By Daniel Bone, Insights Director
Less than 5% of consumer-packaged goods spending occurs online, but it dominates discourse about growth and future perspectives. After all, IRI’s ongoing IRI DigitaLink segmentation research shows we have surpassed 90% smartphone penetration in Australia. These digitally connected consumers are constantly being enabled in enticing new ways to shop where and when they choose. As such, we are truly on the cusp of a ‘tipping point’ whereby the rise of e-commerce changes the way a more significant plurality of everyday Australians does their grocery shopping. This will coincide with new digitally orientated market entrants — both products and providers — as well as new information and deals across the FMCG domain.
E-commerce CPG spending growth is outpacing brick-and-mortar in most industry verticals and categories. Australian Bureau of Statistics (ABS) estimates the value of Australian online retail turnover to be 2.4 times higher in December 2019 than in December 2015, growing from 3% to 6.6% of turnover. Total online retail turnover was up 22.4% versus 2018. In FMCG specifically, the ‘Big 2’ have been reporting online sales growth of 20-30% in the last 12-18 months; for example, Coles online sales revenue grew by 23.5% in the first quarter of the 2019 financial year having lapped strong growth from the prior corresponding period. Now available in all states, Click & Collect is the fastest growing channel for Coles online according to the retailer’s own trading statements.
Nevertheless, it has taken a while to get here; it is 21 years since online shopping was first trialled by Coles in 23 Melbourne postcodes. After two decades, only a minority share of IRI’s shopper panellists either ‘frequently’ (15%) or ‘occasionally’ (24%) purchase from established retailer websites (like Coles, Woolworths or Priceline). The most pronounced response to our 2019 syndicated research underpinning our IRI DigitaLink segmentation was that they ‘never’ do so (39%). Even fewer (10%) ‘frequently’ buy groceries online, with 51% never doing so. In another longitudinal IRI shopper panel study, just 11% of respondents indicated that they intend to shop more online for their groceries.
Pervasive drawbacks are thus clearly perceived and experienced by Australian shoppers. Multiple waves of Canstar Blue’s review of online grocery shopping reveal that the main frustrations centre around:
1) delivery costs and timings/inflexibilities
2) order processing errors
3) lack of freshness.
Regarding delivery, retailers are incentivised to relentlessly decrease order costs (e.g. more deliveries per van) and invest in effective communication throughout the delivery process (to avoid the unnecessary costs – financial and reputational – of a failed delivery).
Lingering customer ‘pain points’ aside, industry stakeholders must embrace the ‘pull environment’ that underpins e-commerce. Virtual shelves are populated with virtual products, which is unlike the brick-and-mortar setting where innovation and SKU proliferation often drive growth due to visibility and our propensity to make instinctive decisions in-store. Efficiency in the supply chain is therefore more critical than ever to respond to this ‘pull environment.’
As the ‘on-demand economy’ further augments the ‘experience economy’ (instant gratification often being a part of the customer experience), consumers will become more likely to consider e-commerce capabilities when choosing where to buy their groceries. Indeed, the proliferation of the on-demand food economy enabled by disruptors like Uber Eats is arguably just as significant as the manner in which the established retailing powerhouses locally and globally are expanding and perfecting the omni-channel delivery experience. An expectation and experience in one channel, or from one (new) disruptive provider, can reshape expectations of how products should be shopped and consumed in another.
E-commerce must become a key digital pillar within strategy to reap the benefits of the opportunity. It must have a top-down, cross-organisational commitment, with nimble, innovative strategies built around measured consumers’ desires, demands and behaviours. The key is balance—create great in-store experiences and provide the customer service today’s consumers want in-store and online. For suppliers, the more you invest now and the more you develop a history and relationships with e-retailers now.
E-commerce brings a wealth of data and technology. At IRI, we anticipate that retailers will become more effective at harnessing data and artificial intelligence for improved e-commerce led personalisation. Linked to this will be acceleration of voice-based commerce that taps into the sentiment among 69% of IRI’s shopper panellists who believe that “technology gives them more control over their life”. In the UK, Tesco is testing Google Assistant to enable customers to "talk to Tesco". The service will personalise the customer experience based on their previous shopping choices, suggesting products and offers that are likely to appeal. This has the potential to reshape retailer loyalty; a voice assistant’s alignment to a given retailer may erode the promiscuousness we currently observe in the way that shoppers allocate their spending across the major Australian supermarkets.
These trend evolutions will be led by US and UK retailers, but will permeate the Australian market in the foreseeable future. There is no time to waste in engaging and exciting everyday Australian shoppers who are in the early stages of creating their e-commerce behaviours. Winning over shoppers now will reap long-term success as they realise the benefits of e-commerce and settle into a new shopping journey.
IRI Shopper Panel
IRI DigitaLink Segmentation 2019
Australian Bureau of Statistics Retail Trade, Dec 2019