Driving Profit Margins for an Online Grocery Store Through Demand Forecasting

Jul 11, 2018

Overview of the Retail Industry

The increasingly digital lifestyle of consumers today has transformed the way people shop – clothing to shoes to almost everything. The grocery segment is not far behind and is slowly adopting strategies to be part of the ongoing digital revolution.

Owing to the rapid transformations in the retail industry, both big and small retail chains have started venturing into the new ‘online grocery’ segment. Online grocery shopping is catching up with consumers rapidly. Recent retail industry reports also state that about one-fourth of online shoppers shop groceries on the internet while the remaining 55% are most likely to opt for it in the near future.

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Also, it has been estimated that online grocers across the world are growing at a 3x rate year-over-year in order to cater to the growing customer base. Though such stats look promising for new market entrants, online grocery stores face several challenges owing to the perishable nature of food products. This very fact makes running an online grocery store more challenging than any other segment within the retail industry such as – electronics, home décor, apparel, and other such goods.

Although leading online grocery stores have taken several initiatives to drive customer centricity, they still have a long way to go. This makes it essential for them to understand the need to augment the use of the right technology and analytics-based solutions, such as those offered by the experts at Quantzig.

Retail Industry Challenges – Online Grocery Segment

  • Inventory Management and Delivery Costs: Online grocery stores deal with different types of food products and it includes those that have a limited shelf-life. Therefore, to effectively handle perishable items specialized delivery containers, warehouses, and delivery vans must be deployed to ensure the perishable food products are delivered fresh. Players in the online grocery segment face major challenges in deploying such vehicles as it requires a lot of initial investment.

  • Low-Profit Margins: Though a huge chunk of the global population prefers shopping online, they tend to be reluctant when asked to pay for faster delivery and quality assurance. Overcoming such challenges by catering to customer needs turns out to be a major challenge for online grocers.

About the Client

An online grocery major offering a wide range of grocery products.

Client’s Challenge

The online grocery client was looking at devising effective strategies to deal with the risk of food wastage, which had resulted in markdowns and margin loss due to incorrect demand forecasting. To drive profit margins through accurate demand forecasting, the client – a leading online grocery store – approached Quantzig. The client wanted to leverage Quantzig’s vast experience in retail analytics to their benefit and devise effective demand forecasting strategies to increase sales and lower markdowns.

Benefits of Our Demand Forecasting Solution

Online grocery

Business Impact

Quantzig’s demand forecasting solution enabled the online grocery client to develop a hybrid demand forecasting model to precisely predict online demand which helped them drive profit margins by reducing markdowns. The model also enabled the client to increase the transparency of sales and marketing spend

Also, the solutions offered by the analytics experts at Quantzig assisted the online grocery client to increase conversion rates, enhance customer knowledge, collaborate more effectively with sales teams, and envision the closed-loop marketing outcome.

Demand Forecasting Solution Insights

Strategies that we recommended based on our analysis to help our clients become more customer-centric through tailored services.

As the omnichannel retail strategy takes off, the only big issue for retailers is to try and get a handle on targeted online demand. Also, since online retailers come across situations where the demand may be generated from a different location than the fulfillment location. They need to figure this out by implementing various techniques to supplement in-store forecasts with online demand forecasts.

Speak with our analytics experts to know more about our demand forecasting solutions and how you can leverage them for your business.

Moreover, in today’s retail scenario, demand forecasting may seem to be a capability that most online grocery stores need, but a very few extend this capability to the extent where harnessing consumer demand turns out to be a competitive advantage in managing the business profitably. However, for any demand forecasting model to succeed, online retailers need to focus more on merchandising analytics, which is the core aspect of demand forecasting solutions.

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