Why there’s one less aisle at your Woolies
WOOLWORTHS Group has announced record sales of $60 billion and a healthy profit of $1.7 billion. The headlines say Woolworths supermarkets are now beating Coles. And in one sense, it even has a leg-up against Aldi. Why?
The answer is the internet. Woolworths' online game is strong just as Aussies finally get a taste for online shopping.
Woolies is now doing $1.4 billion in supermarket sales online compared with $1.1 billion for Coles and presumably zero for Aldi, which doesn't offer online shopping (and doesn't report results in Australia).
"It is no longer a start-up - it is a core part of what we do right now," Woolworths chief executive officer Brad Banducci said about online shopping yesterday. "Online sales are expected to continue to grow strongly."
And this growth is leading them to ditch a whole aisle's worth of products in the supermarket.
Both major supermarkets are growing their online sales by about 30 per cent a year. That's a very high growth rate - growth like that can compound very quickly. If they keep it up, sales will double in under three years and be 10 times higher in nine years.
However, online sales are less profitable for Woolies than sales through stores. Paying for someone to collect your shopping and then for someone to drive it to your house costs serious money. The company has 800 delivery trucks on the road at any time. They all cost money, but the company is working hard to make sure delivery doesn't cost them an arm and a leg.
"We are now re-engineering every process that we do online. And as we do that, we are becoming more and more efficient," Mr Banducci said. "The yield we get out of our trucks, the way we actually route our trucks … we rebuilt all those processes and the in-store pick-up process."
WHY I'M A DELIVERY FAN
Personally, I hate going to the supermarket. It's slow and it usually involves my least favourite thing - waiting in line.
My household gets groceries delivered about 80 per cent of the time.
I'm an economist so I like to put a value on my time. The $6 I usually pay for delivery covers the time and fuel cost of driving to the supermarket (10 minutes each way). Any extra time I save not doing lap after lap in there, scouring the aisles, unable to find what I'm looking for is just a bonus.
What's more, the less often I go to the supermarket, the worse I am at finding things when I do go, so the pain of shopping gets worse and worse. I'm now addicted to online, where I can use the search bar to find what I need.
The time saving is real, and in a world where people will pay up big for convenience, grocery delivery is one of the most convenient things I can think of. I see more and more delivery trucks going around the streets of Melbourne, so I know I'm not alone.
Delivery, however, is not the supermarkets' favourite. They rather like pick-up.
"Pick-up is our most profitable channel right now. For obvious reasons because the customer drives to the stores," Mr Banducci said.
The one problem with online grocery shopping is you can't get something if you need it right now. Or you couldn't …
DITCHING THE GENERAL MERCH AISLE
Not long ago I noticed that Woolworths was willing to bring me groceries in 90 minutes. That's pretty darn quick. Now, the price was high - they were charging $19 for the service, and that's not worth it to me. I haven't needed anything so desperately, not yet anyway.
But in the US, same-day delivery is a huge part of what has made Amazon's groceries offering so popular. And Woolworths is planning to do something that sounds similar.
"We believe the future lies in same day (delivery)," Mr Banducci said. "We think that is where the action is. We think we can grow."
And what that means is the future of supermarkets may not be in supermarkets. Woolworths already has "dark stores" where pickers collect people's orders for delivery. It is also shrinking its existing supermarkets.
"We have been taking action stripping general merch(andise) out of stores, increasingly though with more room back of house to facilitate the e-commerce part, and we fully expect them to shrink," Mr Banducci said.
Shrinking supermarkets and same-day delivery could be the future of groceries in this country. And it's a big deal for Coles and Woolworths because it could lead to their survival. Australia's big two supermarkets have mostly been standing still as Aldi ate their lunch and as Costco and Kaufland came into the market. But now, for once, they are in the lead. And that could be vital as competition in groceries gets even hotter.