Retail in Asia

In Trends

Can groceries be profitable online?

A new study by Boston Consulting Group (BCG) showed that consumers around the world want to do more grocery shopping online, with demand fueling market growth forecast to reach USD100 billion by 2018.

The research was based on a study in eight countries, including two well-developed markets for online grocery shopping — France and the UK— and six nascent markets: Brazil, China, Denmark, Germany, Russia, and the United States.

“In both developed and nascent markets, the brick-and-mortar players that dismiss the potential of online grocery sales risk being left behind,” said Chris Biggs, a BCG partner and a coauthor of the report. “There is now a clear roadmap that just about any grocer can follow. The early movers have the best opportunity to achieve profitability relatively quickly.”

The BCG report, "Omnichannel Alchemy: Turning Online Grocery Sales to Gold," shows that grocers’ most important customers — young families and affluent couples — are especially ready to take advantage of online grocery shopping. Moreover, when these customers move online, they are likely to spend far more across channels than they would have done by shopping in the traditional way—the uplift often ranges from 30 to 50 percent.

According to the report, online grocery shopping has already reached a substantial size in several countries: 5 percent of the total grocery market in the UK, 3 percent in France, and 4 percent in South Korea.

“The difference between the leaders and the countries in which online grocery shopping has yet to establish a significant presence has a lot more to do with the reticence of retailers than the desires of consumers,” Biggs said. “Big companies in countries with developed online markets, such as the UK and France, already attribute a substantial proportion of their overall grocery sales to online purchasing. An even higher percentage of their yearly growth is driven by online sales.”

BCG identified four fundamental elements for building a successful online-grocery business. This game plan can be applied to most markets and company circumstances:

• Don’t wait. Seize the opportunity now to lock in core customers and drive share.

• Avoid the costly last mile. Start out with the click-and-collect model and add home delivery only once sufficient scale has been achieved.

• Target affordable differentiation. Invest in the drivers of online satisfaction. Focus on key proposition elements that will attract and retain customers while keeping a careful eye on the workability and economics.

• Evolve and adapt. Whatever model a grocer begins with will need to evolve over time as the market and customer base—and the company’s own capabilities—develop. Plan a journey with a realistic timetable and return targets.