Grocers can be profitable online
Consumers around the world want to do more of their grocery shopping online, and this demand is fueling a market that is expected to grow to $100 billion by 2018.
And according to researcher Boston Consulting Group, there are four fundamental elements to build a successful online grocery business:
- Don’t wait. Seize the opportunity now to lock in core customers and drive share.
- Avoid the costly last mile. Start out with the click-and-collect model and add home delivery only once sufficient scale has been achieved.
- Target affordable differentiation. Invest in the drivers of online satisfaction. Focus on key proposition elements that will attract and retain customers while keeping a careful eye on the workability and economics.
- Evolve and adapt. Whatever model a grocer begins with will need to evolve over time as the market and customer base – and the company’s own capabilities – develop. Plan a journey with a realistic timetable and return targets.
“In both developed and nascent markets, the bricks-and-mortar players that dismiss the potential of online grocery sales risk being left behind,” says BCG partner Chris Biggs.
“There is now a clear roadmap that just about any grocer can follow. The early movers have the best opportunity to achieve profitability relatively quickly.”
The study shows that grocers’ most important customers – young families and affluent couples – are especially ready to take advantage of online grocery shopping. Moreover, when these customers move online, they are likely to spend far more across channels than they would have done by shopping in the traditional way – the uplift often ranges from 30 to 50 per cent.
Biggs points to the fact that any market in which two or three grocers engage in an online fight for customers sees a substantial rise in online penetration as the competing players invest in building and marketing their offers.
In large and competitive grocery markets, such as the US and Germany, the competition for share is intense and becoming more so, thus limiting the ability to grow by adding stores. Moreover, in most instances, an online grocery operation is a much lower-cost growth option, and it can help grocers address current drivers of dissatisfaction among customers, such as the lack of assistance with carrying packed bags and boxes to their cars.
Online grocery shopping has already reached a substantial size in several countries: five per cent of the total grocery market in the UK, for example, three per cent in France, and four per cent in South Korea.
The online share of grocery shopping is growing at rates of 20 to 50 per cent per year in leading markets and should double in many markets by 2016.
“The difference between the leaders and the countries in which online grocery shopping has yet to establish a significant presence has a lot more to do with the reticence of retailers than the desires of consumers,” Biggs says.