Just driving through: a new way to sell groceries?
There are a number of reasons why online grocery sales haven’t taken off in Canada. Most of them centre on the massive logistical challenge of home delivery in a sparsely populated country.
Even though Amazon.ca and Walmart Canada have started selling basic packaged goods off their websites, there simply isn’t a cost- effective way for retailers to ship food to most households.
However, an emerging ecommerce model in Europe and the United States solves almost all of the issues by allowing customers to pick up their orders at their local grocery store or kiosk. Called “click and collect,” or “drive,” the model isn’t exactly new to retail in Canada.
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Both Best Buy Canada and London Drugs, for instance, let customers order online and then pick up their orders at one of their stores or a kiosk. It has yet to show up at supermarkets, but based on Canadian retailers’ surging interest in online, as well as click and collect’s success in other countries, it might soon.
“Online has failed so far because of the economics of distribution,” says Kenneth Wong, a marketing professor at Queen’s University’s School of Business, in Kingston, Ont.
“Home delivery is one to one, it’s tailor made, whereas a store is off the rack, so you get all those efficiencies. The click-and-pick model overcomes all of those difficulties, but it also retains the basic notion of a retailer as a source of aggregation of demand.”
For retailers, click and collect is much more lucrative than home delivery on a margin basis. A McKinsey & Co. analysis earlier this year showed the pickup model offers up to a 20% increase in margins over home delivery, though the average basket size tends to be smaller.
The study also noted pickup generates fewer consumer complaints and lowers marketing costs. Another reason grocers should be interested in any kind of online service?
“A strong online offer can win customers away from competitors and capture additional market share,” the McKinsey study said.
Click and collect has been quite successfully implemented in countries such as France, where 20% of the population uses it and all major grocers are adding capabilities, according to an IGD report. Other hot spots include the U.K. and a handful of European countries, and, more recently, the U.S.
It might even be part of the reason Loblaw Cos. spent $12.4 billion to take over Shoppers Drug Mart Corp this year. “What the Shoppers deal gave Loblaw is 1,100 potential pick-up points for groceries,” says Jeff Doucette, general manager at researcher Field Agent Canada in Calgary.
“E-commerce for groceries becomes really interesting when I can go down to the lobby of my condo building or up the street and pick them up at Shoppers, especially if it’s at the same price as at a Superstore,” Doucette says.
In February, Loblaw announced that it would start a test of click and collect services at three Toronto area stores. Stewart Samuel, program director at researcher IGD Services, is confident such initiatives are being discussed among Canadian grocers given pickup’s success elsewhere.
READ: Loblaw to test online grocery sales in Toronto
Click and collect, he adds, is especially attractive because it helps shoppers who are increasingly pressured for time and it actually helps them manage their grocery budgets.
“We see many European trends translate across to Canada over time, although they don’t always translate in the same way, usually with some unique dimension,” Samuel says. “However, we are fairly confident that there will be a similar response to the launch of online home delivery and click and collect among Canadian shoppers.”
An IGD study on U.K. click-and-collect shoppers this year found that 18% of online grocery shoppers said they used the pickup model in the last month. These shoppers tend to be parents who work full time, younger people and those who have smartphones and tablet computers. U.K. giant Asda Stores (a Walmart subsidiary) even put pickup collection points in the parking lots next to six subway stops in November.
There are other models as well. Stop & Shop Supermarket customers in Port Washington, N.Y., drive to the grocery store and don’t even have to get out of their car to pick up their orders. Shoppers only need to set up a one-hour pickup window, pull up and wait as staff loads groceries into their car. And U.K.’s Tesco has several “dark” stores, essentially closed warehouses with pickup facilities.
Despite click and collect’s convenience, industry watchers say not all shoppers will embrace it. It’s unlikely someone picky about fresh food will let someone else choose their produce or cuts of meat.
However, there are compelling reasons grocers are entering the click-and-collect market. For one, the next big generation of grocery shoppers–younger and more affluent millennials–are most interested in the service.
Pickup may also be a market stealer. France’s Leclerc chain, which has 352 pickup locations, recently experienced a 68% jump in “drive” sales. About one-quarter of that hike was cannibalized from its own stores, the company estimated, but the remainder came from rival retailers.
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Once click and collect comes here, grocers will have to adapt their sales techniques. As Wong points out, grocers will likely have to give up some impulse sales. But pickup shoppers tend to be on fill-in missions anyway. A bigger issue: avoiding the temptation to keep the money saved from online sales, or running the service on the cheap.
“I would hope grocers would share some of those proceeds with their customers, not necessarily in the form of lower prices, but in terms of a certain level of service,” Wong says. “They have to do this with a notion of providing better value.”
Part of that service value is creating an online shopping experience that keeps consumers coming back. Endless pages of click boxes are not fun to navigate, so websites have to be both simple and intuitive with ample choice.
It’s also worth remembering that every time a customer submits a click-and-collect list, they are telling something about themselves.
“If you can use your analytics to be flashing something back on the screen like, ‘If you’re buying this, you might be interested in this special we have on this week,’ that gets pretty exciting,” Wong says.