In 2016, online grocery is worth £10.5bn, a service now operated by all the leading retailers in order to further expand their reach. By 2021, IGD forecast the online grocery channel to be worth £17.6bn, generating 9% of all grocery sales. We have previously explored the changes in shopper trends, with customers seeking convenience and value – online grocery operators are working tirelessly to develop the perfect shopping solution to meet the changing customer demands.
Retailers, such as Tesco, are starting to consolidate their websites onto a single platform to improve navigation and sustainability, expelling unnecessary costs and reinvesting their savings.
The Digital World
The rapid development of new technology has allowed and encouraged grocery retailers to provide a new channel for shoppers where everything is accessible while on the move. Much has changed since the first implementation of grocery e-commerce in 1997 by Webvan, an American company. The company expanded their services into new markets prior to proving its success in the first, leading to a rapid decline due to inexperience and lack of foundation. This swiftly led to the company filing for bankruptcy in 2001. In fact, in 1997, the internet was used by only 22.1% of adults in the US, whereas in 2014, the percentage had jumped to 87.4% – many argue that the market was far from the maturity required to warrant such a sharp expansion. Retailers across the globe now have a much bigger target audience than 20 years ago due to the affordability of computing devices and improved access to the internet.
Convenience – The Online Driver
Online grocery retailers continue to offer increasingly convenient services including home delivery, Click & Collect from store or designated locations (e.g. Tube stations). In an attempt to fend off competition from rivals, grocery retailers are investing heavily in their online offer by optimising their web customer journey. Retailers, such as Tesco, are starting to consolidate their websites onto a single platform to improve navigation and sustainability, expelling unnecessary costs and reinvesting their savings.
Due to growing demand and intensifying competition, retailers are seeking more profitable solutions to deliver the best possible service. Ocado operate a very different model than that of the conventional grocery retailer. Operating an online-only grocery store offering as many as 47,000 lines including private label goods having agreed a sourcing license with Waitrose, Ocado can essentially ‘cut out the middle man’ by providing delivery from a central fulfilment centre using automated systems alongside a team of targeted pickers. This particular model offers the framework to operate extremely efficiently with enhanced picking targets, lower risk of error and minimal distraction from task – an attractive proposition for retailers, especially new entrants to the online market, Morrisons.
This is a world away from what can be observed in UK supermarkets on a daily basis, though we are now seeing the growth of “dark stores”, especially in heavily populated areas, such as London. Sainsbury’s aim to open their first online service centre in autumn this year in the capital city, employing up to 900 staff by 2020 with capacity to deliver 25,000 orders per week. Sainsbury’s hope that this will reduce pressure on stores and also support their venture into a same-day delivery or collection offer which they are currently trialling in a small selection of stores. Morrisons on the other hand have chosen to use an Ocado platform offering end to end service management, agreeing a 25 year deal. This is an attractive offer for new players in the market as Amazon begins deliveries of fresh products across the UK in partnership with Morrisons who will make hundreds of products from their ambient, fresh and frozen ranges available to customers of Amazon Prime Now delivery service, Amazon Fresh and Amazon Pantry.
The UK is currently the second biggest market for online groceries
The Cost of Transformation
We have heard much about the cost savings with regards to labour and efficiency, but what about the impact on the traditional shopper who performs the task of in-store shopping? Retail has changed dramatically in the last 70 years. The transition from counter service to self-service in grocery stores was a slow burner in Britain – the nature of customer service was changing, causing a big divide in opinion. Retailers are now facing a much more rapid transition towards a growing population of home shoppers which demands industry wide change.
Within supermarkets operating the online delivery service, in-store shoppers may sometimes feel the aisles narrowing due to congestion of online grocery pickers and replenishment colleagues. Customers shopping in store have a long list of reasons for doing so; in their publication ‘The Future of Grocery (April 2015), Nielsen suggest that “E-commerce is set to grow, but brick-and-mortar will still dominate” the grocery retail industry. They suggest that only a physical store can help a customer fulfil immediate shopping needs without facing delivery costs. Nielsen also suggest that in-store atmosphere also offers a point of difference; the scent of freshly baked bread and patisseries as well as the opportunity to see and feel vibrant colours and textures of fresh produce. It is these unique factors which retailers must bear in mind when upscaling their online service and delivering from store.
Many stores are equipped to complete a large majority of their picking prior to store opening, however, this does not seem to be an industry wide target. A call to stores belonging to each of the leading retailers established that picking start times vary significantly. Sainsbury’s appear to be the most in-store customer friendly with regards to start time, having contracted all online shoppers to a 4am start Monday-Saturday, and 5am on a Sunday. This means prior to opening for trade, the vast majority of online grocery picking will have already been completed, alleviating a battle for space in the aisles. One Asda store suggested a variation in start times between 4am, 5am and 6am – could customers face a variable space race depending on which time they shop and on which day? A similar call to a Waitrose store established a 6am start for picking, offering their personal shoppers just two hours of empty aisles before store opening. Tesco also operate from 6am, with a 3.75 hour shift to 9:45. Arguably, Morrisons have the best possible solution to minimising or removing the customer impact of in-store picking by operating from central fulfilment centres in partnership with Ocado, although this does come at a cost; in 2015 the Morrisons agreement contributed £73.9m of Ocado’s revenue in fees and charges.
Nº 2 Worldwide
Could working smarter be the answer to reducing the impact of online grocery picking to in-store customers? With an astounding increase predicted in the second fastest channel for growth, grocery retailers need to ensure they are equipped to manage an increase in orders and meeting more acute customer demands including swifter delivery lead times. The UK is currently the second biggest market for online groceries and IGD (2015) predict that in 2020 the UK will hold second place by adding 68.3% to a new value of £17.6bn.
While big-box retailers decide how to use ‘dead’ space in their stores, it is surely worth considering what the next 5-10 years will bring as online grocery builds an even larger customer base, placing more pressure on the grocery retailer to deliver quality service with a lightning speed turnaround. Physical changes such as the widening of aisles or HR changes such as reviewing contracted hours to complete the workload outside of trading hours, could bring a number of benefits to both online and in-store customers. The in-store purveyor of fine foods and easily influenced, time-rich browsers are crucial to the success of the supermarket and therefore must not be ignored.
What we know for sure at SWL… Is that the demand for Omni-channel retailing is of utmost importance for grocery retailers in this rapidly adapting market. A customer’s shopping experience should be seamless, whether visiting a store in person or completing a grocery order on a mobile device or PC – all elements of service delivery must uphold the brand and brand values.
SWL’s ClearMatch enables managers to achieve contract optimisation and recruit to perfection, ensuring your customers both at home and in store enjoy a positive journey from basket to fridge. Rather than approaching change with your basket half empty, ensure you are equipped with qualitative customer insight – ask the experts with SWL’s CCE – Continuous Customer Engagement.
Get in touch with us to find out more.