Will Consumers Pre-Pay for Groceries?

Discussion
Sep 24, 2013

Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.

As a grocery consumer, consider the items you buy week in and week out. If you are like me (and most folks), the list is remarkably consistent. On the grocer’s side, most food retailers should know that of the 30,000 to 50,000 items they stock in the store, a very small percentage of those items drive most of the sales. In fact, just the top volume 80 items they sell represent as much as 20 percent of their sales. RetailWire BrainTrust panelist Herb Sorensen refers to this phenomena in his must-read book, Inside the Mind of the Shopper, as the "Big Head." Conversely, the vast majority of the items grocers stock rarely make anyone’s shopping list, hence those items are referred to as the "Long Tail."

The fact that there are relatively few items and categories shoppers predictably buy begs the question: "Would they be willing to pre-pay for these items if they were financially incentivized to do so?"

One new service, Aisle50, is banking on just that.

Aisle50, is an application-based service that, among other things, allows shoppers to pre-pay for deals on branded grocery items coming from the manufacturer. The customer then receives that item by shopping with their frequent shopper card at a participating retailer with the pre-paid item cost deducted from their grocery bill at the store.

Aisle50 appears to be a reasonably manageable process for the shopper and that usually hastens the prospects for success. If the bank of offers remains strong and compelling for the shopper, this approach may have a good chance of working on a broader scale.

Today, there are a handful of retailers on the Aisle5o bandwagon (including Raley’s, Lowes Foods, D’Agostino and Shop ‘n Save). I would expect more to come if the offers remain strong.

In fact, as more retailers, grocery and otherwise develop the e-commerce capability, I would expect to see retailers develop and test their own pre-payment programs.

Locking up the shopper’s dollars prior to the trip makes sense on a number of levels. The business model is simple and predicated on the incremental discounts used to lure the shoppers to pre-payment being more than offset by securing the sale prior to the trip. If the numbers work and the items and categories that are eligible for pre-payment fall within the "Big Head" of all items stocked in the store, pre-payment just might become more commonplace.

Do pre-payment deal programs make sense for grocers? How do you see them working with existing couponing and loyalty efforts? Are mobile capabilities increasing the appeal of such programs for shoppers?

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16 Comments on "Will Consumers Pre-Pay for Groceries?"


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Joan Treistman
Guest
9 years 4 months ago

I see a sliver of potential here for grocers and shoppers. There are services that allow you to order what you want before you leave the office and the products are available for pickup when you get off the train.

Pre-payment is tangential to this concept. If the process is simple for grocers and shoppers the possibility of success is there. Once shoppers are able to compare their recent grocery bills and see a savings overall, they’ll continue the practice. But if monthly grocery bills don’t reflect an advantage, the service will be discontinued…at least by consumers.

Steve Montgomery
Guest
9 years 4 months ago

Prepayment might work if the deal is good enough. In looking at Aisle50’s website, many of the deals were based on buying a bundle of two or more items from a manufacturer and getting a 25% discount. I don’t see that as a compelling reason for a consumer to go through the process and prepay. The one really great offer was a free 2 liter bottle of Coke products, which seemed to be on each of the retailers’ deal list.

Unless the offers grow in number and in the amount of the discount, I don’t see this being anything more than an interesting concept. One of the other limiting factors is retailers like Jewel in Chicago are dropping their loyalty cards. Could a mobile app help? Sure. I can see a consumer who is familiar with the concept getting ready to head into their store and checking to see if any of the items they’d pre-pay to buy is listed.

Dan Raftery
Guest
9 years 4 months ago

Sorry Mark, I must be missing something here. I don’t see why a retailer would want to give up margin in advance of a sale in these days of low interest rates. Plus, I don’t see where a retailer is going to hedge a supplier promotion which may never happen. It certainly makes sense for consumers, especially those who budget their expenses, but I just don’t get it for retailers.

Max Goldberg
Guest
9 years 4 months ago

Are the savings going to be significant on frequently used items? Will loading the offers onto the loyalty card and pre-paying for them be a one click process? Will customer service to handle questions and complaints be readily available? If the answer to all of these questions is yes, this program has a chance to succeed. If not, the program will have a hard time gaining traction with consumers.

Gene Hoffman
Guest
Gene Hoffman
9 years 4 months ago

Grocery retailing, constantly altering as it must, has entered another modern gimmick land.

If grocers can get advanced sales via pre-payment deals and keep those sales from going to a competitor, that’s good – if it really would meet that objective.

But pre-payment deal programs, existing couponing, loyalty efforts, and newly-created “selling slickies” aren’t good tradeoffs for well-constructed customer-oriented programs such as Trader Joe’s and Whole Foods.

