DIGITAL CONSUMER IN THE US

Euromonitor International
March 2018
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LIST OF CONTENTS AND TABLES

Digital Landscape ......................................................................................................................... 1
Digital Readiness ...................................................................................................................... 1
Home Connectivity.................................................................................................................... 1
Mobile Connectivity................................................................................................................... 1
Digital Remote Environment ......................................................................................................... 2
Market in Context...................................................................................................................... 2
Digital Commerce Drivers in 2017 ............................................................................................ 2
Industry Spotlight: Digital Streaming Services .......................................................................... 3
Case Study: Apex Supply Chain Technologies ........................................................................ 4
Chart 1 Apex Supply Chain Technologies website ................................................... 5
Digital Commerce Evolution ..................................................................................................... 5
Digital Proximity Environment....................................................................................................... 6
Market in Context...................................................................................................................... 6
Digital Commerce Drivers in 2017 ............................................................................................ 6
Industry Spotlight: Transport ..................................................................................................... 7
Case Study: Jacquard by Google ............................................................................................. 7
Chart 2 Jacquard ...................................................................................................... 8
Digital Commerce Evolution ..................................................................................................... 9

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DIGITAL CONSUMER IN THE US

This year’s report covers the American digital consumer including important statistics about
the digital readiness of American consumers. Additionally, the report will touch on what is driving
digital products and services in the country as well as how these products and services are
affecting a wide range of industries from consumer foodservice to consumer finance. Finally, the
report will feature new products and services in the digital space that could have significant
impact on the market in the future.

DIGITAL LANDSCAPE

Digital Readiness
According to the 2017 Digital Consumer Index, the US ranks fifth behind Australia, South
Korea, the UK and Denmark, in terms of digital readiness. The country’s level of digital
readiness has been supported by the increase in mobile payments. Smartphones are nearly
ubiquitous in the country and as consumers become more comfortable with the technology,
retailers have made sure to offer more frictionless consumer experiences. On the other hand,
the country has struggled behind the aforementioned nations in adopting digital wallets and
using proximity payments. Many Americans have digital wallets, which are integrated into newer
smartphone models, however, usage of the wallets has been limited, despite growing
acceptance of digital wallets by retailers at POS.
Unlike other countries, income is not a major obstacle to owning digitally-enabled products,
especially smartphones. Smartphones are seen by many as essential. They have replaced
home phone lines and for many have replaced even personal computers and laptops. Functions
of smartphones have also increased with many using them to watch or listen to digitally
streamed content. An increase in speed and a reduction of cost is likely to occur with plans to
launch 5G across the country already publically discussed. However, a reversal of net neutrality
rules in 2017 has some worried that costs may actually increase and speed and access be
limited.

Home Connectivity
In 2017, just over 78% of the US population was using the internet. By 2022, it is estimated
88% of the population, which will include a larger share of the millennial and Z generations, will
be using the internet. As far as the Digital Connectivity Index is concerned, the US ranks 12th.
Being the third largest country in the world in terms of geography, internet access is still limited
in some rural areas as well as impoverished areas, such as Native American reservations. All
countries ahead of the US, with the exception of Australia, are much smaller European and
Asian nations with highly dense populations. While Australia is the world’s sixth largest country,
its population is almost entirely located on the coasts making connectivity somewhat easier.

Mobile Connectivity
Approximately 20% of internet subscribers are subscribed to broadband internet. In spite of
relatively slow growth of broadband internet subscribers, many are moving their internet activity
from computers to smartphones. In fact, mobile internet subscriptions are expected to rise
nearly 13% over 2017-2022. This coincides with an increase of purchases made via
smartphones. Currently, almost 98% of the US population owns a mobile phone, with this
number expected to rise to 99% by 2022. Given the fact that mobile phones can provide internet
access to those in rural areas, the increase in mobile phone ownership should result in an

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increase in connectivity. Furthermore, in 2017 and through the forecast period, the numbers of
mobile phone subscriptions and mobile internet subscriptions are nearly identical meaning
having a mobile phone equals having mobile internet. In addition to increasing connectivity, it
suggests an increase of mobile internet activity, including purchases, in the near future.
In terms of mobile connectivity, the US ranks 11th behind many of the same countries it lags
behind in digital connectivity. The speed with which 5G is released in the country could affect its
future mobile connectivity ranking. In addition, as companies adopt their own new technology,
such as progressive web apps, the consumer experience will improve and remove obstacles to
further mobile commerce.

