The Ecommerce Initiative Retailers Can’t Afford to Postpone
Earlier this year, PwC surveyed nearly 700 executives across industries and corporate functions, and 60% of respondents stated that digital transformation is their most critical growth driver for 2022, with over one-third making sizable technology investments 1.
Many are looking for ways to improve their ecommerce and omnichannel experiences specifically. One way organizations are doing this is through strategic implementation of recurring purchase models, which is not at all surprising, given that subscription businesses achieve five times faster revenue growth than the S&P 500 2.
Within CPG retail specifically, many, if not all, of the largest players are experimenting with this concept of cultivating online purchase routines with their customers, in some shape or form. Whether it is via membership programs like Walmart+ and Kroger’s Boost, which offer unlimited shipping for an annual fee and other perks 3,4 or category-focused subscription models like Chewy’s Autoship and Amazon’s Subscribe & Save, retailers are setting a precedent that they can anticipate customer needs and deliver value and convenience, in exchange for loyalty.
Several notable retailers have begun taking the most meaningful step toward maximizing the power of an annuity model: deploying a full-basket auto-replenishment solution for customers. Albertsons Companies is one such trailblazer with the rollout of its auto-replenishment program in select Safeway markets last year.
Below are three reasons why auto-replenishment should be on every retailer’s digital roadmap now, for the back half of 2022 or early 2023.
It re-establishes control over the loyalty narrative, which has run amuck due to sustained supply chain turmoil and inflation. Auto-replenishment creates the opportunity to reward customers for their replenishment milestones and grow baskets. This could be through awarding points for consecutive repeat purchases or reserving products with inventory challenges for customers committed to purchasing them with you in perpetuity. It also creates an outlet for personalization by catering to existing customer habits. If a customer has her morning personal care routine on replenishment (think toothpaste, razors, skin care), you can serve up a replenishment offer that entices her to expand that regimen to regularly consumed breakfast foods and vitamin and supplement categories.
Annuity revenue streams enable a transition of focus from sale acquisition to sale retention and growth, in a highly competitive marketplace, where switching is high. A study last year from McKinsey suggests that about 70% of shoppers switch retailers or brands when an item they want is out of stock 5. Auto-replenishment increases visibility to future demand, allowing for increased precision in inventory planning, so that customers never have to think about switching again. The impact is transformative, with industry expert Scott Galloway suggesting that “markets value recurring revenue companies at a multiple of revenue 6-10x that of transactional companies” 6. Because cost to retain customers tends to be a fraction of what it takes to acquire them, this also creates space to pass on a modest product discount to the customer, which shoppers are seeking during these challenging times 7,8.
Auto-replenishment shoppers are higher value customers, and the cost of waiting to launch is substantial. Data from Replenium suggests that, when auto-replenishment is deployed for a retailer’s total assortment, this leads to increased customer value of 15% or more for the retailer, generating an incremental trip per quarter. A third-party assessment of Chewy’s Autoship program states that program participants spend nearly 2x what other customers do annually – including an incremental $350 on top of their scheduled orders 9. The opportunity cost of waiting mere months to deploy could cost a mid-sized retailer millions in sales over a multi-year period. Per the visual below, if Retailer 1 (Market Leader) launches today and Retailer 2 (Market Follower) launches 1 year from today, all else being equal, Replenium expects Retailer 2 to forego $60MM+ in replenishment sales over a 6-year time window, relative to Retailer 1. (See illustration below for volume and unit price assumptions.) This does not assume any leakage to competitors, who are offering auto-replenishment, nor does it account for the incremental gains in total customer value referenced previously.
Note: Illustration assumes each retailer has 100 stores and is serving 2,000 unique ecommerce customers per store. Each customer that signs up for the program averages 8 individual replenishments in their first 6 months and 12 individual replenishments subsequently. Each replenishment has an average price of $4.00 and a 30-day replenishment cadence.Each retailer experiences incremental net program adoption of 0.85% each month, among their ecommerce customers, and the program is fully ramped, in terms of adoption, at 50% of ecommerce customers.
As retailers and manufacturers reflect on their digital priorities and consider budget planning for the coming fiscal year, auto-replenishment represents a cost-efficient and highly effective way to grow ecommerce volume and increase engagement with loyal customers. Market leader Replenium enables retailers to be up and running with a full-service platform in only 90 days. Contact Replenium today for more information on bringing automated repeat shopping to your customers.
Kate Walker is Replenium's Director of Insights. With an extensive background in retail consulting and analytics, Kate delivers strategic ecommerce consultation, as well as data-backed market intelligence on auto-replenishment to the retail and CPG industries.