Grocery giants Coles & Woolworths are making a second bid to foster a profitable online / home delivery grocery market. Coles has doubled its online range to more than 17,000 product lines, in response Woolworths CIO Dan Beecham is talking up the value the internet presented. It's great that they are proactive, but experts warn that the retailers will struggle to win over shoppers, pointing to purchasing habits, pricing and logistics as barriers to success.So the question is, if there is no demand right now, why are they doing it?
Why demand is slow
Steve Ogden-Barnes, program director at the Australian Centre for Retail Studies said shopping habits had swung from one weekly shopping trip towards to a more 'convenience store' approach, making several trips per week. This change in habit make it harder for consumers to plan a weeks food, instead they buy more on impulse.
Personal select of fruit, vegetables and cuts of meat was also a big factor, customers are not willing to trust a big company to value quality over profits. Therefore, limiting the potential use of internet shopping to canned and packaged foods.
Making it Expensive
Many companies that go online benefit from centralized distribution and increased delivery efficiencies. Supermarkets do not share this luxury, due to the nature of perishables. In this instance, many food vendors find store based deliveries more manageable.
The rising cost of petrol is another distribution nightmare adding costs to the equation. Coles have signaled their intention to run everything from a central distribution point, meaning that they will have large overheads, making the exercise an expensive one in the short term
The Strategy - Why Go Online?
In the short to medium term, setting up the online distribution center is going to cost a fortune. On top of this, there is no guarantee that customers will move to the online medium for their weekly shop. So why are Australia's giant food providers moving into the online space?
The simple answer is that it is more cost effective to set it up and run it at a loss than for a competitor to get the first movers advantage and steal a huge about of market share. With Aldi, Ritchies,IGA and Foodworks already making a dent into the respective market shares. This is a formally a preventative tactic, although I don't discount the idea that it can be profitable in the future.
The other side of the arguement questions whether consumers have enough 'convenience cash' to purchase the service. The amounts Coles and Woolworths charge for delivery vary according to date, time and location. The Woolies charge is capped at $17.50 and Coles says its charge averages $12.50
Josh Strawczynski's Opinion
Moving online is a great move, it guards against competitors gaining first mover advantage and puts them in the driver seat as consumer tastes for the internet improve. It is worth the move given British figures from Verdict Research shows that within five years groceries will overtake electrical goods as the top sector in online retailing.
Sam Berringer's Opinion
We are talking about a massive risk, I hope that they have available cash flow, because they are going to need it! think about the enormous set up and running costs until they turn a profit. Yikes! Overall however, I would be doing the same thing, maybe in collaboration.
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