DIGITAL REMOTE ENVIRONMENT

Market in Context
For many, Black Friday 2017 was a watershed moment for mobile payments in the US as for
the first time ever they overtook other online payments. When combined with remote payments
from personal computers and laptops, remote payments as a whole have become a significant
driver of US retail. In addition to connectivity and a high percentage of possession of connected
devices, Americans are becoming more comfortable with setting up automatic payments and
making larger payments with their computers, while starting to experiment with using their
smartphones as payment devices. Furthermore, Americans are adopting the omnichannel
experiences retailers have been touting by researching products or services in-store or online
and purchasing via the other channel. Moreover, financial and other resource allocation to m-
commerce has improved the experience for consumers whether buying a pizza from Domino’s
or a purse from Amazon. Companies are working to create frictionless experiences in which
research and checkout are seamless and quick, while delivery is cheap and less cumbersome.

Digital Commerce Drivers in 2017

Device of today’s digital consumer

Whether a browser based or native app, retailers and restaurants alike have worked to create
user-friendly experiences for mobile users. With a growing number of people using their phones
as their main or only device to access the internet, these companies realised that the same
experience consumers were accustomed to receiving on their computers would be expected on
their phones. Furthermore, smartphones themselves have become larger making the viewing,
browsing and purchasing experience more pleasant reducing yet another obstacle, or friction.
No longer are consumers using a 2-device system by which they research via their phones and
purchase from their computers. Given that consumers have limited time, companies must be
able to bring products to consumers easily regardless of the channel, device or browsing
system. At the same time, consumers, especially digital natives, are resistant to worries over
online safety, despite well-publicised hacks and breaches of data. While purchasing online via
computers or mobile phones has become commonplace, there is still a tendency for consumers
to purchase lower-priced items on mobile phones and higher-priced items on computers. This
has significant importance for industries, such as travel where plane tickets and hotels likely
costs hundreds, if not thousands of dollars. On another note, tablets have become less relevant
in US online commerce as consumers ditch their tablets for smartphones with larger screens.

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Most digitally savvy categories today

In general, retailing remains the largest and most prominent category when it comes to digital
purchases. Retailing has a long history of both computer and mobile purchases and in the case
of computers, a history of purchases at a higher price. Many of these purchases take place on
the sites of retailers that people are familiar with. Furthermore, retail spans a wide spectrum
from apparel and footwear to consumer appliances and electronics. As part of the online and
mobile evolution, more and more retailers are offering complimentary services, such as delivery,
augmented and virtual reality, artificial intelligence and voice-enabled tools.
While retailing has a long history of using remote payments, consumer foodservice is also a
rapidly growing category for remote payments. Unlike in many markets in Europe or Asia, most
Americans have yet to adopt proximity payments by way of digital wallets. Even so, Americans
are still demanding their favourite food be delivered or taken out. This demand has resulted in
an increase of orders, especially mobile orders. Starbucks has been one of the earliest adopters
and most successful at mobile purchases via its app, which includes a scan and go feature.
While remote purchases are still more prevalent than proximity payments in consumer
foodservice, the latter are also growing, however, not by way of digital wallets. Instead of digital
wallets, consumers are making payments in-store via kiosks.

Impact on brand-consumer relationship

When it comes to bill payments, more and more consumers are feeling comfortable paying
their bills online. Even baby boomers who first became comfortable with their devices through
less innocuous social media and e-mail, are now shedding the fears of paying online. In addition
to this comfort, millennials and the digital native Generation Z are becoming a larger part of the
population, which should spur growth in online bill payments. Consumers are more likely to pay
credit card bills online since missing a payment incurs fees and interest. The offer of paperless
discounts can attract consumers as well.
Currently, Walmart has scan and go, while Kroger’s is testing it in some Ohio stores. Scan
and Go as well as other seamless checkout technologies should be expected to be rolled out
quickly to other retailers as the competition related to technology in retail heats up. Lowe’s
equips employees with devices to scan codes on products and checkout customers. At
Nordstrom, roving cashiers can help customers altogether avoid long lines. In January 2018,
Amazon went a step further by opening its Amazon Go store in Seattle. Amazon Go requires
customers to simply swipe their phones at the entrance and shop without wasting time with
checkout.

