Australia set for retail revolution with grocery e-commerce

By RJ Whitehead

- Last updated on GMT

Currently, while over a quarter of Aussies say they would like to shop for groceries online, only 3.7% do as they prefer their neighbourhood supermarket. ©GettyImages
Currently, while over a quarter of Aussies say they would like to shop for groceries online, only 3.7% do as they prefer their neighbourhood supermarket. ©GettyImages

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Amid the growing rise of e-commerce across Asia, culminating in remarkable sales figures from last month’s Singles' Day in China, it is easy to miss the changing face of online grocery in the wider region’s more organised markets, such as Australia.

The Singles' Day buying extravaganza banked some US$25b in sales for Alibaba on Nov 11, across all categories — a 40% jump over 2016’s figures.

It’s not just discounted branded festivals that are on the rise; IGD predicts average annual e-commerce sales growth of over 34.5% between now and 2022 in the food category across Asia.

According to the grocery analyst, younger populations, increasing Internet use and mobile penetration, and improved logistics have been fuelling the online grocery boom.

Yet online retail is not only changing north of the equator: Australia, normally a European-style grocery market, is also witnessing a substantial shift in the way consumers purchase their groceries.

Australia the next frontier of disruptive retail

Much more organised than most of its Asian counterparts, at least as far as grocery retail is concerned, Australia has been preparing for the arrival of the Amazon tornado — perhaps as soon as early 2018 — at a time when traditional retailers are still grappling with finding the right strategies for online selling in a tough market.

According to Michele Levine, chief executive of Australian market researcher Roy Morgan, the long-awaited arrival of Amazon will likely be “the greatest leap forward in disruptive retailing​”.

While Asian grocery retail has focused on mom-and-pop stores for generations, and only recently moved towards an organised model in some countries, Australian consumers look first to established supermarkets for their weekly shops.

This means that while Asian consumers view online channels like JD and Alibaba’s Tmall as completely separate to offline grocery stores, and have adopted them accordingly, Australian retailers tend to combine their big-box and e-commerce shopfronts under single brands, thus creating confusion, cannibalism and costs. This legacy formula has not been designed to generate economies, unlike the logistics-led operations of Amazon.

The inconvenient truth is that Amazon does not rely on gross profit margin for success. Its success is driven by volume — and it has that in spades. That’s what led founder Jeff Bezos to famously declare, ‘Your margin is my opportunity​.’,” said Levine in a blog post.

This view has been backed by a recent study by Business Insider that analysed the difference in price between a basket of 25 grocery and electronics products sold through Amazon, and the equivalent basket bought at Walmart — which said it would be able to compete with Amazon on price. Amazon also beat Walmart on delivery cost and speed.

Last year, Amazon’s gross profit margin was a minuscule 6.8%. By comparison, Australian supermarket giant Woolworths reports a gross margin of 26.8%, while its rival, Coles, weighs in at 31%.

These high margins are stoked by higher operating costs, leading to very low net margins of 2% to 3%, limiting the ability of the stores to further reduce prices. According to Levine, Woolworths and Coles spend more than 24% of sales revenue on leases, wages, marketing, etc.

Amazon will beat any Australian retailer on price​,” she warned.

Nothing beats the human touch?

In a great irony, perhaps the saving grace for these bricks-and-mortar stores, as they ramp up their online offerings in the face of fast-approaching digital competition, comes simply from the fact that they are analogue.

Roy Morgan data shows that over a quarter of Australians say they would like to shop for groceries online, though only 3.7% actually do. Instead they habitually turn up to their neighbourhood supermarkets, where they know they will experience the personal touch.

Do not try to compete on price. You cannot win​,” Levine urged supermarkets. “Instead, compete on everything that has a human and local connection. Amazon cannot compete with that.​”

She added: “Let’s turn our backs on artificial intelligence: That’s Amazon’s universe. Instead, let’s focus on human intelligence. Make that the universe you own.​”

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