Navigating the Storm: Grocery Retail KPIs 2021 Guide for Grocery Executives

Exploring lessons in how Grocery Executives are measuring success with KPIs and measured contribution to achieving their revenue goals.

The huge upswing in demand for online groceries in 2020 left many retailers who hadn’t yet invested in eCommerce scrambling to find solutions, fortify operational processes and protect their workers and customers – all at the same time. The mass merchandisers and larger grocery retail chains that had already defined a digital commerce strategy and invested in services like curbside pickup were well positioned to deal with the exponential order volumes. Regional grocers and smaller brick-and-mortar chains with nascent online strategies and limited ordering and fulfillment services were left scrambling at the outset and for many months.

As regional grocers seek to protect market share, building and retaining their online shopper base, they need to formulate a grocery eCommerce strategy that will empower them to achieve that goal. At Mercatus, we’ve seen our grocery retail clients continue to grow their revenue year over year through continuous investment into expanding their eCommerce. Retaining end-to-end control over the shopper experience, immediate access to shopper data and insights, relationships and brand experience enables them to easily track and measure their eCommerce programs, optimizing for success and identifying opportunities for improvement.

What follows is geared to helping grocery executives evaluate their current state and decide their next course of action. Measuring success along the digital journey requires a rethink. Knowing that what gets measured also gets managed, are there lessons we can derive from the software world that can help guide regional grocers? While some fundamentals are similar between grocery and software, others are wildly different. Whatever the system, how is success measured?

Retail KPIs for Grocery Executives

There are some metrics exclusive to the brick & mortar grocer because they apply only to physical space such as sales per square foot. Measuring the efficiency of sales space and assets, the average for grocery hovers around $500 but this varies considerably depending on store format. There are, however, a number of metrics that offer real operational value for digital grocers.

Which measurements are of mutual interest to regional grocery in-store and online? Against a long list of traditional grocery business KPIs, several prominent ones are interesting and are worth a comment.

Basket Size. Grocers focus on this metric, especially cross-category. A favorite grocer line is “If I could sell just one more item to each customer in a category/department they usually ignore, my numbers would go through the roof.” Online sales offer both an opportunity to increase share of basket and an ever-present threat as competitors take their share at your expense.

Customer Acquisition Costs (CAC). This is essentially the marketing and promotions budget versus the operating budget. Doing online right is not a cheap investment. Grocers need to invest in above- and below-the-line promotion as well as digital content development.

Customer Lifetime Value (CLTV or LTV). For venture capitalists, the favorite metric in any pitch deck is the CLTV/CAC ratio. Ideally, a customer ought to generate at least 3 times what it cost to acquire them, with the initial payback being under 1 year. Read this blog to learn more about how you can measure and track CLTV for your business.

Cart Abandonment Rate. This is generally a bigger concern in digital but happens in-store as well, as shoppers walk through specialty departments but choose to buy elsewhere.

Inventory Levels. Stock Turns. Sell through Percentages. These are generally the same if eCommerce sales come from local stores, and not central distribution. Although theoretically the notion of “one in/one out” shelf space allotment doesn’t apply to digital selling, the reality for most regional grocers is that the item bought online comes directly from the same local store so the KPI challenge remains the same.

Frequency of Shop. This is an interesting one because, not unexpectedly, the availability of click-and-collect and home delivery options change shopper behavior. Old models of measurement need to be readjusted to account for new combinations of frequency, basket sizes and category mix as shoppers venture both online and in-store.

Shrink.Theft, damage and spoilage occur in warehouses as well as stores. And with the massive influx of third party delivery providers fulfilling orders, the question of “who owns it” becomes more difficult to answer.

Display Execution.This one is interesting to consider for eCommerce. Most online visuals are pictures within pictures – pictures of packages that more often than not have pictures of the product on their label. In the not-too-distant future, CPGs will realize it makes more sense for visuals online to be of the actual prepared product.