Industry Spotlight: Digital Streaming Services

Digital streaming, especially on-demand video streaming, has become ubiquitous in the US.
The industry is dominated by three players, Netflix, Hulu and Amazon Prime, however, there is
growing competition from cable providers, television networks, entertainment groups and
smaller, niche platforms. One area in which streaming services are attempting to differentiate
themselves and attract more subscribers is by creating original content. Creating original
content also helps diversify offerings and reduce risk. For example, Disney announced in 2017
that it would be removing its content from Netflix and be creating its own platform. Investment in
original content saw Netflix acquire Millarworld in August 2017.
Original content has also helped digital streaming services establish themselves as legitimate
forces with long-standing competitive advantages over traditional media consumption. Hulu
broke out in 2017 by winning several Emmy awards for its original series, The Handmaid’s Tale.
Traditional cable and satellite companies are losing subscribers as consumers “cut the cord”.
This is likely to increase as those subscribing to both digital streaming services and cable drop
the latter. Therefore, these companies have been looking at digital streaming services to retain

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consumers. In late 2017, Comcast launched Xfinity Instant TV. The product is intended to attract
cord cutters and “cord nevers”, though the service is limited to Comcast broadband subscribers.
While cable and satellite companies may be able to retain or add users, streaming services
typically cost less than cable and thus will cut into sales and profits.
Entertainment groups taking a stab at the digital streaming industry include YouTube Red.
This is a horizontal move for many of these companies. Apple, which is expected to overtake
Spotify, in terms of subscribers to music streaming platforms, is also investing in original content
for its television platform. The company has hired the likes of Steven Spielberg, Reese
Witherspoon and Jennifer Anniston. Another entertainment group, and non-traditional TV
provider, in the digital streaming industry, is Sony and its service, PlayStation Vue. PlayStation
Vue uses the PlayStation video games console. Prices for the service range from USD39.99 to
USD74.99 and include live streaming of local and premium channels, sports and movies.
At the same time that streaming services require large amounts of capital to build them,
maintain them and market them, there are several niche services. These include Fubo TV and
Pluto TV. Unlike other industries, in which consumers only buy one product or service from a
single provider, consumers often subscribe to more than one service at any one time. This
means that niche service providers are not looking to earn a slice of the pie, instead a slice of a
pie.
In addition to original content and pricing, service providers are attempting to attract
subscribers by offering a free month of service or as part of another service. Amazon Prime
members receive free access to Amazon Prime TV. Furthermore, four of the top platforms have
formed partnerships with three of the top telecommunication companies; T-Mobile and Netflix,
Sprint and Hulu, MetroPCS and Amazon Prime and AT&T and HBO Now.

Case Study: Apex Supply Chain Technologies

When one thinks about sports stadiums, they may think about the tradition of the teams that
are playing. Others may consider the tradition of the stadium itself, such as Fenway Park or
Wrigley Field in baseball. Unfortunately, many also conjure images of the “tradition” of long
concession queues and vendors that only take cash. The result: a waste of time, frustration and
a distraction from the experience fans pay and look forward to.
Apex Systems has created an innovative, yet familiar, system that is intended to resolve this
pain point for fans, while making the backend operations for the stadium more efficient and
profitable. Starting with the Cincinnati Reds baseball team, Apex released vending machine-like
structures as a substitute to traditional concession stands. The system consists of several open,
locker-style cubes. These cubes are filled by stadium staff with warm foods such as hot dogs,
hamburgers and nachos or cool beverages such as soft drinks and beer. The machines can
also be prepopulated with non-perishable foods from CPG brands.
At the same time that Apex Systems’ devices save time and money for vendors, it also saves
time for fans in the stands. Using their smartphones, fans can purchase the products of their
choice from the comfort of their seat without missing a minute of action. All purchases are done
digitally through the fan’s smartphone with no cash exchanged at any point. Once the order is
ready fans receive a push notification via their smartphone. The fan then goes to the machine,
enters a pin code or swipes a QR code and the cube opens.
The main appeal of Apex Systems’ sports stadium machines is the fact that fans will lose less
time on activities that take away from the experience. Furthermore, the system is convenient
with purchases made by phone and credit card and pick-up consists of no interaction directly
with concession staff. Finally, fans will be interacting with systems they are already familiar with:
smartphones, digital payments and vending machines.
Currently, Apex has deals with the Reds and the NFL’s Carolina Panthers. However, the
market has much potential with the US hosting sports leagues at various levels in football,

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baseball, basketball, hockey and soccer. Furthermore, the country has a rich tradition in
university sports. Apex also currently builds similar machines for Little Caesars for a similar
system to the pizza chain’s Hot N’ Ready pizzas.

