Will click and collect compute?

Canadian grocers are expanding their online offerings with click-and-collect programs.

Grand experiments seldom come off seamlessly. Even so, logging back on to Loblaws’ new website, following my first-ever online grocery shop, proved a rude awakening.

During the ordering process, I’d told Loblaws I would entertain substitutes. When I went to pick up the 200 grams of bulk shiitake mushrooms I’d ordered, it turned out they weren’t available at the central Toronto store where I arrived to collect my groceries.

Upon returning home, the website duly informed me that the packaged mushrooms I’d been given instead cost more than the bulk ones–a whopping $1,600 more. I chastised myself for not paying closer attention when I’d accepted the final bill at the store, and also for possessing such bourgeois tastes.

A promptly answered email from customer service explained that my credit card hadn’t actually been charged this exorbitant sum, and my blood pressure returned to normal. Such tribulations are to be expected when you’re among the first dozen or so customers attempting a bold new method of buying food.

READ: Overwaitea pilots online shopping program

Under the click-and-collect concept, customers order products online and pick them up at a nearby store at a prearranged time. It’s already a familiar concept to those shopping for home electronics and clothing, as retailers such as Best Buy Canada have been offering the service since 2012. Canadian grocers, however, have been slower than their international counterparts to follow suit.

The wait is now over: Save- On-Foods (a banner of the Overwaitea Food Group) began testing the concept, this past August, at stores in the Vancouver suburbs of South Surrey, Port Coquitlam and North Vancouver. (It simultaneously rolled out online delivery.) Another B.C. grocer, Thrifty Foods (a Sobeys banner), offers a similar service.

Loblaw recently introduced click and collect at two stores in the Greater Toronto Area, with a third scheduled to come online within months. If the European experience is any indication, many more grocery chains may have little choice but to follow suit.

EARLY INTERNET GROCERY MODELS focused on home delivery, but customers weren’t keen on the stiff fees, nor on pacing around at home, waiting for the van to turn up. Many also possessed a strong aversion to buying fresh produce they couldn’t fondle beforehand.

Grocers had their own objections, which came down to logistics and cost. Three customers on the same street might place orders for the same day, yet if delivery windows didn’t overlap, the van might visit that street three times within eight hours. And the fees customers paid might not cover the additional labour, fuel and capital costs. All this helps explain why early entrants such as Grocery Gateway failed to seize Canada by storm. Until recently, even e-commerce giant Amazon was reticent about selling and delivering perishable items.

Why might click and collect be different? Partly, it’s because the economics look better. Admittedly, the service requires additional labour (such as hiring personal shoppers) and marketing costs. But there’s no need for a new vehicle fleet: customers do the driving or walking and pay for fuel. According to an analysis of the economics of Internet-based delivery options in European cities by McKinsey & Co., the margins on pickup are expected to be 13.8%, versus 10.7% for delivery.

Customers may also be more eager about click and collect. With more Canadians now comfortable buying a plethora of goods and services online (some $18.9 billion worth in 2012, according to Statistics Canada), shopping for groceries this way is no longer an alien concept. Wayne Currie, Overwaitea’s vice-president of supply chain and e-commerce, says his chain expanded its online services primarily in response to customer surveys.

“We were hearing from customers asking whether or not we’re going to get into online shopping,” he says. “That inspired us, and it’s obviously inspiring a lot of people in North America.”

READ: Finally, an e-grocery business model that makes economic sense

What’s unclear is precisely which demographics really want this option. Some observers have suggested click-and-collect enthusiasts are primarily busy urban professionals, and parents–particularly moms– who don’t want to drag their kids through a store. After several months, Currie still has difficulty identifying discrete groups availing themselves of the new online services.

“We do know we have mothers with kids,” he says. “We also know we have people who... place orders for their kids in university, as well as people placing orders for their elderly parents.”

FOR FURTHER HINTS OF HOW THIS MIGHT PLAY OUT, LOOK TO the United Kingdom. In general, European grocers have experimented far more with e-commerce than their North American counterparts, but the U.K. has become “the most established market in the world in terms of click and collect’s participation and the number of retailers involved,” says Natalie Berg, an analyst with Planet Retail in London.

Major chains began offering click and collect as early as 2009, partly as a means of attracting new traffic to hypermarkets that were (and still are) falling from favour. Her firm’s research from April 2014 determined 35% of U.K. online shoppers use click and collect, compared to 13% in the U.S.

“We’ve got such a densely populated island here, it makes more sense to roll out these services,” she says. Planet Retail estimates the number of Brits using click and collect will more than double by 2017.

