2017 Online sales will surge beyond $1 trillion in Europe and the USA.
This explosive growth reflects an 18 % increase in Europe and 13 % in the USA. These results confirm a dramatic shift in consumer purchasing habits, as overall European retail sales are flat and USA growing at a steady 4 %.The internet is anointed as an emerging growth channel, capturing 10 % of all retail spending in Europe and the Americas. Ecommerce represents a strong share in electronics, books, music,and toy categories. Now, consumers are beginning to extend their online buying habits to supermarket type products.
Export Solutions does not predict the death of the neighborhood supermarket, but announces the birth of the internet “googlemarket” where assortment is no longer limited by the size of a stores shelves. Nielsen projects that grocery ecommerce represents two percent of USA sales. Robust growth rates of 25 % for food and consumer products should expand its share to 8 percent in 2017. In the UK, internet sales have already captured 8 % of the market and will likely surpass 10 % in 2017. Results in emerging markets are mixed. However, it is clear that the implications of internet retailing will impact the store of the future “build out” in rapidly expanding countries such as China, Brazil, and India.
Currently, there are three types of business models gaining acceptance.
Home delivery models are employed by Internet only retailers such as Amazon, Peapod, and Ocado, as well as conventional chains like Tesco. A “Click and Collect” model allows consumers to order online from their favorite supermarket and then pick up their goods at the store , frequently in a dedicated drive through collection area. Amazon is testing delivery to third party collection lockers located in convenient 7-11 stores and UK Co-operative outlets. “My Web Grocer”, an ecommerce support company for 70 supermarket retailers, sees about two thirds of online volume sold through store pick-up and one third through home delivery.
Walmart views Amazon as their largest global competitor.
Amazon 2017 sales will reach $175 billion dollars, twenty two percent ahead of previous year.
Amazon sources 43 % of their sales from outside the USA, including a strong presence in Europe
and growing sales from Asia. Amazon’s sales would rank it equivalent to the #2 supermarket retailer in the world. Estimates suggest that Amazon sources nine percent of their USA business from food and grocery type items. How do they do it ? A massive assortment of over 1 million food items, competitive prices, and delivery to your doorstep within two days for most of their customers. Amazon also serves as a marketing agent and logistics “fulfillment” house for small merchants.
Online grocery stores could stimulate sales of international brands. Internet retailers are not constrained by the limits of shelf space and can carry a full assortment . Think of the homesick expatriates able to find their favorite brands with a few mouse clicks ! Pricing transparency will increase as tech savvy shoppers compare prices on their smart phones. Retailer demands may shift from payments for in store display space to prominent positioning on their web site. A key objective will be to establish your company as an early partner for internet retailers while balancing the requirements for dealing with your core supermarket customers. Listed below are a few factors for consideration.
Amazon in the UK offers 7,315 varieties of tea among their approximately 150,000 grocery offerings! This ranges from their top selling Clipper Organic Breakfast Tea to “Teapigs Liquorice Peppermint Tea”. Imagine an environment that welcomes innovation and experimentation without the barriers of large listing fees and physical shelf space. On the other hand, how does a Tea marketer break through the clutter and stand out among 7,315 alternatives ? How will the retailer handle the inevitable diminishment of their private label sales in a world with so many brand choices ? Will retailers offer two tiers of products: those available in their physical store “showrooms” and others that are only available online ? These are just a few of the questions emerging as the online grocery channel evolves.
Pricing is a key factor in most purchase decisions. Internet only retailers cost structures are very different than bricks and mortar retailers who must dedicate 20 cents of each dollar to operating stores. Internet retailers must invest heavily in sophisticated logistics systems and web platforms . Frequently, internet retailers offer rock bottom prices on individual items , as they may recoup some of their costs in a flat rate delivery fee. A huge issue is brewing over consumers who view a product in a store and then purchase it online from a less expensive, internet based outlet. Pricing transparency and cross channel equilibrium will be critical issues.
Retailers employ their current store networks as profit centers to source money from brand manufacturers desiring to promote their products. Fee’s exist for listing new products, shelf space, special displays, campaign fliers and an unlimited other number of retailer store specific programs. Brands will need to activate their trade spending dollars in new ways to drive sales through the internet. Banner ads, synced with category search mechanisms, loyalty repurchase incentives, and instant discounts are all part of the promotion world in the internet channel. Enhanced data transparency will allow us to target consumers and measure trade promotion effectiveness in a more meaningful way.
The internet’s bandwidth supplies an unlimited portal to share brand information to interested consumers. This information will extend far beyond the small print on most packages. Manufacturer’s will require more robust web sites to explain ingredients, sourcing and product attributes. Consumers can engage and provide direct feedback on their experience with a brand. Today, almost 1/3 of a North American brands marketing budget is dedicated to online marketing and social media.
Role of Distributor
Successful distributors have survived for generations by serving as local experts and adapting to their customer base. Best in Class distributors must develop an understanding of local online retailer dynamics, just as they have learned to penetrate the convenience store and foodservice channels. A key will be an open attitude to learn, pioneer, and partner versus adapting a stance that internet grocers are a small, niche business.
What’s Next ?
Online retailing is a gamechanger for international brands. It provides a new, efficient portal to gain presence and visibility, leapfrogging the high barriers to entry created by “space starved” supermarket chains. It appears as a breath of fresh air in an environment dominated by retailers intent on shrinking brand owner margins and promoting their own private label. Today , there are more questions than answers about online grocery retailing. However, the winners are companies that choose to invest in penetrating this channel. One thing is clear: the simplicity and efficiency for consumers to buy online will create a new framework for our industry. Are you ready ?
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