When we can expect BNPL to hit supermarkets

The rise of Buy Now Pay Later (BNPL) providers such as Afterpay has caused dramatic changes in the way Australians shop. According to a recent survey by Mozo, around 30 per cent of Australian adults now have a BNPL account. Half of those BNPL users say they have stopped using their credit card and spend is increasingly shifting to the providers’ own apps – increasing from 14 per cent to 27 per cent of purchases.

And yet beneath the headline numbers there is an interesting picture when we consider the sectors in which BNPL has really taken off. Three sectors dominate here: clothing, appliances, and home and entertainment. Yet the category where Australians spend the most money – groceries – has seen hardly any impact. In fact, Coles, Woolworths, Metcash and Aldi are not listed as merchants by any of the large Australian BNPL providers. Why?

The absence of BNPL in grocery is not due to a lack of potential demand from Australian consumers. Although the average basket size of many grocery shopping trips is relatively small, there are many people who may spend several hundred dollars at a time, for example when a family does its monthly shop for staple products or when customers buy a large trolley of food just before Christmas. Online grocery shopping also tends to have large basket sizes as customers stock up to justify the delivery fee.

The main reason Australian consumers cannot yet take up BNPL is grocery is retailer economics. Woolworths is Australia’s largest grocer and its 2019 financial year profit margin was 4.7 per cent. This is only slightly more than the reported average fees currently charged by BNPL providers. So, although many consumers might love to see a BNPL option when doing a large grocery shop, it does not make financial sense for the retailers.

What might change this and make BNPL appear in lower-margin sectors like grocery? The most likely answer is that increasing competition will bring down retailer fees. The big news in Australian payments in early 2020 was the launch of CBA-backed shopping app, Klarna. Klarna is the leading provider of BNPL services in Europe and has thrown down the gauntlet to its Australian competitors with a launch campaign that included no late fees and an interest-free payment option. Although these introductory offers are unlikely to be sustainable, it does suggest that the Australian BNPL sector is likely to see downward pressure on prices.

Another reason we might see BNPL emerge in categories like grocery is demographics. Right now, 18- to 34-year-olds make up 60 per cent of BNPL shoppers. As this generation increasingly has families of their own, their needs will change, and groceries will become an increasing share of their spend. It’s natural that this generation will expect the same payment options it has grown used to in other categories.

As BNPL fees for merchants come down, and demand increases as millennials increase their grocery spend, I expect that one of the large grocers will break ranks and offer BNPL options to their customers. Those retailers who do not offer BNPL may then see their share of spend decline, particularly at times like Christmas when our spending increases. For me, BNPL in grocery is more a question of “when” not “if”.

Jonathan Reeve is GM ANZ for Eagle Eye, a SaaS platform that enables retailers to digitally connect with their customers through promotion and loyalty services. This article first appeared in Inside FMCG magazine.

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