If grocers plan to rely on their growth coming from pre-payment schemes, that’s seems foolish.

Ben Ball
Guest
9 years 4 months ago

I see a sliver of potential here…

My major takeaway from this discussion is that Joan is more optimistic than I am.

Expecting consumers to prepay for deals that they are used to getting in the store is asking for alienation for the retailer.

Expecting manufacturers to contribute any more budget to funding consumer discounts (in total) than they already do is consumer naivete.

I don’t see it.

George Anderson
Guest
9 years 4 months ago

Amazon has done pretty well with its Subscribe & Save program by all accounts. I know that we make use of it on items that offer greater savings than we typically find locally in stores. This program seems to fill a roughly similar value proposition. The ultimate business opportunity here lies in the consumer savings and the marketing of the offers to those people most likely to buy.

Bill Davis
Guest
9 years 4 months ago

Sorry, but not seeing enough of a win for the customer to want to pre-pay for certain items. I could be off base with this, but it seems like the amount of work involved outweighs the benefits.

David Livingston
Guest
9 years 4 months ago

I was lost at “The customer then receives that item by shopping with their frequent shopper card at a participating retailer.” The better and most successful grocers don’t use loyalty cards. The country’s highest volume grocers and lowest priced grocers don’t normally use them. My gut feel is a person could go to Aldi and pay less than the brand name item pre-purchased.

People serious about getting good deals and saving money usually don’t shop at stores that have loyalty cards unless they are extreme double couponers. So it looks like the only grocers who have signed on are the premium priced grocers like Raley’s, Lowes Foods, D’Agostino and Shop ‘n Save.

Ralph Jacobson
Guest
9 years 4 months ago

I think a good percentage of shoppers may find this appealing. However, I see a much stronger trend toward direct-to-consumer shopping via the CPG brand sites. There are some great success stories already and this is a very compelling way to shop for both staple items and less frequent purchases.

Craig Sundstrom
Guest
9 years 4 months ago

I’ll have to join the naysayers. It sounds overly complicated for uncertain savings – although obviously the amount of the savings is important; and that was my thought before looking at the A50 website, which emphasizes cutesy at the expense of providing useful info.

Mark Burr
Guest
9 years 4 months ago

Aside from gasoline, food is what consumers are the most price conscious of among the consumables that they deal with daily.

The expendable dollars in the consumer’s wallet become less and less based on increases in both of these areas, as well as health care and taxes, and they will be holding those dollars even closer. To think that they will expend their dollars in advance with presumption of savings is likely wishful thinking.

Consumers already look for the lowest price possible on their most regularly used items and maintain flexibility as to where they purchase them. As they have fewer dollars to spend each day, it is highly unlikely they will risk less savings by getting out in front of their basic needs.

Asking them to do more for the same or the risk of lesser savings will likely drive them elsewhere.

Ed Rosenbaum
Guest
9 years 4 months ago

I checked with the only authority in my house. Her answer was no. She does not want to prepay for an item because there could be a better deal waiting at the store when she gets there. I watched the video. It was too cutesy with too little info on the subject.

Ed Dunn
Guest
9 years 4 months ago

I prefer to avoid grocery for retail gimmicks as grocery shopping feeds into the primal hunter-gatherer instinct of humans.

In addition, this is clearly cannibalization and not taking in consideration short term fluctations in pricing of the top grocery items.

Alexander Rink
Guest
9 years 4 months ago

When I first read the article, I did not get why a consumer or retailer would do this; I then read the comments, and it seems that I was not the only one. The first thought that occurred to me was whether a grocer, who traditionally has low margins, could offer enough of a deal to incent behaviour with shoppers. And for shoppers, there is a bit of an adverse selection issue: the shoppers most likely to care about the savings are likely the ones least willing to part with their money any earlier than they need to.

Chris Steiner
Guest
Chris Steiner
9 years 4 months ago
I’m one of the cofounders at Aisle50. We’ve learned a lot in the last 2.5 years, but there are two major tenets that have become clear: 1. Consumers *are* willing to pay upfront for savings, especially when the experience is expedient and well-designed. 2. When consumers pay in advance, they change their shopping behavior: They head to the store sooner, more often and they spend more than they would otherwise. In terms of shopping behavior: 1. More than 50% of Aisle50 offer redemptions occur at the retailer within 48 hours of the Web/Mobile purchase through Aisle50. 2. When consumers head to the store with an Aisle50 offer in their back pocket, they spend 31% more on their basket than the same consumers do without an Aisle50 offer to redeem. 3. More than 20% of Aisle50 redemptions occur on store trips that were triggered directly by the Aisle50 purchase. These trips to the store would not have happened otherwise, according to a survey of more than 1,000 redeeming customers. To be clear on how our offers… Read more »
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