bigger baskets on a regular basis.


And, with proximity not being their biggest driver for store selection, shoppers more easily hop from one retailer to another, looking for simpler online experiences, bigger assortments, lower prices, quality fresh food and smoother delivery options. Next to that, less “impulse buying” and increased price transparency are driving shoppers to trade down.

With the pandemic coming to an end, workers going back to their offices and online grocery shoppers becoming more experienced, we can expect these shoppers to become even more demanding on all aspects of their shopping experience.

Now What – Simultaneously focus on current and future profit

Retain existing customers, loyal profitable segments

Today’s online shoppers are used to the high service levels that they experience at non-food online shopping, e.g., ease of finding products, realistic price levels, a choice in delivery options, end-to-end order visibility, simply returning purchased goods, getting substitutes for poor quality and a highly responsive customer service.

With most of the bottlenecks currently in the supply chain, this creates challenges for grocery retailers. You do not want to waste valuable scarce resources on non-profitable customers, but at the same time you want to grow the business as much as possible. This typically calls for “predictive” customer segmentation modeling and ditto “segment adjusted” service plans.

Regular subscribers with recurring similar order profiles typically fit best in terms of long-term profitability and supply chain challenges. They are often open to paid membership loyalty programs, that will help maintain a loyal customer base. Somewhat like Amazon Prime. Paid loyalty programs should then include things like guaranteed delivery slots, same-day delivery, free delivery, early access to new products, shopper relevant promotions, a dedicated customer service line, etc.

Acquire new customers – a balancing act

Retailers with on-line waiting queues for new customers of course have the luxury being able to first select on predictive potential shopper/catchment area profitability from these queues.

The trouble with the future is that is usually arrives before we are ready for it. All online players should therefore also actively try to grow market share and steal shoppers away from competition, making use of similar predictive potential profitability models. By leveraging 3rd party data for an always on, direct addressable omni-channel marketing program, involving both lookalike concepts and ATL advertising, future growth will be covered as well.

In all cases, it will be a balancing act, reserving some but not too many of the scarce resources like delivery slots for newly acquired potentially profitable customers.

Advanced analytics, data, and technology

To make this all work, the challenge for retailers is not just to collect data, but to analyze and optimize that data, ready to translate it into actions that drive current and future sales. Both the shopping experience and sales success strongly depend on the quality of the data and the models that retailers leverage for customer acquisition and online sales. This goes for both shopper data and product data. E.g., product search engines rely on meta-data to handle search queries and find suitable products. Predictive shopper profitability and personalized product recommendations on retail platforms perform much better when larded with relevant 3rd party data.

A headless system architecture, involving some kind of customer intelligence hub, aided by homegrown models and AI, typically allows retailers to closely match the features and services they need for continuously addressing the most profitable shoppers and delivering the best customer experience. With the current rapidly changing market conditions, the use of an iterative approach to refine predictive models over time and maximize prospects propensity to response and potential retailer profitability is key.

It’s all tech now

It is a common knowledge that retailers invest in supply chain, technology, data, and algorithms to run their businesses better and faster. It is all tech now. The grocery sector is not an exception. To scale online groceries, it is obvious that there needs to be some investment in automation and engineering. For example, that is the case for inventory management i.e., what shows as available online needs to follow through to a customer’s cart. However traditional grocery stores need also to learn how to leverage data, technology, and machine learning to predict demand, personalize offers, make recommendations, maximize shopping/pick up/delivery customer experience and optimize their supply chains to be able to offer competitive prices. Physical stores are still very important especially for the online grocery industry as they operate as delivery hubs and help reduce last mile delivery costs.

About the Authors

This article is a collaborative effort by Dimo Kostopoulos (Blend360 New York office) and Lucien van der Hoeven (Blend360 Amsterdam Office), both Retail and Marketing Analytics passionate. Contact us.

Imagery Sources:

Share this blog

Let's co-create value together. Contact us today to start a conversation about how we can bring analytics, technology, and people together to achieve your goals.