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From dot-coms to drive-thrus

Evolving consumer behaviour and smartphone technology is changing online grocery shopping

Tesco dark store-0512

One of the great grocers no one today has ever heard of is Michie & Company. In the early 1900s, Michie’s was the grocery store of choice for Torontonians who could afford it.

Wealthy, well-dressed women, and those in the up-and-coming middle-class, could wander into Michie’s flagship store at King and Yonge Streets, browse the wonderful foodstuffs on tall, dark wooden shelves and be served by a cadre of clerks, who themselves wore fine woolen suits and ties.

But Michie’s actually had two stores at this location: the one on the main floor for walk-in customers; and, hidden above on a second floor, an exact replica store where phone orders were taken and clerks picked items to be delivered to customers’ homes, either on bicycle or by horse and cart.

This setup seems quaint today. Until, that is, you read about some stores that Tesco, the largest grocer in the UK, has been busy building.

Known as dot-com stores or dark stores (pictured above), these outlets are a lot like Michie’s second floor. They house tons of supermarket products. Yet there are no customers. Only staff picking items for online orders.

The first dot-com stores were built around London. A few months ago, Tesco applied to build a new one in York, right next to an existing Tesco supermarket.

Company officials have pointed out that dot-com stores actually help reduce traffic congestion by encouraging more people to shop online.

Perhaps that’s true. In the next four years, the share of British grocery shopping online is expected to double to six per cent of the market. That doesn’t seem like much, yet.

But technology has a funny way of pushing old business practices to tipping points sooner rather than later. Just look at how fast the record industry and the bookselling business were turned on their heads.

Tesco probably figures that while, yes, it might have taken a decade or more for online grocery sales to reach six per cent of the market, hitting 10 per cent and 20 per cent will happen much faster.

Now, British retail is different than North American retail and online grocery shopping hasn’t had nearly the uptick here as in Great Britain.

But that doesn’t mean it won’t ever catch on. One reason it might is that people are spending ever-more time glued to their iPhones, BlackBerrys and other smart- phone devices.

Quite simply, these machines are changing the way people function day-to-day. And there is no way a task as frequent, and sometimes as mundane, as grocery shopping will escape the impact.

No wonder more grocery chains are looking at how they can cater to the smartphone consumer.

Case in point: Ahold, the Dutch supermarket chain. It recently announced its goal of tripling online grocery revenues to US$2 billion by 2016.

Its chief executive, Dick Boer, even claimed that the vast majority of these additional sales would not cannibalize Ahold’s existing business.

By offering a better array of online services first, Ahold should be able to steal business from grocers with only a bricks-and-mortars offering, he said.

But here’s the interesting thing: Ahold wants to get those sales not strictly from delivering to people’s homes. Rather it intends to set up pickup points at stores in Europe and the U.S., where online shoppers can drive to get their groceries.

This strategy (which Tesco and other grocers in Europe also now use) would vastly cut the cost of online shopping services for grocers.

The so-called “last mile of delivery” from store to the customer’s home adds some 10 per cent to an online grocery business. Making shoppers drive that last mile, therefore, can turn online shopping into a more profitable venture.

To some, a grocery pickup service simply means adding a drive-thru. And that is one option grocers could employ.

For instance, Swiss Farms, a 44-year-old Pennsylvania convenience operator, now allows shoppers to order online and then choose the time they want to pick up their purchase at one of the company’s already existing drive-thru locations.

It’ll be interesting to see whether, over the next few years, drive-thru formats spring up to meet the inevitable online shopping demand. Or, maybe, grocers will set aside designated parking spots for online patrons to pick up their packages.

Perhaps nothing will come of what Tesco, Ahold, Swiss Farms and others are doing at all. But I doubt it.

Rob Gerlsbeck is the editor of Canadian Grocer magazine. rog.gerlsbeck@canadiangrocer.rogers.com

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