Apr 15 2019
Click and collect services to grow online grocery shopping industry by 21.7% annually, IBISWorld forecasts
Coles Group as a standalone entity is off to a sluggish start since demerging from Wesfarmers in November 2018. The company’s supermarket division reported 3.2% comparable revenue growth over the first half of 2018-19, compared with the corresponding period in 2018.
According to industry research company IBISWorld, online grocery retailing is the latest battleground for supermarkets, with both Coles and Woolworths ramping up click and collect services recently.
Click and collect services have been a major driver behind the rapid growth of the online grocery industry. Analysts expect that online grocery shopping will increase by 21.7% over the five years through 2018-19, compared with 2.1% growth among bricks-and-mortar stores.
Coles Group as a New Entity in 2019
According to IBISWorld, Coles has not changed significantly since its much-publicised demerger from Wesfarmers.
“Coles Supermarkets’ sluggish performance sees the company continue to lose ground to major competitor Woolworths,” said IBISWorld Senior Industry Analyst, Tom Youl.
“Competition between the two brands has been waning, at least in terms of direct price cuts and discounting. The two firms have increasingly focused on reducing operating costs, which will facilitate price reductions in response to growing competition from ALDI and incumbents, such as AmazonFresh. In particular, both companies have invested heavily in new warehouses to lower their labour requirements through automation.”
Online Grocery Sales Industry
According to IBISWorld, the Online Grocery Sales industry is expected to generate $3.3 billion in revenue in 2018-19, while bricks and mortar supermarkets are expected to generate $103.4 billion.
“Online sales currently only represent approximately 3% of total supermarket revenue, as Australian consumers have been slow to take up these services. In comparison, online retail spending accounted for over 8% of traditional brick-and-mortar sales, over the year to June 2018,” said Mr Youl.
“Consumers’ trust in online grocery shopping has taken time to develop. Australian consumers have demonstrated a desire to check the quality of food items before purchase, particularly for fresh produce. Consumers typically only shop online for low-value and bulky groceries.”
“These trends greatly constrained revenue growth, despite a steady rise in the proportion of Australians who purchase groceries online. However, the introduction of click and collect services has opened up the market,” Mr Youl said.
Click and Collect Grocery Shopping Services
Demand for click and collect grocery shopping has surged since its introduction, fuelling the rapid growth reported by the Online Grocery Sales industry.
Over the five years through 2018-19, the Online Grocery Sales industry is forecast to expand at an annualised 21.7%, compared with 2.1% growth among bricks and mortar stores over the same period.
“Click and collect services have driven this expansion by growing consumers’ average expenditure per online shop. Customers can now check all their items are included and of sufficient quality, as well as pick up any forgotten items or impulse purchases,” said Mr Youl.
While click and collect services are not new, Coles and Woolworths have invested heavily in infrastructure to facilitate these services in recent years. In 2017-18, the two companies added click and collect capabilities to almost 1,400 supermarkets.
Woolworths is reporting a market share advantage over Coles in Online Grocery Sales. As of 2018-19, Woolworths is estimated to hold 45.3% of the Online Grocery Sales industry to Coles’ 30.9%.
“While this edge is partly reflective of consumers’ preference between the two companies, Woolworths has also benefited from first mover advantage in click and collect store rollouts. However, Coles has fought back, responding to consumer demand by introducing a range of click and collect locations. Coles currently offers click and collect in over 1200 locations, which is about 200 more than Woolworths,” said Mr Youl.
“Click and collect functions have also been added to Coles Express petrol stations, which has increased the company’s footprint within the segment. Additionally, Coles’ near $1 billion investment in two distribution warehouses, due to be operational by 2024-25, will likely improve the company’s efficiency in delivering online grocery shopping services,” said Mr Youl.
IBISWorld Industry Reports used in this release:
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