When you hear the words “online shopping,” you typically think of consumers buying items like books, clothing and electronics. “Groceries” probably does not appear on that list, but survey data from FGI Research suggests that perhaps it should.  A number of consumers are buying their milk and bananas online, whether they get their order shipped to them or pick it up in-store.

This reflects a broader trend in retail: the growth of online shopping, which has revolutionized the industry and the way people shop.   In 2007, the U.S. Census Bureau reported that e-commerce represented 44.6% of all retail sales, bringing in approximately $89 million.  The stage is set for growth in Internet retail, and consumers are making a habit of buying goods online. As the options for buying groceries expand, it follows that more consumers will make that purchase online too. But there are still some obstacles to adoption. Just who uses online ordering, and why, is one question that FGI’s study explored in depth.

CBS News Reports on Online Grocery Shopping

Big Spenders Likelier to Buy Online
While most consumers still do their shopping in a brick-and-mortar grocery store, online grocery services are attracting the most valuable customers in the market. Among the online shoppers who spend $500 or more per month on groceries, approximately one third buy all of their groceries online.  Although there are just a handful of them, the online grocery shoppers who buy 100% of their groceries online are those who spend $1,000 or more on groceries every month.  In other words, the most loyal online grocery shoppers are those with the highest grocery expenditures.

Even as online ordering catches on among customers who spend the most on groceries, those customers represent a small fraction of all shoppers. Most shoppers surveyed do not spend quite as much on groceries, especially online.  54% of respondents who order groceries online spend $200 or less per month on such services.  These results imply that online grocery-shopping is less a regular habit than an occasional indulgence, except among a small selection of shoppers. To make sense of this insight, FGI Research asked consumers to explain why they chose (or didn’t choose) to shop online for groceries.

Shoppers Motivated by Time, Convenience
Among those who bought groceries online with home delivery, most did so as a matter of convenience (65%) or to save time (58%).  A surprising number (36%) said they did it to save gas. Interestingly, men most often cited convenience as their motivation, whereas women cited saving time.  One inference that this could support is that men simply don’t like going to the grocery store, while women don’t have the time.

As for shoppers who ordered online with in-store pickup, about half (49%) said they wanted to save time, and  2 out of 5 appreciated the convenience. Meanwhile, 29% said that they wanted to ensure they purchased only what they needed –perhaps indicating that these customers felt the physical act of browsing the aisles encouraged them to make more impulse purchases.

“Why do you use online grocery shopping with home delivery?”

“Why do you use online grocery shopping with in-store pickup?”

Online Options Still Have Downsides
Notwithstanding the benefits of convenience and saving time, many cited cost as discouraging them from buying groceries online. Customers who had used online ordering with home delivery were most irritated by having to pay an extra fee for the services (61%).  They were also annoyed by mix-ups (31%), such as items that were missing or incorrect in the final delivery, and when stores did not offer desired items or have them in stock (29%).  Despite these downsides, most online shoppers (77%) had used the home delivery option at some point.

Fewer shoppers (46%) had used the in-store pickup option, but those who had expressed frustration about the extra fee as well: 4 in 10 said it was a downside of the service. Furthermore, 35% were frustrated by the fact that they “still [had] to drive to the grocery store,” which might render moot the convenience of having their order picked out and bagged when they got there. A quarter of those who used the service were irritated about the protracted process of getting into the store, sorting out their orders, and getting out. 1 in 4 also said mix-ups were a problem.

Why Not?
FGI Research asked non-online-grocery-shoppers why they chose not to use the service. The top reason, which 36% identified, was the desire not to lose the experience of going to the grocery store and browsing the aisles. Some customers (35%) said their grocery store did not offer online ordering, and they did not want to have to switch stores in order to get the service. Finally, 1 in 3 said the extra fee was too high.

With all of these factors to discourage them, as many as a third of those who never shopped online for groceries said that, no matter what, nothing could make them start.  The other two-thirds indicated that they might be likelier to try the service for a lower fee (36%), if they received tangible incentives such as freebies and discounts (34%), or if their grocery store started to offer the service (33%).

“What would it take to make you start using online grocery shopping services?”

Actionable Insights
The results of this study indicate that some consumers are starting to use online grocery shopping services, and that those who do not might be willing to try if certain circumstances changed.  Namely, if more grocery stores offered online services, and if the fee for the services decreased, more customers would be likely to use them.  As of this study, those who spend the most on groceries are likeliest to use online ordering. More research would lend insight into how to target non-users, including those with a modest grocery budget, and make the service more appealing to them. Some steps that grocers could take to capitalize on the online trend include:

• For stores that do not offer online ordering, fielding a concept test to see how customers would respond to such an offering.
• For stores that do offer the service but seek to expand or alter it, using an awareness/usage study to find out whether customers are aware of – and if they are, whether they use – online grocery-ordering.
• For stores that offer online ordering but have identified concerns about mix-ups, long waits, high fees, or other shortcomings, implementing a study on customer satisfaction to find ways of improving their performance. A focus group, whether online or in-person, would offer more detailed insight into what the service’s strengths and weaknesses are, and how the company could alter its offering to better meet customer needs.

Next Steps You Can Take

• Contact FGI Research: click here or call us at (919) 929-7759
• Explore FGI Research’s market research solutions, including custom panels, full service research, and our online sample (SmartPanel).
• Join FGI Research’s online panel to participate in future studies.