Chart 1 Apex Supply Chain Technologies website

Source: Euromonitor International from www.apexsupplychain.com

Digital Commerce Evolution

Form factor of the future

Remote digital commerce will continue to grow, fuelled by a wider adoption of mobile ordering
functions across industries, but particularly in consumer foodservice. The fact that remote
payments are increasingly being done on mobile devices, there is no surprise these devices
have become necessities in the same way that televisions, fridges and cars are. Smartphones
are ubiquitous in the US, and internet subscriptions are normally signed at the same time the
devices are purchased. With the growth in mobile platforms, consumers will demand fewer
website, browser based services and retailers will invest in mobile platforms, especially in areas
to reduce friction for consumers. PCs will remain relevant as many consumers remain
uncomfortable making large purchases on mobile devices. However, tablets will become less
relevant as either of the other two devices have the same benefits, especially with larger
screened smartphones. PCs will also remain the device of choice for baby boomers who will
increasingly make purchases online.

Most promising categories

The most promising category in the near future in the US is consumer foodservice. In general,
consumer foodservice involves relatively low-cost purchases that are done on a semi-regular
basis. Even without making major changes, the simple fact that this category has such an
influence on consumers’ everyday lives means it will be a major player in digital payments. In
spite of this fact, consumer foodservice companies are quickly adopting digital payment
technologies. Furthermore, as consumers continue to demand delivery and take-away,
companies have the choice of slowing down and making cumbersome the process or building
partnerships with delivery platforms and accepting mobile payments. Finally, the growth of
digital payments in this category is not limited to fast food. In fact, several companies, such as a
TGI Fridays and Chili’s have found – along with other changes, such as simplified menus – that
the adoption of new technologies will not only result in an increase in sales, but will attract new
customers.

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Snapshot of the digital consumer in 2022

By 2022, most Americans will have smartphones, in addition to other devices, which will allow
for digital payments. Furthermore, more individuals and families will have access to the internet
including those who currently may only have access via a smartphone. Broadband will grow as
well, however, it is the rollout of 5G that will increase speeds and allow for better experiences
when it comes to digital payments, especially mobile payments. In addition to distribution of
devices and advances in technology, a larger portion of the population will include the millennial
and Z generations. Furthermore, more and more baby boomers will adopt the usage of
technologies as a way to keep in touch with relatives, make payments easier and more. While
millennials and Generation Z consumers will already be comfortable with technologies and view
them as necessities, more comfort among baby boomers could increase digital payments,
especially in areas such as bill payments. They may also look to cut costs and the cable cord,
making room for payments to digital streaming services. However, there are a few potentially
detrimental factors, including increased costs or reduced access as a result of rollbacks of net
neutrality rules. Additionally, the fear of hacks and data breaches could produce a pushback
against technology and digital payments.

DIGITAL PROXIMITY ENVIRONMENT

Market in Context
Proximity payments via digital wallets are nothing new to the American market. At the same
time, many Americans are aware that they have access to these wallets, which are built into the
more recent models of smartphones. Currently, consumers can use Apple Pay, Samsung Pay,
Android Pay and more. Walmart has its own digital wallet, while Target is looking to potentially
create its own. Overall, the adoption of proximity payments in the US lags behind most
European markets. Many factors have been blamed including lower adoption of wearables,
unawareness of wallets, lack of technological knowledge, lack of encouragement from retail
employees or simply a lack of demand.

