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Why is online grocery only creeping up slowly?

Shopping basket with fresh food and smartphone. Grocery supermarket, food and eats online buying and delivery concept. 3d illustration

Online Grocery ShoppingAustralian grocery e-commerce is currently worth only around $2 billion in sales, or 2 per cent of an estimated $88 billion sector. But where total grocery is growing annually at 4 per cent, online grocery is growing at 15 per cent.

A GfK’s 2015 FutureBuy study reported that 15 per cent of Australian shoppers claimed to have bought packaged food and beverage online in the past six months. In the same period, 14 per cent bought OTC products online; 12 per cent, household cleaning products; 26 per cent, beauty and personal care.

So shoppers are purchasing some of their groceries online, it’s just the online grocery shopping trip as a share of trip types and channels is low.

What’s behind this? Why might this be the case, when there have been a number of other categories, such as consumer electronics and apparel, where the switch to online transaction has been more significant?

Aside from the proximity of physical grocery stores to many people, a number of aspects of buying online versus physical stores are not perceived to be that different:

Physical Store Online Store
Shopping is easier 37% 32%
Shopping is faster 17% 24%
Better payment options 13% 23%
Better delivery options 15% 29%
Better selection 6% 12%

Most important factors influencing channel choice

Where we saw the biggest differences were in tangibility, pricing and returns, and in three of the four of these the physical store wins:

Physical Store Online Store
Tangibility – see, feel and touch 51% 9%
Save money – better deals 27% 59%
Easier hassle free returns 33% 14%
Lets me support local businesses 19% 6%

This helps explain shoppers’ reluctance to buy fresh fruit and vegetables and other perishables online (together with the delivery piece).

When we asked shoppers what would make shoppers purchase more online, for a whopping 72 per cent the answer was ‘free delivery’, with ‘same day delivery’ coming in a distant sixth at 45 per cent. Discounts on bulk purchases (52 per cent), better loyalty programs (52 per cent), holiday and seasonal discounts (49 per cent) and better daily/weekly deals (46 per cent) were all more important than same day delivery. Potentially because the physical store wins ‘can get it sooner’ (17 per cent, versus online store 8 per cent).

So it stands to reason that the number one factor shoppers said they would not purchase online was cost of delivery (followed by the need for tangibility, and perception of online returns being a hassle).

The issue here will be feasability. Free delivery requires population density as a partial enabler of a profitable supply model, a tricky ask in a country as physically large as Australia. If the retailers can crack a profitable e-commerce supply model it will be more in their interest to push e-commerce and they may then have more leeway to offer free delivery rather than put a price premium on same day delivery. And if the click & collect model can include a means for returning unwanted items that may also mitigate some perceived risks.


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