By Sylvain Charlebois, Professor in Food Distribution and Policy, Faculties of Management and Agriculture, Dalhousie University
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, which includes more than 16 million people. For $99 yearly, 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 that 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 the food retailing stratosphere in Canada. But now Loblaw is fixating 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, and on a regular basis. On the other hand, estimates suggest almost half of Canadians aren’t even thinking of going online to grocery shop. While it seems that actually seeing and touching your food before buying it is still preferred, a growing number of Canadians are starting to appreciate the benefits that come with grocery shopping online, especially for staple or regularly purchased items.
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. This is one of the main reasons Loblaw bought out Shoppers Drug Mart in 2013. For grocers, loyalty not only pays, but it is now essential. On average, Canadians recurrently visit 2.3 different stores and spend about 32 minutes per visit. This means that 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. This is known as the omnichannel approach, and it’s the main reason online shopping matters so much right now. 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 their 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. The “click and collect” model was always meant to serve the industry, more so than customers. But no one, absolutely no one, wants to pay for shipping. It’s anything but convenient to have to go and pick up your order after shopping online. 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 over 100 million members worldwide. The vast majority reside in the U.S., of course, but some unofficial estimates suggest that Canada is home to over 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 6 months. The market is poised for it.
Besides Amazon, another non-traditional food retailer is causing grocers to lose sleep at night. In September, Costco launched a pilot shipping program in Ontario. With over 5 million very loyal paying members in Canada, it is likely to launch a similar program in other provinces in the months to come. This is a real menace for grocers like Loblaw, so it crucial to be launching PC Insiders now. Loyalty has its rewards, and so does good timing.
Dr. Sylvain Charlebois is Dean of the Faculty of Management at Dalhousie University in Halifax. Also at Dalhousie, he is Professor in food distribution and policy in the Faculty of Agriculture. His current research interest lies in the broad area of food distribution, security and safety, and has published four books and many peer-reviewed journal articles in several publications. His research has been featured in a number of newspapers, including The Economist, the New York Times, the Boston Globe, the Wall Street Journal, Foreign Affairs, the Globe & Mail, the National Post and the Toronto Star. Follow him on twitter @scharleb.