Digital Commerce Drivers in 2017

Early winners in the POS battle

Despite a wide array of options – Apple Pay, Samsung Pay, etc – digital wallets continue to
struggle to obtain wide usage in the US. One of the reasons they are not struggling to obtain
wide usage is slow adoption by retailers. In fact, many major retailers accept digital wallets. For
example, Aldi started accepting Apple Pay, Android Pay and Google Wallet at all its US
locations in 2017. Another reason not to attribute to the lack of usage is difficulty in installing
wallets to smartphones. Most new smartphones are sold with digital wallets. However,
consumers are not using them as often as smartphone manufacturers and retailers would like or
as much as other countries such as the UK.
In addition to concerns about the overall industry, there exist several challenges for individual
digital wallets. As mentioned before, distribution is one of the major challenges. This challenge
is compounded as digital wallet brands do not have exclusive rights to particular retailers or
restaurants. It is important to note that usage of digital wallets does not necessarily equate to
proximity payments. Apple Pay and other digital wallets have both proximity and remote
functionality.

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Leading industries in the proximity environment

Regardless of the advantages, disadvantages or perceived value of proximity payments,
some industries are better positioned to take advantage of this technology than others.
Proximity payments are best suited when they can add convenience, such as for regular
payments of relatively low-cost good or services in which simply pulling out a credit or debit card
is less convenient. Transportation is perhaps the most obvious fit since it is used on an
everyday basis. It is particularly suited when a consumer has a wearable. In this case, the
convenience of not having to pull out a wallet or a phone creates value. The same can be said
for ticketed attractions and entertainment, especially those attractions or entertainment that
have multiple POS as well as other uses. One example is Disney where there are several parks,
numerous POS and other uses, such as opening hotel doors, etc. The next most appropriate
industry for proximity payments is consumer foodservice, which has a need for convenience and
speed and involves low-cost, regularly payments that can be integrated into loyalty
programmes.

Lagging industries in the proximity environment

Industries in which proximity payments are less conducive include digital streaming, bill
payments and retailing. As far as digital streaming is concerned, services are typically paid on a
monthly basis automatically. Consumers are only really aware of payments when setting up an
account or closing one. There is no POS terminal and no way of paying with proximity
payments. The same is true for bill payments whether automatic or not. In retailing, there are
options to use proximity payments and many major retailers have the option available. However,
in the case of retailing, it is the lack of consumer demand and usage that makes it less
conducive. Regardless of the industry, adding other functions to digital wallets and proximity
payment methods, such as linking reward and loyalty programmes, can increase usage.

Industry Spotlight: Transport

Transport is the industry with the most near-term upside when it comes to proximity
payments. Unlike digital streaming or bill payments, transport payments are often done in
physical proximity of the POS terminal. Furthermore, unlike in retailing where there is less of a
rush consumers may find more convenience in simply swiping a wearable or a smartphone they
are already utilising. Like consumer foodservice, downloading a transport system’s app and
using its automatic functions are easy and less cumbersome than adopting a wide range of
potential retailing apps. Moreover, users and staff will not need to handle cash.
Despite the option to allow for proximity payments, many apps and systems, such as EASY
Pay in Miami appear to be moving towards the system adopted by digital streaming and bill
payments than those in consumer foodservice or ticketed attractions and entertainment. This is
especially true of residents who can buy monthly passes. Purchases are made remotely via a
smartphone. At the POS, the smartphone or wearable is simply used to verify to transport
personnel that the individual has a pass for that month. While growth in urbanisation will lead to
more using transportation systems, many will likely purchase monthly passes making proximity
payments obsolete.

Case Study: Jacquard by Google

While wearables have been around for some time in the US, Google is the first to bring
wearable clothing to the market with mass-market appeal and implications. More specifically,
the company’s product is called Jacquard and involves a partnership with jeans maker, Levi’s.
Currently, Jacquard is only found in an exclusive Levi’s designed jean jacket, however, the
technology can be integrated into any type of apparel or footwear.

