E-comm’s tough slog
E-commerce will become a $64.6-billion business in Canada this year. So why are grocers still struggling to make it work?
Seldom does a week go by without one of Canada’s major grocers announcing some kind of e-commerce innovation, such as a new delivery partner or technological application.
Their efforts assume unbridled consumer adoption of e-commerce, which is poised to become a $64.6-billion business in Canada this year, according to the research firm eMarketer. That represents a modest (though by no means insignificant) 10% of Canada’s retail industry, and a 21.1% increase from last year.
At the same time, all of those excited announcements mask a harsh reality: traditional grocers are still struggling to successfully adapt their business to cater to online shoppers. And even when (or if) they do, they will eventually need to solve for Amazon.
E-commerce has become table stakes for 21st-century retailers, yet it’s a logistical (not to mention cost) nightmare for grocery retailers—whose businesses are built around processes that are fundamentally unchanged from when Tennessee’s Piggly Wiggly became the first self-serve grocery store way back in 1916.
“Canadian grocers haven’t been hardwired to think of the customer doing their grocery shopping in front of the screen,” says Sylvain Charlebois, a professor of food distribution and policy at Dalhousie University. “There is progress, but it’s going to take a while.” The major national players are aggressively attempting to update their business, notes Charlebois. “I don’t think anyone is there yet … but we’re seeing signs they’re investing in data management and analytics, because they just don’t have a choice.”
There are some bright spots, however. A U.S. report from Bain & Company earlier this year declared grocers have a “rare opportunity” to shape consumers’ digital habits and deliver higher levels of convenience. The study found that traditional grocers were overwhelmingly the first choice among first-time online grocery shoppers (cited by 96% of respondents) and that 75% would stay with the first company they used.
But Canadian retail expert Bruce Winder says e-commerce remains a fundamental challenge for brick-and-mortar retailers, many of which (reluctantly) entered the game without the necessary infrastructure to address fundamental challenges such as transportation, packaging and last-mile delivery. “The Canadian grocery industry was caught off-guard on all of this,” says Winder. “They were in denial as the bogeyman, Amazon, started building significant infrastructure, and then they scrambled.”
“Some have thrown labour at the issue, some have used technology [and] some have delegated some of the process,” he adds, pointing to Loblaw’s recent tie-up with California-based grocery delivery service Instacart and Empire/Sobeys’ announcement it had partnered with the U.K. firm Ocado to build a massive automated fulfillment centre in the Greater Toronto Area.
Sobeys, he says, is addressing one of the fundamental challenges: cost. In a 2017 report, Goldman Sachs suggested delivering from distribution centres is considerably more cost effective than store-based fulfillment.
Ocado’s distribution centres rely on robots that can reportedly pick an online order within as little as five minutes. Winder says automation such as this is destined to play an increasingly prominent role in all things retail and grocery. “Wherever a human is involved in the entire process, look for machines to try to replace them,” he states bluntly. “It is 100% about the reduction of labour cost.”
But while labour is the most obvious manifestation of the challenges faced by traditional grocers when it comes to
e-commerce, Winder says there are other problems: picking products for online orders takes time and can crowd aisles, for example, and grocers must use higher-cost retail packing compared to the lower-cost warehouse packaging used by Amazon.
Plus, he notes, they also lose the benefit of impulse purchases or “basket-building sales” that inevitably occur when consumers walk the aisles in their store. “Overall, when any company runs two separate systems or processes to sell, they by definition reduce efficiency,” he says.
The key problem, he says, is it’s difficult for grocers to make money on e-commerce. Most charge for buying online pick-up in-store (known as BOPIS in industry parlance), while grocers like Loblaw have added a premium to groceries purchased and delivered via Instacart. This is not a sustainable model, he cautions, particularly once Amazon becomes fully operational for all grocery—including fresh—in Canada.