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Loblaw takes aim at Amazon

Loblaw’s latest e-commerce move is a significant one. The number-one food retailer in Canada has launched a subscription program for its PC Optimum members, of which there are more than 16 million. For $99 per year, members of the newly-created PC Insiders Program can get perks such as extra points for certain products purchased online, along with free delivery. This is clearly based on the Amazon Prime program, which costs $79 in Canada. But Loblaw’s commitment to free delivery for online purchases is the first true sign the company is willing to get into the ring with the Seattle-based online giant.

For the longest time, Loblaw focused on Walmart’s ascent into food retailing in Canada. Now it’s fixated on Amazon because it has no other choice. Based on most surveys on this topic, only 2% of Canadians currently purchase the majority of their food online. But, similar surveys suggest more than a third of Canadians are now considering ordering food online on a regular basis.

Online grocery shoppers are a different breed of consumer. They tend to be more rational, more disciplined and less inclined to buy on impulse. Scary thought for the grocery sector, which is known for clinging to very traditional ways of conducting business. But things are different now due to an aging population, coupled with the fact that much of the Canadian workforce cannot imagine life without the internet.

Loblaw’s recent rollout tells us two things. First, the company is capitalizing on what is already considered one of the most successful loyalty programs in the country. For grocers, loyalty is essential. On average, Canadians recurrently visit 2.3 different stores and spend about 32 minutes per visit. This means the average Canadian appears to be spending less time in a grocery store, but will visit more locations, and it’s a trend that is likely to continue. In other words, shoppers are becoming more strategic and are willing to consider more outlet options to obtain similar products, and it’s the main reason online shopping matters so much. A higher number of contact points with the customer can leverage the entire business and increase loyalty.

Secondly, membership fees can go a long way. Raising some cash to support its online infrastructure will allow Loblaw to gradually expand its cyber reach. Online delivery is a grocer’s most important dilemma when looking at e-commerce. It’s anything but convenient to pick up an online order and no one, absolutely no one, wants to pay for shipping. Loblaw’s PC Insiders play is a clear commitment, showing it wants to use a model that can offer what customers really want, while at the same time making money selling food online. Truly a first in Canada, at least for now.

Amazon Prime has more than 100 million members worldwide. The vast majority reside in the U.S., of course, but some unofficial estimates suggest Canada is home to more than 3 million Amazon Prime members. This is nothing compared to PC Optimum’s 16 million members, but PC’s membership is free. Converting these members into paying PC Insiders will not be easy. Still, we shouldn’t be surprised if Loblaw does well with the program, with results likely exceeding the company’s goal of 100,000 members over the next six months. The market is poised for it.

 

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