Canadian grocers can no longer afford to wait for their money to show up at their stores. That’s a given. They need to go after it as well. E-commerce in the grocery business was barely a thought 5 years ago. Most grocers did not want to cannibalize sales and decrease foot traffic. The primary idea has always been to have more people in grocery stores, not less. With Amazon, Walmart and Costco looking at cyberspace as a potent place to sell food now, grocers are looking at strategies to keep their customers. At first, it was the “click and collect” era — not the greatest idea in the world, but nonetheless a strategy. Most grocers are now looking at full delivery service whether through a partnership or by developing everything in-house.
That is the case for Loblaw, which recently launched “PC Insiders” which offers free delivery to its customers for a fixed fee. This program “À la Prime” is clearly in response to Amazon’s incursion into the grocery business. The brilliance of the Prime model is based on how it can build loyalty and allow the retailers to cover delivery costs. Paying for delivery is not something consumers are keen to do, and costs could be exorbitant for grocers. With its Prime program, Amazon has perfected the art of covering last-kilometre costs in delivery service, which is known for the most expensive when selling products online to consumers. Venturing into smaller streets, looking for addresses and transporting the product to consumers’ doors takes time and energy. Loblaw with its $99 PC Insiders program is merely copying Amazon by doing the same, and why not? Loblaw has a database of 16 million non-paying PC Optimum members, so a loyalty loop can be executed by Canada’s number one food retailer. Converting 100,000 PC Optimum members can generate enough capital to cover significant costs. It’s the first of its kind in Canada and we expect to see more in Canada in the future.
On the other hand, some partnerships look promising as well. Sobeys opted for a partnership with UK-based Ocado. This partnership has done wonders for European grocers willing to increase their business with e-commerce. Many countries in Europe are now seeing online food sales exceed 5%, and in some cases up to 8%. In Canada, we are not even at 2%, but the market potential is real. More than a third of Canadians are thinking of going online regularly to purchase food. Almost everyone under the age of 39 in Canada right now considers the internet as an integral part of their lives. Their economic influence will only increase over time, and grocers know it. Buying online has its perks, especially when the weather is less than convenient, or you want to avoid the flu bug, or that you simply want to grocery shop for someone else who requires care and lives on the other side of town.
The “click and collect” model, the first iteration of the e-commerce play for grocers never made sense from a consumer’s perspective. Ordering online only to pick up your order on your way home is not very convenient. The dreaded step of waiting to pay for your food is avoided when using e-commerce, but “click and collect” only served the industry’s interest in playing defence against Amazon. The e-commerce model is economically more palatable for retailers compared to home delivery as it moves inventory efficiently without the last-kilometer cost. To add insult to injury, some retailers charged consumers for home delivery. More well-thought out online delivery programs will ultimately make “click and collect” obsolete. Mental cyber-benchmarks are different today from those only a few years ago. And, let’s face it, consumers expect more convenience and are willing to pay for it.
The emergence of more e-commerce in food retailing signals the end of the big box stores. More retailers are looking at smaller stores which require less inventory and maintenance. A big store with nobody in it is bad for business; therefore, it makes little sense to build more of them. Sobey’s acquisition of Ottawa-based grocer Farm Boy last year in Ontario is consistent with such a strategy. Farm Boy offers a great in-store experience while providing Sobeys with high-quality products to be delivered at consumers’ homes.
E-commerce in food also offers more opportunities beyond retailing. This is happening in service as well. An increasing number of consumers want to “go out by staying home”. No overpriced wine, no extra tips, no standing around waiting to be seated, instead more consumers want to enjoy a meal in the comfort of their homes. Although home delivery by restaurants has been around for decades, there are now new options available to them. New are apps, such as UberEats and Skip The Dishes, allow consumers to have access to more choices. Some restaurants can’t afford a driver or to operate a fleet of cars. These apps act as brokers between restaurants and the curious consumer. As a result, some restaurants are now virtual, operating without a dining room while exclusively selling online. Brokering online relationships between consumers and the food industry could get interesting in years to come. With drones, some are predicting to see more farmers selling directly to consumers. The sky is the limit, literately.
During this Holiday season, malls were packed, but don’t let that fool you for a second. Throughout the year an increasing number of consumers will spend time in front of a screen purchasing presents instead of parking kilometers from the mall’s entrance and working their way though the cashiers. So uncivilized. That rule increasingly applies to food. Now if only we can figure out a way to have someone clean-up the dishes for us, that would be such bliss. That would clearly be e-commerce’s next frontier in food.
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.