Albertsons - bringing "joy to grocery shopping" through a digital overhaul

Profile picture for user slauchlan By Stuart Lauchlan August 17, 2021 Audio mode
Summary:
Albertsons wants to bring "joy to grocery shopping". Striking the right omni-channel retail balance in the Vaccine Economy will be critical.

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In diginomica’s tracking of the retail sector, we’ve emphasized time and again the importance of striking that elusive omni-channel balance between the physical realm and the digital future. In other words, don’t forget the store when you’re racing to shore up your defences against the Great Satan that is Amazon.

The COVID crisis, of course, drove a societal move online at an accelerated pace. Now, as the Vaccine Economy shapes up, the question is how sticky is that shift and to what extent will people return to the stores? The answer is likely to depend heavily on which part of the retail sector a brand is in, but that omni-balance question has perhaps never been more important to address.

Albertsons Companies is a good example of an organization that looks to be getting this physical/digital seesaw right.  A leading food and drug retailer with stores across 34 US states and the District of Columbia, the group includes more than 20  banners, including Albertsons, Safeway, Vons, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market.

As with all grocery firms, the pandemic had a major impact on the Albertsons business model as consumers turned to online ordering and delivery. But for CEO Vivek Sankaran, the physical store estate has remained a prized asset and one that’s been essential to support the uptick in e-commerce activity:

Our greatest asset is the store - full-stop…our e-commerce business is built on those stores.

In practical terms, that means:

We continue to invest in our stores. We opened five new stores and completed 33 upgraded re-modeled projects during Q1 2021. Our second priority is the acceleration of our digital and omni-channel capabilities. Digital is an important growth driver for us as we strive to provide an area of convenient shopping experiences for our customers. We added a net 320 new DUG locations - Drive Up & Go locations - in Q1 2021, bringing our total to 1,740 and DUG sales grew 75% year-over-year. We now expect to have DUG in approximately 1,950 locations representing approximately 98% coverage by the end of the second year quarter.

As part of our growth plans in digital, we also remain focused on delivering the superior customer experience as well as improving profitability. For example, we continue to achieve on time tilling and delivery rates in excess of 95% demonstrating consistent on-time delivery and DUG pick-ups. We began the rollout of our integrated loyalty and e-commerce app offerings of connected customer experience through a single interface.

Digital direction

For its most recent financial quarter, using a 2021 to 2019 comparison model, Albertsons reported a 276% growth rate for digital sales. That’s an expedient number - a year-on-year comparison with 2020 shows that digital growth was “virtually flat” as consumers began to browse the aisles in person again after over a year of virtual house arrest.

But it’s another number that really matters. Albertsons now has 3.6 the number of omni-channel shoppers that it had back in 2019 and that matters to Sankaran:

We've seen as that as customers move into omni-channel, they also increased their spend in our stores with a net growth of 17% per household spend in the quarter and a total spend rate of two times that of an exclusively in-store shopper. In fact, in Q1 with identified households, average in-store only shoppers sales were down while the omni-channel customer sales were up year-over-year. 

So the digital component remains a priority as Albertsons looks to ride on the back of a number of perceived Vaccine Economy trends. In Sankaran’s words:

First, we believe digital engagement with consumers in our sector will continue to increase. This provides us with an opportunity to gather more data and deliver a better, more personalized shopping experience for our customers. Second, even though we saw a step change in 2020, we believe consumers will increase their use of e-commerce solutions, especially pick-up in store and rapid delivery. Particularly in our industry, consumers value speed and delivery, and we are committed to continuing to enhance speed by leveraging our great store locations.

Lastly, we believe more remote work is here to stay. This means more meals at home, which will continue to benefit our business, particularly the demand for fresh ingredients and meals. Albertsons Companies is well positioned to capitalize on these trends given our unique competitive advantages. And as we go forward, we'll remain focused on investing in technology to amplify our strengths and become a faster and more efficient business

Recent months have seen a couple of clear examples of that in action as the firm has announced an overhaul of its digital estate. There’s an upgraded app, Deals & Delivery, that works across all of the Albertsons brands and includes a digital wallet, app coupon integration, list builders and a pay-from-app feature.

There’s also a rebranded loyalty program, Albertsons for U, that sits on top of individual schemes from the likes of Safeway. Membership is free, and new members immediately earn $5 off their next in-store or online purchase of $25 or more of qualifying items.

But the most interesting development is the introduction of a new e-grocery subscription service, FreshPass. Following in the footsteps of Amazon with Prime and Walmart with its Walmart+ scheme, this new program allows customers to pay $99 a year for free delivery on individual orders exceeding $30. In selected markets, 2 hour grocery deliver is offered as well as DUG. The firm claims that customers who sign up now can expect to save up to $395 per year with an annual subscription.

Other digital plays in evidence at Albertsons have included the signing of a wide-ranging tech partnership with Google, which itself has ambitions to expand its retail presence, beginning by integrating Google services more deeply. For example, customers will be able to order delivery from inside Google Search and Google Maps. The group has also been piloting robotic tech, including autonomous delivery carts in a trial at two Safeway stores in California taking in customers who live within a three mile radius of one of the outlets.

My take

Our strategy of building lasting relationships with customers through a combination of digital and in-store engagement is driving our top line.

The grocery sector was one of the retail industry’s ‘survivors and thrivers’ during the pandemic and arguably the one that has been most likely changed forever. Later today Walmart reports its latest numbers, followed in short order by Target. The latter has been the shining North Star of omni-channel retail, while the former, although yet to turn a profit from e-commerce, has blazed its own trail.

But it’s how the pureplays, like Albertsons and Krogers, adapt to the new Vaccine Economy realities that will be most intriguing to track over the coming months and years if they are to meet Albertsons boast this week of bringing “joy to grocery shopping”.