Grocery shopping? Now, put your feet up…
I thought it would be worthwhile to point out a particular niche in online retailing, more specifically – groceries. In FY14, Woolworths (ASX: WOW) alone sold $1.2 billion of groceries online, and this revenue is clearly in its infancy.
Think of the value proposition that’s implied: would you prefer to drive to the shop, find a park, spend two hours browsing the aisles, pack the car, drive home, unpack the car, carry the shopping in… or would you prefer this done for you for less than the price of your weekly milk?
The business segment does seem to have room for improvement. If you’ve been a regular shopper, I’ll bet you’ll have noticed that you often receive items that you didn’t order – a trend that exists across Australia. Great for shoppers; not so good for gross margins.
Regardless, online and retail are two segments that are intermingled in the long term. This brings up a powerful question, is Woolworths and Coles as dominant online as their bricks-and-mortar offerings? After all, competition is only a click away, so how will their economic moats of price, distributive capacity and share of mind hold up?
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Phil
:
I do not understand the EVA to Coles and Woolies?
How do they improve their margin?
In sourcing is an oxymoron with Gross Margins as variable costs go through the roof with people picking, packing, delivering and receiveables.
I coached a Gourmet Retailer (mainly F&V – the best F&V was packed first thing in the morning) trying to get a profit from this channel to market (several years ago), the refrigerated vehicle was full every day – but after you take out costs (including the web site, managing/marketing the customer), it just didn’y pay its way. Particularly compared to the customer doing the work instore where GP runs at 50% thereabouts …
Roger Montgomery
:
Very interesting Phil.
jeffrey poon
:
Like most 20 yr olds shopping online is my preferred method of shopping now days. But with all that time saved, I visit the grocery store more and more. Just because I can stay at home more now, doesn’t mean I actually want to be a hermit.
Additionally, when it comes to buying food many times a week, having to pay delivery many times to get what i want isn’t the same as paying delivery once for my books, or dozen dvds.
The key to online groceries, for those who do want to shop online for food, is having a one stop offering IMHO.
Scott T
:
Hi Scott, a good thought provoking article. Yes competition is only a click away, certainly for apparel, shoes, nursery furniture, music, DVD’s , stationary et al. but not really for grocery’s. The established buying power and supply chain infrastructure owned by these two give Coles and Woolies (more so Woolies) an almost insurmountable head start, in the part of the market that they play in, and grocery’s are the biggest part of the market.
All the best
Scott T
Lloyd Evans
:
the online offering for the Coles and WOW isn’t consistent. When shopping at the bricks and mortar shops i tend to need to go to both to get specific products, albeit i tend to eat mostly organic.
the likes of iherb.com which is a US based company has a significant range of products focusing on the rapid growing organic market (10-15%pa). I would like to see Coles and WOW provide a similar service.
the other issue online vs in store is that you tend to get the poor quality fresh food when buying online, so you don’t get a chance to ‘try a grape or two’ like the normal shopping experience.
Nick Johnson
:
Personally I find their domination hard to stop online as well as in Bricks and mortar as I would liken them to the BHP’s and Rio’s of the world…ie they are the lowest cost supplier to the public regardless of channel.