Grocery Fulfillment KPIs

Since the pandemic began, we’ve seen a growing focus on KPIs related to online grocery fulfillment.

Average time it takes to fulfill an individual order. This runs across the entire fulfillment process, from processing the online order and payment, to picking and packing the order, to the amount of time that all personnel spend interacting with the customer.

Substitution rate. This has become a hot topic since the pandemic, when retailers across the country were faced with stock issues due to a combination of panic buying and shipment delays. Many grocery retailers, especially at the beginning of the pandemic, were challenged with maintaining accurate stock count on their eCommerce sites, resulting in an influx of substitutions or orders that were missing products.

Average wait time at pickup. The length of time that a shopper waits for their order at curbside is a key factor in their satisfaction with that service. Monitoring and improving this KPI will empower grocers to build a strong relationship with their new and returning online shoppers.

Of course, there are also numerous traditional financial measures surrounding sales and profitability, the Cost of Goods Sold (COGS), etc.

Recasting Traditional KPIs for eCommerce

There are also KPIs that look similar but should be reconsidered in an eCommerce environment. Take foot traffic as an example. Eyeball tracking online isn’t exactly the same. Lamenting that customers visit online but don’t always make purchases (so-called shopping basket abandonment) misses an important point: shoppers routinely go online to do their research, much of which later lands them in-store. Linking their activity to later in-store purchases is a difficult exercise. KPI tracking of eCommerce-only sales as if it represented a stand-alone store misses the mark, as it misrepresents this primary shopping behavior.

For eCommerce, the metrics that typically get mentioned come from conventional digital marketing practices. The list is lengthy.

Common eCommerce Grocery KPI Metrics:

  • Daily/monthly active users
  • Time on site
  • Bounce rate
  • Pageviews per visit
  • Average session duration
  • Traffic source
  • Page load time/latency
  • New visitors
  • App downloads
  • Day part monitoring
  • Newsletter subscribers
  • Texting subscribers
  • Subscriber growth rate
  • Email open rate
  • Email click-through rate (CTR)
  • Email list growth
  • Unsubscribes
  • Chat sessions initiated
  • Self-service/bot service ratio
  • Social media followers/comments/shares/likes
  • Clicks
  • Average CTR
  • Average SEO position
  • Pay-per-click (PPC) traffic volume
  • Blog Traffic
  • Number and quality of product reviews
  • Banner or display advertising CTRs
  • Affiliate performance rates

It’s difficult to find KPIs in this list that will resonate with a grocery executive. Of course, mobile site traffic and new (vs. returning) customers spark some interest, but only in tandem with “how many shoppers” and “how much did they spend?”

The problem with marketing KPIs in general, and digital marketing metrics for grocers in particular, is they are in constant danger of becoming surface level “vanity metrics.” They impress the audiences they were built for, like social media followers and fans but fail to impress business owners. In many instances, these KPIs don’t just miss the mark, they mask ills that can go undiagnosed and untreated.

Grocery Executives – Thinking like a software company

Complaints from shoppers in the store are difficult to ignore. Angry or upset customers typically are “in your face” and there’s a tendency to inflate customer problems into bigger issues. With online assets, it’s the opposite. It’s easy for customers to “walk out” on the relationship with the grocer and equally easy for those responsible to keep this reality hidden even as customer relationships are poisoned with click-bait, spamming, poor UI design and lack of integration across channels. Few take the time to properly measure downside metrics.

Poor uptake on an email push campaign should prompt inspection as to why and what, if any, damage occurred. Unfortunately, that kind of discussion, never mind inspection, is rare. Instead, the reflex of many marketers is to double down, sending out more poorly designed campaigns hoping for a positive number to showcase. Spamming and click-baiting are not the fault of basement hackers; arguably they are the well-intentioned and ill-informed vanities of digital marketers.

