Sylvain Charlebois is a professor in food distribution and policy and scientific director of the Agrifood Analytics Lab at Dalhousie University.
Grocers can no longer afford to wait for their money to show up at their stores. They need to go after it.
E-commerce in the grocery business was barely a thought five years ago. Most companies did not want to cannibalize sales and decrease foot traffic. The primary idea has always been to have more people in grocery stores, not less. But with Amazon.com Inc., Walmart Inc. and Costco Wholesale Corp. looking at cyberspace as a potent place to sell food, grocers are looking at strategies to keep their customers. At first, it was the “click-and-collect” era, not the greatest idea in the world, but nonetheless a strategy. Most grocers are now looking at full delivery service whether through a partnership or by developing everything in-house.
Loblaw Co. Ltd., Canada’s largest food retailer, recently launched its in-house PC Insiders program, which offers free delivery to its customers for a fixed fee. This initiative is modelled on Amazon’s Prime program and is clearly in response to the online giant’s incursion into the grocery business. The brilliance of the Prime model is based on how it can build loyalty and allow the retailers to cover delivery costs.
Paying for delivery is not something consumers are keen to do, and costs could be exorbitant for grocers. With its Prime program, Amazon has perfected the art of covering last-kilometre costs in delivery service, the most expensive part of selling products online to consumers. Venturing into smaller streets, looking for addresses and transporting the product to consumers’ doors takes time and energy. Loblaw, with its $99-a-year PC Insiders program, is merely copying Amazon by using its database of 16 million non-paying PC Optimum members. Converting 100,000 PC Optimum members can generate enough capital to cover significant costs.
Partnerships look promising as well. Sobeys Inc. will work with U.K.-based Ocado Group PLC, although it will be 2020 before the first deliveries are made in the Greater Toronto Area. Such tie-ups have done wonders for European grocers; online food sales exceed 5 per cent of the market in some countries. In Canada, we are not even at 2 per cent, but the market potential is real. More than a third of Canadians are thinking of going online regularly to purchase food. Buying online has its perks, especially when the weather is less than convenient, or you want to avoid the flu bug, or that you simply want to grocery shop for someone else who requires care and lives on the other side of town.
The “click-and-collect” model, the first iteration of the e-commerce play for grocers, never made sense from a consumer’s perspective. Ordering online only to pick up your order on your way home is not very convenient. The dreaded step of waiting to pay for your food is avoided when using e-commerce, but “click-and-collect” only served the industry’s interest in playing defence against Amazon.
More well-thought-out online delivery programs will ultimately make “click-and-collect” obsolete. Let’s face it, consumers expect more convenience and are willing to pay for it.
The emergence of more e-commerce in food retailing signals the end of the big-box stores. More retailers are looking at smaller stores which require less inventory and maintenance. A big store with nobody in it is bad for business; therefore, it makes little sense to build more of them. Sobey’s acquisition of Farm Boy this year in Ontario is consistent with such a strategy. Farm Boy offers a great in-store experience while providing Sobeys with high-quality products to be delivered at consumers’ homes.
E-commerce in food also offers more opportunities beyond retailing. An increasing number of consumers want to “go out by staying home.” No overpriced wine, no extra tips, no standing around waiting to be seated; instead, more consumers want to enjoy a meal in the comfort of their homes. Although home delivery by restaurants has been around for decades, there are now new options available to them. New apps such as UberEats and Skip The Dishes allow consumers to have access to more choices. Some restaurants can’t afford a driver or to operate a fleet of cars. These apps act as brokers between restaurants and the curious consumer. As a result, some restaurants are now virtual, operating without a dining room while exclusively selling online. Brokering online relationships between consumers and the food industry could get interesting in years to come. With drones, some are predicting we will see farmers selling directly to consumers. The sky is the limit, literately.
During this holiday season, malls will be packed, but don’t let that fool you. Throughout the year, an increasing number of consumers will spend time in front of a screen purchasing presents instead of parking kilometres from the mall’s entrance and working their way to the cashiers. That increasingly also applies to food. Now, if only we can figure out a way to have someone clean up the dishes for us, that would be such bliss.