THE ON-LINE CONUNDRUM – How Much Should Be Invested, Where And When?

When the first fledgling on-line grocery companies started up, many considered them the future of grocery shopping. However, most of the early enterprises failed and since there have been few successful fully on-line grocery retailers. The recent announcement from Amazon that they would be getting into the on-line grocery game galvanized a large number of grocers into preparing for competition on this front and, in the process, changed the mindset in Canada’s traditional grocery industry.

How big is the online grocery industry in North America? Today it is only one per cent but that’s $6 billion — sales are expected to jump to $60 billion in the next few years. Although food has been the last box in the order when it comes to e-commerce, grocery still represents 32 per cent of all e-commerce sales. The response to buying food online varies from country to country. In Europe it ranges from 0.8 per cent to 4.4 per cent of sales (in the U.K.). In Canada, sales are less than one per cent.

Why have Canadians been slow to adopt on-line grocery shopping? According to a recent survey of 1,000 people conducted in the U.S. by PwC, although online retail shopping is on the rise, just 5 per cent of shoppers ranked online grocery shopping in their top three shopping options for the future. Half of shoppers surveyed said the inability to interact with the product is the main reason they don’t shop for groceries online. According to a recent FMI study undertaken by the Hartman Group, only 3% of shoppers reported using on-line shopping fairly often.

Perhaps the reason for this is that retailers are not providing the type of experience consumers are looking for. According to the 2015 Holiday Shopping Survey from Accenture, consumers in Canada are actually eager to embrace mobile commerce, but retailers aren’t providing them with the type of experience that meets their expectations. Among the leading reasons that shoppers are staying away from e-commerce are that they have security concerns (38 percent), they are frustrated with retailers that haven’t mobile optimized their sites (28 percent) and they simply find it too difficult to be able to locate the products they want on retailer sites and apps (18 percent).

But while traditional supermarkets remain the most frequented food retail location, we are in a period where consumers are beginning to take advantage of the multitude of specialized options available for food purchases. Many traditional retailers are now beginning to experiment with a “click-and-collect” service where the consumer orders on-line but collects their groceries at a physical location. Loblaw introduced the service in select Toronto locations a few months ago and in British Columbia, Save-On-Foods has established its own click-and-collect service at three locations in the Vancouver area, as well as delivery to “most suburban communities in the Vancouver area.”

As online sales grow, many retailers will be compelled to spend heavily on new digital capabilities, including website design and functionality, user-friendly interfaces, enhanced content, data collection and analytics, price modeling, and advanced customer communications. But if these investments occur while retailers simultaneously maintain the large fixed outlays to manage the traditional store network, the shift to what has been called “omnichannel” shopping may result in higher costs and falling net margins.

To avoid this outcome, retailers need to be unrelenting in identifying their strengths, weaknesses, and opportunities in their physical and online target markets to determine the capabilities that are critical to success in both and in the new retail landscape — and to pare back expenses in less valuable areas. For example, it’s critical for retailers to understand inventory flows through their disparate channels to avoid stranding inventory where it is not needed. Similarly, retailers must pinpoint the most important consumer needs to address: Should financial resources be directed at improving the in-store service desk or the website’s call center, or both?

What will be different going ahead is the transformation of store infrastructure, of which there are two components: near field communications tied into the POS system and loyalty programs where customer communications can occur in store through mobile devices based on an extensive customer profile compiled from past purchasing history: and mobile payments, which, according to a recent report by Deloitte providing its latest annual list of tech-industry predictions, have finally started to go main stream.

Among Canadian retailers, Loblaw and Walmart are the most advanced on the mobile front. Loblaw joined forces with TD Bank on a mobile wallet app, called Ugo, launched in 2014. Customers with Ugo can pay with their smartphones and earn PC Plus loyalty points at the same time. The app is free on Google Pay and iTunes, but users need an enhanced SIM card from their carrier. After downloading the wallet, users input their credit card details, either manually or by holding the card up to their phone with Ugo running. Walmart has just introduced its own mobile payment app while Google has released its Android Pay app and Apple’s Apple Pay service has been around since October 2014.

Soon, these two areas will begin to merge into a seamless on-line mobile experience where consumers will use their mobile devices to research ahead of shopping in-store and, importantly, while in store to add items to a basket and then pay.

Check Also

Lessons Learned From Empty Shelves

There’s a principle taught to engineering students: If you want to see how something works, …