There is an active military presence in the metro-Denver area of Colorado, which includes relatively frequent fly-overs by F15′s and F16′s. Most of the time, they are not moving that fast and you hear the sound before they pass overhead. Sometimes, they are moving really fast, and once-in-a-while, they are flying very low and moving awfully fast. When that happens, these planes are pretty much past you before the sound hits. If you’re an enemy combatant and they were seeking you out, you’d be dead before you hear or see them.

That’s kinda the way I am starting to look at online grocery. If you’re a startup in this space, there’s a massive wave coming and you might already be dead and not even know it. I keep track of this space for a few reasons: (1) I’m a food guy, having built a company in this space; (2) I pay really close attention to what I eat because of sensitivities I seem to have developed, so I am very particular about where I shop and what I buy; (3) I am slowly working on establishing my own small produce farm where I live and I am trying to figure out how I might profitably fit into the giant food ecosystem.

The massive wave is not just well-funded startups, but existing large grocery chains as well as established retailers who have migrated into grocery (think Wal Mart, Target, the drug chains and others). Companies are figuring out how to make delivery work, or a variation of delivery, like drop-off points where consumers pick up their product.

So, if I were in online grocery, what would I do? Well, I think I would approach this in terms of asking how to keep my customers captive in  buying from me and me only. When you think about it, it’s hard to think of customers as captive to you and only you because there is not much differentiation in the core product, which is food. Sure, there is a difference between organic and conventional produce, but there are plenty of retailers and sources to buy organic produce these days. But that is exactly the best way to think because unless you figure out how to keep customers for a relatively undifferentiated product, you’re might be toast against the next competitor who is has more resources to throw at you.

How to keep customers captive

There are 4 ways that I know of to keep customers captive:

1. You are a natural monopoly. Think utility company or even Facebook and Twitter;
2. You have proprietary technologyy, processes or patents to protect your position;
3. You partner with the industry leader to promote and distribute your products;
4. You are the lowest-cost provider.

Lets strike #4 from the list right now, because that is a slippery slope for startups and small companies. Even if I am the lowest cost provider, that won’t last for long because someone bigger than me will figure out how to be more efficient. And if I position myself as the low-cost leader and develop my brand around that, and can no longer defend that position, customers will leave.

Well, if my core product is undifferentiated, or maybe it is differentiated, but it’s a difference the customer does not care about or cannot see, where do I differentiate from next? Move to the next layer of my product/service offering, which in this case, would be the way the customer interacts with me to get the product. I can think of several:

1. Selection: I have the best selection of products available;
2. Quality: I have the best product quality available;
3. E-commerce platform: I make it super-easy, efficient, intuitive and platform agnostic (PC/Mac, phone, tablet) for the customer to choose what they want and manage their account;
4. Revenue model: I give my customer many options in terms of how they pay (annual subscription, monthly subscription, fee per delivery, etc. etc) so that they can find the option that works best for them;
5. Delivery: I offer same day, next day, weekly on a certain day, customer pick-up, etc. and let the customer choose what works best for them this week
6. Customer service:  it’s like Zappos…so darn good that it becomes a strategic element of the marketing.

These offerings around the core product might differentiate me for a while, until my competitor duplicates them, which is why they really don’t fit in to the 3 ways I listed above (remember I dismissed option #4 from our list), because they can be duplicated. Maybe in combination, they would give me some advantage, but they can be duplicated by competitors.

What’s a chore versus entertainment

I’ve read before that for product/services which are a chore versus entertainment…and in general, grocery shopping is a chore for most of us…the provider that offers the greatest convenience will win. I think this is probably true. So, maybe the best question for an online grocer to ask is, what can I do to make it more convenient for my customers? If it is convenience, then it might be all of the above – selection, while maintain quality, and ordering, pricing and delivery options. Keep driving the company to improve on the metric of convenience alone as a way to stay ahead of competitors.

Is there another layer in product/s services that I can differentiate from? But, how about the following:

1. Data. I start adding data around nutrition values for the products which my customers purchase that they can use in consultation with their medical and nutritional-care providers to analyze their diet. If the customer leaves, they can’t take advantage of the data. We know that the natural/organic grocers are beginning to add nutritionists on-site at their locations, so maybe this is a solid trend to capitalize on. Yea, I know, where do I get the data, you ask? I don’t know. I am just offering ideas in this post, not complete and well-thought out solutions.
2. Exceed customer expectations in unexpected and pleasing ways. I thank my customers with free product, or send them samples of new products from the category from which they purchase. Or, just send them extra product of what they ordered to thank them.

With the exception of my data idea, all of the above can be duplicated. The point of this post is really to ask, how do I keep my customer’s captive? Maybe in the end for an online grocer, it will be a combination of the above that is executed better than anyone else.

Disclosure: I have not received any compensation for writing this post. I have no material connection to brands, products or services that I have mentioned. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255.