Clicking into place: How click & collect could shape grocery and CPG
07 Dec 2020
COVID-19 has propelled the grocery and consumer and packaged goods (CPG) industries into a new era. Prior to the pandemic, e-commerce accounted for ~3% of the ~$800bn US grocery market. Now, several months into the crisis, industry sources estimate e-commerce could account for as much as ~10% in 2020. As grocery e-commerce grows, so too will ‘click & collect’, blending the physical and digital shopping experience, whereby consumers buy online and pick-up curbside or in-store.
Although it is still early to delineate the arc of the COVID-19 effect on online grocery, our Research analysts see a compelling argument as to why the click & collect model may become the low-cost, if not free, online grocery option for consumers, and discuss three potential implications of a sizeable click & collect opportunity for investors.
We estimate a $60 billion click & collect market opportunity, even as delivery experiences robust growth, with far-reaching implications for the CPG industry.
Galya Laskar, US Thematic Consumer Equity Research Analyst
Blending the offline and online shopping experience can significantly impact supply chains
As click & collect order volume increases, manual order picking from store shelves – which is how orders are often filled – may not be sufficient. At a certain tipping point, traditional brick & mortar grocery stores would be faced with significant investments to meet the demand, which could likely come with a re-think of their overall offline/online approach in order to maximize return on investment. This could trigger a cascade of supply chain changes, which could reverberate to consumer and packaged goods (CPG) manufacturers.
For example, to optimise in-store picking, many retailers have been exploring automated fulfilment centers on- and off-site. To increase reach, offsite pick-up locations have also been considered. The net effect is how, or indeed, how much of that inventory flows through supply chains could change. In fact, manufacturers could be required to build new parallel supply chains. They may also be prompted to rethink packaging that can efficiently reach online consumers and store shoppers alike.
As new infrastructure is set in place, routing changes could inherently dampen the economies of scale that retailers and manufacturers have achieved over decades.
Click & collect’s impact on brick and mortar supply chains with fulfillment via multiple pick-up points
Source: Wollenburg, Hübner, Kuhn, Trautrims; Barclays Research
The online experience could influence the offline experience over time
While the brick and mortar grocery shopping experience is largely the blueprint for the online experience today, as click & collect adoption increases, this dynamic could flip. Online transactions provide robust data that retailers can leverage to tailor experiences shopper by shopper. Further, in an online environment, consumers are able to shop items by recipes or bundles. As consumers become accustomed to this type of seamless shopping experience, grocers could look for ways to recreate it in stores. This could influence planograms, assortment and include various degrees of virtual interruption in stores.
Looking at the grocery landscape, there is evidence that the current set-up encourages the robust click & collect growth dynamics, helping shape the direction of omni-channel retail today.
Karen Short, North America Food & Staples Retailing Equity Research Analyst
Click & collect could reorient the in-store experience around online buying habits
Source: Barclays Research
“For example, all the ingredients for a ‘spaghetti dinner’ could be placed together or easily shopped as a bundle – much like they could be online –rather than having one aisle dedicated to all types of sauce, another aisle dedicated to all types of pasta, etc.,” says Andrew Lazar, the US Packaged Food Equity Research Analyst at Barclays. “If consumers and retailers start to think and shop across categories, it could benefit those manufacturers that have scale across categories.”
A golden opportunity for industry marketing
As consumers increasingly incorporate click & collect and delivery into their routines, the potential types of retail journeys will multiply. While this amplifies datasets and insights, it also raises the bar in terms of what it takes to effectively market to consumers.
For example, carving out space to install a micro-fulfillment center and related storage for click & collect orders can reduce shoppable floor space – taking away from available shelf space for innovation. Meanwhile, since online consumers cannot spontaneously add items while browsing aisles, or enjoy the instant gratification that comes with purchasing a candy bar or cold beverage in the check-out lane, solving for impulse consumption in an online environment is a major priority.