Survey Methods
Respondents: 203
Date of Survey: June 21-30, 2010
Sample Source: FGI SmartPanel

This nationally-representative sample consists of adults aged 18 and up and is balanced to the US population using recent census data. One can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.

Popular association with poor quality and “looking cheap” have often kept store brands (private label products) from enjoying broad acceptance and sustained market share. There is even a lingering perception among some consumers that “store brands” equate to “generics,” an antiquated association to be sure. Yet store brands also have a universal reputation for saving consumers money. Data from a recent FGI study shows that 97% of US consumers believe “store brands cost less than national brands.”

Our findings suggest that consumers are poised to expand their purchases of store brands. Not only do a third of those surveyed buy more store brands than they did a year ago, but 1 in 4 plans to increase his or her store brand purchases in the future. As this CBS report reveals, even brand loyalists are open to switching to store brands, especially when the perceived quality is as good as, or better than, the national brand.

A Massive Market is at Stake
Of the $500 billion dollars that United States consumers spend yearly across all categories, store brands claim only 17% ($84 billion), but that share is growing –and national brands large and small have felt the shift. Store brand sales have even seen gains in categories that national manufacturers used to consider “safe,” like baby food, feminine hygiene, health and beauty products, household cleaning goods, and oral care, among others. The change is less surprising when you look at other markets around the world. In Western Europe, for instance, the market share of store brands is 2-3 times larger than that of national brands. As American consumers’ habits start to mirror this tendency, American companies are responding: Target plans to add another 100 products to their “UP & UP” brand in 2010.

Store Brand Quality Catches Up
FGI Research asked US consumers how they view the quality of store brands vs. name brands. Specifically, we asked how much they agreed with this statement: “The quality of store-brand products is just as good as name brand products.” A full two thirds (65%) of consumers said they “strongly agree” or “agreed somewhat.” Furthermore, four out of five (79%) consumers strongly agree or agree somewhat that “store-brand products are an excellent value for the money.”

“Store Brands are Just as High-Quality as Name Brands”

These data suggest strong consumer confidence in store brands on questions of quality and value. On the whole, consumers view store-brand products as comparable in quality to name brands. Given the 97% who believe store brands are less expensive than name brands, and the more than 60% who believe store-brand products give them a good value for the price, it follows that switching from name brand to store brand may be one way consumers can save money without sacrificing quality. But how many will actually make the switch? FGI answered that question with some data about purchasing habits.

Store Brand Purchases Pick Up
Over a third (35%) of consumers said they were buying more store brands than a year ago. Asked to project their purchasing habits for the next year, 25% said they plan to increase their consumption of store brands. These results support industry predictions that store brand growth will be 13% annually. Should the US growth rate reach half of these levels, store brands could capture another $5 billion per year in consumer spending. This is a healthy “trial” statistic; retaining that share of wallet will ultimately depend on consistency of store brands’ competitive quality and pricing.

Grocery Store Brands Fare Best
FGI Research asked a few specific questions about store-brand food products (groceries). Up to 79% of consumers believed store-brand food products were “just as nutritious as name brands.” A larger percentage (83%) was willing to serve store-brand food products to family members. Meanwhile, 63% of consumers said they were “extremely likely” or “somewhat likely” to buy store-brand food products compared to national brands, while only 15%  said they were “extremely unlikely” or  “somewhat unlikely.”

“Thinking Only of Food Products, How Likely are You to Buy Store-Brand?”

Store Brands Gain Traction Across Categories
Store brands consumers were most likely to buy included food, household goods, and “general merchandise” (a broad category that encompassed seasonal items, school supplies, automotive needs, etc). Hair care products, over-the-counter drugs and baby care also fared well. Consumers were less likely to spend on store-brand apparel and home goods like appliances.

“In which of the following categories do you purchase store-brand products?”

Actionable Insights
This FGI Research study demonstrates growing consumer confidence in the quality, price and value of store-brand products, confidence which translates into higher consumption of store brands. Consumers are likelier to purchase store-brand food, household items, general merchandise, and health and beauty (less so home goods and apparel). So, what are some key actions to consider based on these findings?

• Retailers and manufacturers should continue to invest in store-brand offerings. These products usually bring higher margins for retailers and significant gains are possible with the proper research, product development and marketing.
• Some store brands’ packaging might need improvement. High quality, professional packaging and attractive pricing will drive sales.
• National brands must stay abreast of consumer preferences and behaviors, especially as regards leading store-brand offerings. Further erosion of their market share is likely without aggressive research, product development and real differentiation, and marketing.
• Private label manufacturers must remain aware of quality concerns to maintain their strong performance relative to national brands and even enhance their competitive edge. This means robust marketing and packaging research and conscientious response to consumer preferences.

Next Steps You Can Take

• Learn more about the results of this study: complimentary access to the data in this report, including cross-tabulated results, is available upon request from FGI Research.
• Contact FGI Research: click here or call us at (919) 929-7759
• Explore FGI Research’s market research solutions, including custom panels, full service research, and our online sample (SmartPanel).
• Join FGI Research’s online panel to participate in future studies.

Survey Methods
Respondents: 367
Date of Survey: February 26th-28th, 2010
Sample Source: FGI SmartPanel

This nationally-representative sample consists of adults aged 18 and up and is balanced to the US population using recent census data. One can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.