The low-margin grocery sector has become a high-stakes battleground with a variety of new and existing players competing for share.
Headlines like the entry of European giant Lidl into the US market, and Amazon's purchase of Whole Foods Market, underscore the shifting dynamic of the sector, but the pace of change is evident in other ways, too. The latest sign: spending on paid search has exploded.
In the 12 months through May 2017, 1,741 advertisers spent $4.5 million sponsoring any of 124 non-branded grocery keywords such as “grocery delivery service,” “online grocery shopping,” “grocery store” and “supermarket” on desktop search on Google, according to AdGooroo, a paid search data provider to ad agencies and advertisers. That’s a surge of 245% from a year earlier, signaling sharply increased interest in winning over online grocery shoppers.
“This is unusual,” said AdGooroo President Eric Marcy in an interview. Looking across all sectors, he said, paid ad search on Google usually only sees “steady double-digit growth year over year” and in the “low-teens” percentage increase globally. With increased online grocery orders, delivery and click-and-collect services, “the grocery economy is shifting. You are going to see continued increase in grocery with paid search.”
Even before Amazon shocked the grocery industry with its agreement to acquire Whole Foods for $13.7 billion, it was already amping up its paid search spending in the grocery category, nearly doubling its grocery related Google paid ad search to $133,000 in the year through May, the AdGooroo data showed. That made Amazon the eighth-largest spender on the list.
Grocery and fresh goods are increasingly an area where retailers like Walmart are cutting prices or making “price investments” to drive traffic to stores. With the growth of online grocery orders, retailers also hope to use their physical stores as a competitive edge for time-crunched customers to collect their web orders either curbside or in stores. In fact, Whole Foods’s more than 460-store footprint is widely considered to be a key reason behind Amazon’s purchase: The stores could become a distribution network, giving customers a place to pick up their orders or helping Amazon deliver fresh groceries, cutting last-mile delivery costs.
Walmart, which counts on the grocery category for more than half of its Walmart US sales, is staking its leadership claim on the ad front. Walmart.com increased its Google desktop text paid ad spending on the keyword group more than 10x to $858,000, making it the top spender, up from just $51,000 in the year-earlier period, the AdGooroo study showed. German discount grocer Aldi, which recently announced plans to expand its US footprint to 2,500 stores by 2022 from 1,600, became the second-largest spender, also increasing its Google paid search ad on desktop more than 10x to total $441,000 in the year through May.