summary

In this article, pepviz^TM discusses how to successfully blend online and offline efforts in order to create the most seamless omnichannel or "phygital" shopper experiences. We begin by exploring the current state of phygital and defining the opportunity. We next reveal three powerful data-driven strategies to take phygital to the next level, near term and well into the future. Finally, we bring each strategy to life by showcasing innovative, growth-driving PepsiCo solutions and partnerships. We're excited to share these insights with you and invite you to join us in writing the next chapter of the future of phygital.

the future of phygital is now

The term "phygital" is defined as the blending of digital experiences with physical ones, often in real-time.¹ Sometimes referred to as an omnichannel customer experience, a phygital experience is meant to close gaps in shopper journeys in order to reduce friction, frustration and churn.²

The term phygital began growing in popularity almost a decade ago, fueled by excitement around immersive digital technologies like VR, AR, and other "Web 3.0" technologies. At the time, visionary marketers asked, "What if many of the physical things shoppers love could be digitized and delivered inside a Metaverse of virtual worlds? What real world value could this generate for brands and retailers?"

Cut to today, and this conception of phygital as "the digitizing of the real" remains largely science fiction. In 2015, Digi-Capital predicted that AR/VR could hit $150 billion in global revenue by 2020.³ As of 2023, the market for these immersive technologies had barely reached half of that number.⁴

But this is not the end of the story. A far more practical and actionable vision of phygital not only persists today, it’s thriving. Phygital experience design becomes mission critical when viewed as the strategic use of digital systems and data to improve not only e-commerce but every shopping touch point, both online and in person. When done right, the borders between online and offline become hybridized, fluid, and increasingly integrated into a single, seamless experience.

So let’s consider this. Grocery will become the largest e-commerce category by 2026, projected to almost double from 11.7% to 19% of all sales.⁵ But the real news is that, after a COVID-caused surge of online only grocery shopping, shoppers today are increasingly shopping for groceries both online and in-store (see chart).⁶ This means integrating online grocery shopping with in-person has never been more important.

Ninety-five percent of online shoppers say they will continue to shop online for grocery items in the future, and heavy e-comm shoppers are making over 41 online trips per year, so this behavior is becoming much more habitual.⁷ Hispanic and Gen Z shopper cohorts are growing fastest in e-commerce but still preferring to browse stores and discover new products in person more than other groups.⁸

The convenience channel is also seeing a growing percentage of sales generated online. And, as in grocery, the phygital ‘aha’ for convenience is that online and in-store can no longer be separated, especially as younger and more diverse shoppers value e-convenience due to its immediacy and comfort. Sixty-five percent of e-convenience shoppers live in urban areas (201 index), so it is critical to deliver a seamless omnichannel experience with these key shopper cohorts.⁹

And when shoppers do go in-store, nearly half (47%) use their phone to check prices, compare products, and check up on everything from pairing recommendations to recipes.¹⁰ So what’s digital and what’s physical? Where does one end and the other begin? Exactly.

Today’s phygital doesn’t depend on future technologies or virtual realities. The future of phygital has arrived. The future is now. And the opportunity is enormous.

the omnichannel opportunity

The numbers are in: brands that invest in omnichannel strategies, which include phygital experiences, achieve 2.5 times higher growth rates than those that do not.¹¹

As food & beverage shoppers are shopping more channels overall¹², engaging more with online services, and increasingly expecting retailers to offer both, they're rewarding omnichannel retailers who seamlessly blend experiences. And the gains in awareness, brand consideration, sales and loyalty driven by successful phygital integration are significant (see below).

These new shopper preferences and behaviors are not just nice to haves. They represent new table stakes for retailers. Shoppers have themselves become largely 'hybrid' in their willingness and desire to transact and engage across the entire retail spectrum. As such, the transition to phygital represents a burning platform for all food & beverage retailers who must strategically evolve to deliver on these new phygital preferences.

Here's how.

making the promise
of phygital real

It all starts with shopper needs.

PepsiCo's proprietary Omnichannel Choice Drivers shopper tracking study¹⁶ reveals the real factors driving retailer choice today and the best ways to prioritize them in order to win with shoppers in the future. Top drivers of shopper choice include advanced conveniences, such as non-traditional checkout, omnichannel services, such as curbside pickup, advanced experiences, such as apps for improved in-store experiences, delivering value beyond price, and ensuring the right assortment.

Retailer attributes gaining importance and emphasizing the need for a phygital experience in the future include immediacy and speed, such as "30 minutes or less" delivery services, offering robust loyalty programs, providing unique flavors and products good for people and planet.

By looking at these omnichannel choice drivers, we arrive at three powerful phygital strategies for driving growth, both near and long term: autonomous convenience, precision loyalty and anticipatory assortment which we next define in more detail.¹⁷