By contrast, clarity metrics are operational metrics that represent “the hidden gears that drive growth… [and] solidify your competitive advantage.” They focus businesses of all kinds, regional grocery included, on finding new customers to acquire and retaining their current customers as new offers come to market. Online, in particular, provides a gear to achieve that one essential, needed cross-category sale every grocer looks for. Why not have a Category Development Index that measures cross-category basket sales and determines if it’s shrinking or growing, including online’s contribution to this metric?

The answer to the metrics conundrum may be for the regional grocer to think like a software company while solving for a grocery business. The ideal reality for a grocer to pursue is for customers to be online and drawn into the store while away, and when in-store, interacting online in pursuit of an ideal personalized experience. In light of this goal, new metrics need to be in place. Consider, for example, Unique Household Interactions, a measure that embraces the buying power of a consumer household in an omnichannel world.

Since the pandemic, many grocers have invested in either building or enhancing their eCommerce offerings, venturing into high-demand and higher margin spaces such as prepared meals, private label products and locally grown produce. But simply offering these products online isn’t enough. A Prepared Meals Penetration metric is necessary to track the revenue of this program, and identify opportunities for further growth, such as digital partnerships with CPGs, for example.

The power of these metrics is that they change the conversation from the outset. Many digital solutions want to grab share by tackling the easiest part of the opportunity without focusing on what drives value for the grocer. In the long run, the hard parts like prepared meals are where the win-wins can be created. Getting new, complex things done is familiar ground for large successful software companies. Interestingly, many have turned away from traditional KPIs and instead have turned to OKRs.

OKRs: Objectives and Key Results

OKRs are goal-oriented systems used by software companies. Google started using OKRs in its first year back in 1999, and still uses it today. We use OKRs at Mercatus as well. Like a KPI, they are a metric-based tool that creates alignment and engagement around measurable goals. Unlike a KPI and traditional annual planning methods, OKRs are frequently set (usually quarterly), tracked, and then re-evaluated. The short-term goal-oriented measures of OKRs help create a much faster cadence, and they do so from the ground floor up, engaging each team’s perspective and creativity.

Consider what software companies do and apply it to the grocery industry. Specifically, think about what Google really is. It claims to be a search engine, but its primary goal is to provide a “direct response advertising engine optimized to put the right ad in front of the right person at the right time.” Now think about what your grocery eCommerce site is.

To the public, grocery eCommerce is an online storefront with a search engine and purchase capabilities. Like Google though, its real value lies in being an advertising engine optimized to put the right products in front of the right shopper at the right time. It should be the number one reason that your shopper never feels compelled to look further. Grocers can know what each of their customers likes to buy, how often they like to buy, and what’s on their shopping list. Grocery eCommerce is the opportunity to build a personalized shopping experience that tailors to every individual shopper’s needs.

Understanding that objective, every department in a grocery business should be tasked with imagining how they contribute to new creative ways to bring highly personalized convenience to customers.  OKRs can help in focusing everyone, not just the marketing department, around how best to engage digital shoppers so they become repeat customers and purchase across a broader mix of categories. And when new big programs are implemented, like contactless curbside pickup, and delivery of hot and fresh ready-to-go meals, everyone can rally around their measured contribution to achieving these goals.

With the right measures in place, regional grocery executives can navigate the strong winds of change that carry with them enormous opportunities for future margin growth and profitability. Findings from our report, conducted in collaboration with Incisiv, project that online grocery will account for 21.5% of total grocery sales by 2025 – an estimated $250 billion – which is a more than 60% increase over pre-pandemic estimates. Grocers who invested in improving and expanding their eCommerce to meet shopper needs enjoyed the greatest revenue gains year over year out of all retailers assessed. When you invest in optimizing your own eCommerce experience, balanced with your cross-channel strategy, you will not only protect market share, but foster future growth for your business.

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Headshot of Mark Fairhurst

Mark develops the overall marketing strategy for Mercatus and leads the team responsible for market insights, branding, product marketing and demand generation.