As a result, increased click & collect market penetration could eventually lead retailers and manufacturers to partner on product development, combining resources to increase the chances of success. It could also provide unique opportunities for retailers and manufacturers to generate impulse consumption.
“Click & collect offers retailers the opportunity to drive impulse at the point of pick-up with recommendations based on AI (e.g. a personalised text message as a consumer is driving up to the pick-up area, asking if they want to add a beverage or a snack to their order),” says Lauren Lieberman, the US Cosmetics, Household & Personal Care, and Beverages Equity Research Analyst at Barclays.
“With this as background, we could see a greater percentage of marketing dollars in impulse categories funnelled towards transactional marketing, such as coupons, to prompt purchases as opposed to relationship marketing strategies like TV advertising.”
Looking to the future
Retailers and manufacturers alike could be prompted to make significant investments and rewrite playbooks in order to capitalise on a $60bn click & collect market opportunity. While today, click & collect can be a very manual experience, over time it could become an extremely automated process, seamlessly integrated into an omni-channel experience, with stores actually designed around click & collect to some degree.
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Galya Laskar joined Barclays' Equity Research department in 2014 and covers U.S. Thematic Research, focusing on Consumer. From 2014 to 2019, she supported coverage of the Packaged Food sector. Prior to joining Barclays, Galya was a Senior Associate at a boutique TMT investment banking firm. Galya started her finance career in 2011 at Nomura where she worked in investment banking. Galya received her B.A. from the University of California, San Diego, where she majored in Urban Studies & Planning and Political Science. She received her M.B.A. from Columbia Business School.
Andrew Lazar joined Barclays in September 2008 and is a research analyst covering the packaged food sector. Prior to Barclays, he was at Lehman Brothers since 1995. Andrew was selected as the First Team analyst in Institutional Investor's All-America Research Team survey during 2003-2018, Second Team analyst in 2002, and Runner-up in 2001. Andrew was inducted into Institutional Investor's All-America Research Team Hall of Fame in 2012.
Prior to joining Lehman Brothers, Andrew spent three years in strategic planning at Unilever and two years in management consulting with Mars & Co. He earned a B.S. in Finance from The Wharton School of the University of Pennsylvania and M.B.A. from Columbia Business School.
Lauren R. Lieberman joined Barclays in September 2008, and is currently Barclays Equity Research's U.S. Cosmetics, Household & Personal Care & Beverages analyst. Prior to Barclays, she was with Lehman Brothers beginning in 2005. Lauren has ranked in Institutional Investor's All-America Research Team survey since 2006, and has been similarly recognized in the annual Greenwich Associates research survey. Lauren earned a B.A. in Economics and Psychology from Dartmouth College and an M.B.A. from The Wharton School of the University of Pennsylvania.
Ross Sandler is a senior research analyst for the Internet sector, which he has covered since 2004. Institutional Investor has ranked him among the top 10 Internet analysts since 2011. His team is responsible for coverage of the global consumer internet landscape including e-commerce, digital advertising, mobile, online travel, and video games, including companies listed in the US and China.
Based in San Francisco, Mr. Sandler joined Barclays in 2017 after four years as a managing director in Internet and Digital Media at Deutsche Bank. Prior to Deutsche Bank, he spent eight years with RBC and four years at UBS. He earned a B.S. in Business Administration from the University of New Hampshire and an M.B.A. from New York University.
Karen Short joined Barclays in July 2016 as a senior equity research analyst following the Food and Staples Retailing industry. Prior to Barclays, she was with Deutsche Bank where she covered the same sector. Karen started her equity research career in 1999 at Lehman Brothers.
Karen has been ranked in Institutional Investor's All-America Research Team survey, Wall Street Best on the Street, the Starmine Analyst Awards for Stock picking, and the Greenwich Survey. Prior to her career in Equity Research, Karen spent five years in energy sales and trading in Seattle, WA and Vancouver, B.C. Karen received her M.B.A. from Columbia Business School in New York and her B..A from Queen’s University in Ontario, Canada.
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