READ: When supermarket shoppers pick up

Tesco is Europe’s largest online grocer. It began offering click and collect in 2011, and as of early 2014 had 232 collection locations in the U.K. alone, as well as delivery throughout the country. So how’s that working out? Tesco forecasted £127 million in profit for 2014 on £2.5 billion of online grocery sales in the U.K.

Perhaps more significantly, Tesco claims customers who shop both–instore and online spend twice the amount a year, on average, than in-store only customers. Moreover, Tesco has identified online as the fastest-growing part of its business–not particularly difficult, actually, given how badly other divisions are performing.

Some analysts have questioned whether Tesco’s online margins are sustainable.

In 2013, an analyst at Kantar Retail told Reuters many European retailers were “throwing caution to the wind in terms of profitability” as they tried to seize online market share. This recalls the early days of e-commerce, when companies such as Kozmo.com and Webvan foundered after discovering the hard way that it’s neither easy nor cheap to provide customers gratification easily and cheaply. Then, as now, some believed the first-mover advantage made it worth losing money.

“Only early movers will win,” wrote analysts from McKinsey & Co. in a recent commentary directed at European grocers. “As markets from the United Kingdom to France to Switzerland have demonstrated, a strong online offer can win customers away from competitors and capture additional market share, compensating for lower margins.”

READ: Loblaw launches click and collect service

IT’S UNLIKELY CANADA’S ONLINE GROCERY OFFERINGS WILL evolve precisely along European lines. But if the latter’s experience is any indication, fees may come under pressure. Loblaw currently charges between $3 and $5 for click and collect; Save-On charges $5. In the more competitive British online market, Tesco has emphasized lower service fees for delivery (as low as £1) and free click and collect, and its data shows sharp growth in online orders following fee reductions. Indeed, Save-On eliminated click-and- collect fees as part of a “special offer” in December.

Canadian grocers may also need to consider more creative ways to reach customers. British grocers have recently begun installing temperature-controlled lockers in strategic pickup locations, notably subway stations, parking lots and airports.

“Tesco has even been trialing collection at libraries and schools,” says Planet Retail’s Berg. “There’s a lot of experimentation going on at the moment.” Having purchased Shoppers Drug Mart, Loblaw has a potent option. Executive chairman and president, Galen Weston, has said that if the Toronto click-and-collect pilots prove successful, Shoppers stores could become pickup locations.

But Vicky Applebaum, a senior consultant with Retail Category Consultants in Toronto, is skeptical. “They don’t have a lot of space for lockers in Shoppers stores,” she says. “I don’t think their real estate will allow it.”

This much seems clear: Overwaitea and Loblaw like what they’ve seen so far. Although he declines to provide hard numbers, Currie attributes growth in both customers and basket sizes to his company’s new online services. Interestingly, he says many customers are taking advantage of both delivery and click-and-collect.

“And the same people are shopping in our stores, which was a surprise to us,” he adds. “That tells us we’re not cannibalizing our business; it’s new business we’re gaining.” As far as Overwaitea is concerned, its new online services have already moved past the pilot stage. “This is part of our service offering, and we will be growing it... It’s not a far reach to say we’re going to be offering some sort of online shopping at every location we have.”

Loblaw, which declined interview requests, appears to have reached the same conclusion. “They will put this in every store that will accommodate it: Superstores and Loblaws west and east will eventually get click and collect,” one employee assured me. “This is about trying things out, figuring out what works, so we can put together a comprehensive package to pass on to new stores to say: ‘This is what you need to do, here’s your training, here’s the sup- plies you need to order, and here’s how things are going to work.’ ”

PHOTO GALLERY: Click-and-collect shopping around the world

The jury is still out on how many Canadians will consistently shop click and collect.

“As with any new service, there’s going to be really high curiosity and strong initial traffic at the outset,” says Applebaum. “Then there’s going to be a group of people who will naturally drop off. These are the customers who want that sensory-based experience of grocery shopping, and can’t get over having somebody else choose their bananas or fish. And then there’s a core group that will use the service religiously because all that matters to them is convenience.”

For my part, I was heartened to learn Loblaw plans to roll out click and collect at its store in my east Toronto neighbourhood. Granted, several aspects of my inaugural visit suggested room for improvement: the alarming fungi price error, the product availability issues and the 13 minutes elapsed during my pick-up transaction. (In fairness, I delayed things by asking questions.)

However, none of these challenges seem insurmountable. Overall, the experience was mostly pleasant, the staff diligent and professional, the website easy to navigate and the quality of perishables equivalent to what I’d select myself in-store. I quickly grasped the benefit of knowing how much my groceries cost before I pick them up. It’s likely I will be among the earliest click-and-collect customers at my local store, too.

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