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Is Australia ready for the online grocery revolution?

Wesfarmers’ boss, Richard Goyder, has named Amazon Fresh launching in Australia as the biggest thing that keeps him up at night. Here we look at if Australia is ready for an online grocery revolution – whether from an online grocery retailer or from an e-commerce such as Facebook.

When it comes to e-commerce and online grocery retailing, many individuals falsely believe there is only one or two e-commerce players capable of expanding internationally to offer online grocery retail services to consumers.

In fact, there are six companies currently in operation with the capability and plans for expansion. Additionally, there are three other companies that are in the process of increasing their capabilities in online grocery retailing with plans to expand internationally within two years if all goes according to plan.

There are also several companies that I consider to be wild cards – companies that don’t currently operate in e-commerce but who have the capital and resources to do so. For example, imagine if Facebook made the decision to become an e-commerce retailer through a combination of acquisitions and organic growth? Online grocery retailing would be viewed as being strategic to Facebook. With more than one billion users and growing globally, Facebook could easily disrupt retailing in numerous countries.

E-commerce retailers can offer consumers access to millions of products from sellers all over the world, in addition to online grocery retailing and delivery services. E-commerce majors pose the biggest threat to traditional grocery retailers as they can structure memberships and bundling of orders to offer significant discounts.

A challenge then becomes how does a traditional bricks and mortar grocery retailer compete with an e-commerce major? The answer is no easy proposition, but with the right strategy and partnerships a solution is possible. Pure-play online grocery retailers provide consumers with an option to acquire their groceries utilising a website listing all available groceries including meats, dairy, and fresh produce. Ocado in the UK, Redmart in Singapore, and, of course, Aussie Farmers Direct in Australia, are examples of successful pureplay online grocery retailers.

In Australia, it is only a matter of time, probably within the next three years, before one of the larger e-commerce players or pure-play online grocery retailers currently based in Singapore, the United Kingdom, China, India, or the US, enters Australia, disrupting the grocery market landscape.

If an e-commerce player enters Australia, they will be able to leverage multiple strategies to meet their distribution and logistics requirements, such as partnering with an established grocery retailer and/or leveraging third-parties to provide logistics and distribution. Another strategy could be ‘build as they grow’, whereby they operate independently across all aspects of the business.

Contrary to popular belief, e-commerce players do not have to focus their efforts on delivering groceries and other products to the homes of customers. Regardless of the strategy for entering Australia, today’s major e-commerce players will afford customers an opportunity to purchase high quality, low cost private label products, similar to products found at Aldi and Lidl, as well as branded label products similar to the products found in Coles and Woolworths.

In essence, Australian consumers will find that shopping for groceries online will resemble Coles, Woolworths, and Aldi all rolled into one grocery retail entity. E-commerce players will also allow consumers to purchase everything from clothing to electronics as well.

Who will be hit hardest?
If an e-commerce major enters Australia, Coles and Woolworths will lose market share, but hardest hit will be Metcash and independent grocers who will be unable to compete on price or service. If a pure-play online grocery retailer enters Australia, Coles and Woolworths are capable of competing and minimising lost market share as they presently offer consumers online and delivery options. Metcash and independents, however, will be impacted significantly.

There is the chance that Metcash will have an interesting opportunity to actively seek out a business relationship with an online grocery partner – Ocado, perhaps – and reengineer their operations, systems, and supply chain to introduce a new omnichannel format to consumers.

Granted, the operating model of Metcash is based on supporting and supplying independent grocery retailers, but due to the changing trends of consumers, and based on extensive analysis of Aldi’s impact in Australia and the possibility of a major e-commerce retailer entering Australia, Metcash’s precarious position could sooner or later necessitate a rethink of its model.

Independence is only possible if there is an opportunity to compete and survive, and Metcash and the independents it supplies are beginning to recognise this fact. Metcash’s team of experienced executives are up to the challenge of innovating the company’s business model and making the required changes to strengthen not only their ability to compete, but also to gain market share from its competitors. I believe this is the burning platform for Metcash.

As for Aldi, the German discounter will not be immune to the potential disruption. However, due to its unique business model and streamlined operations, Aldi will suffer the least disruption as it is better prepared to compete on price.

Online grocery retailers will not want to get into a price war with Aldi, nor Lidl, if they choose to enter Australia. Instead, online grocery retailers will want to market their overall value to consumers based on quality, price, and convenience.

E-commerce retailers, however, will be able to leverage different pricing strategies and assortment selection across multiple product lines that will make it more difficult for Aldi to compete on price.

Is Australia ready for the online grocery revolution? Yes. In fact, I believe Australian consumers will be among the most aggressive at embracing online grocery retailing and e-commerce once they understand the total value e-commerce retailers can provide. A bigger question to ask is are Australia’s leading grocery supermarket and wholesale distributors ready for the online grocery revolution and potential entry of a major new competitor? In my opinion, they are not.

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