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In its current form, Jacquard is interwoven into the left cuff of the jeans jacket. The jacket was
designed with urban commuters in mind, especially cyclists. As such, the technology’s main
features include handling calls and texts without having to navigate on one’s phone, navigate
without distractions and with features such as a blinking light for signalling in traffic, and playing,
pausing and skipping music. The technology uses a smartphone, however, the device can be in
another pocket or bag. The features are activated by simple, less distracting gestures, such as
brushing or tapping the cuff.
Jacquard has wide potential implications, including proximity payments. One reason digital
wallets have not caught on as well in the US as they have in Europe, is that many consumers
just do not see the convenience of pulling out a phone over pulling out a credit or debit card. It is
more likely, however, that one will find convenience in simply swiping a cuff instead of pulling
out either a wallet or a smartphone. This would be particularly convenient for transit tickets,
coffees and other regular, low-priced items.
Another factor that may increase involvement is the fact that the jacket will be sold with the
technology as the main feature. One would assume that having the wallets automatically
integrated – as they are in most smartphones – would increase usage, but data suggest
otherwise. However, if the item is purchased with the knowledge that proximity payment
functionality is one of the main features, consumers are more likely to use this feature. This is
particularly true of millennials and Generation Z consumers who are more comfortable with
technology.
Jacquard, however, faces some of the same challenges faced by digital wallets. Just as with
any new technology, Jacquard is expensive, and out of the range for those with limited
disposable income. It will take time for the price tag to come down and be integrated in more
clothing types. Another obstacle will be the versatility of the technology. If it cannot be removed,
will consumers be obligated to use that piece of clothing, regardless of the weather or situation?
Additionally, with the exponential growth in mobile pay ahead in industries such as consumer
foodservice, which may be ideal for Jacquard, will the technology be relevant given that
purchases will be made via the phone?. Finally, there is the problem of cannibalisation. Will
consumers add digital wallets to Jacquard and use it for new purchases or will they simply shift
purchases from one delivery system to another?

Chart 2 Jacquard

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Source: Jacquard by Google. Photo by Euromonitor International from https://atap.google.com/jacquard/

Digital Commerce Evolution

Most promising use cases

Perhaps the most promising use of proximity payments is Walmart Pay. Walmart Pay does
not bring consumers a new technology, but is the adoption of already existing technology to a
massive audience. In addition to having access to perhaps the largest retail group in the
country, Walmart Pay bucks the assumption that proximity payments must be quick, low-value
transactions. Furthermore, shopping at Walmart may be done on a weekly basis where other
wallets that have had success, such as Starbucks, rely on nearly daily purchases. Since
customers still need to scan products themselves or have them scanned by a staff member,
payments are not rushed. This is interesting since one of the arguments made against proximity
payments as a whole is that they are not really any more convenient than credit or debit card
transactions.
Outside Walmart Pay, the most promising area in proximity payments is consumer
foodservice. Unlike transportation, which is often purchased monthly, consumer foodservice
purchases vary widely from one purchase to another. Even though they vary, costs remain
between a comfortable range of prices for most customers, especially as they purchase on the
go. Finally, the adoption of proximity payments makes sense in an environment in which mobile
ordering, pay ahead and integrated rewards programmes are becoming more and more
prominent.

Greatest impediment to future growth

There are several impediments to future growth of proximity payments in the US including
security, acceptance by vendors, and awareness. However, there are two major impediments;
one which affects some of the industries and another that affects all of them. The first

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impediment is the use of monthly, automatic payments. As mentioned before, this affects the
industries of digital streaming, bill payments and is increasingly affecting transportation. In these
cases consumers have no reason to use devices or use the device simply as proof of purchase,
instead of purchasing itself. The biggest impediment to proximity payments, which crosses
industries is the perception that digital wallets and proximity payments do not meet any great
need and are no more convenient than the more common financial cards. Financial cards are
likely already owned by consumers and easy to acquire. They require no phone or other device
and can simply be taken out and used. Furthermore, financial cards come with rewards and
perks that either do not come with digital wallets or consumers are unaware of them. Finally,
any convenience associated with proximity payments may quickly be replaced with mobile
ordering and pay ahead options, particularly in consumer foodservice.

Potential pace of adoption

Proximity payments are seeing some adoption, however, adoption is inconsistent across
industries and retailers. Moreover, while the payments utilise a common device, smartphones,
advances in payment and technologies, such as mobile ordering and pay ahead, could stunt
growth. Furthermore, traditional payment methods and consumer habits have stunted growth in
the same way the country has been slow to adopt financial cards with chips. Despite all the
challenges, proximity payments will see strong growth as more and more retailers accept and
promote the option and consumers use their devices on a more regular basis. Overall, the
proximity payment market will reach USD620 billion in 2022, from USD78 billion in 2017,
equating to a CAGR of 51%. Given that US consumers are much more likely to own a
smartphone than a wearable, it comes as no surprise that USD553 billion of the total value in
2022 will come from mobile proximity payments. Mobile proximity payments is expected to post
growth of 674% over the forecast period.

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