ARTICLE
Why Are Grocers Losing so much Money Online?
New Study Reveals the Answers.
In 2020, online grocery sales grew 500%. Average online basket size grew by high double-digits. And yet, talk to many grocers and they will tell you the same thing—that all of this growth online cost them dearly in overall profitability. In fact, “low profitability of our online business” is the number one problem that grocery executives report
That’s according to a new report from leading consumer industry research firm, Incisiv, who asked over 200 senior grocery executives about their sales and operational trends since the pandemic. What they learned, unsurprisingly, is that growth has come with an assortment of financial and operational challenges. Chief amongst them is that margins on online orders decreased by 70% in 2020. When online orders represented a small percentage of overall sales, profitability was not a major concern. However, with 20% of all grocery sales now predicted to come through digital channels by 2025, online profitability is now vital to the long-term health of grocers.
So what’s behind this troublesome trend? Amongst Incisiv’s key findings are the following:
1. Grocers are overly dependent on third-party providers:
68% of grocers polled reported using third-party platforms like Instacart to handle their online business. Nearly all of those said they could not possibly scale their online businesses without those providers. But there is growing discomfort with third-party platforms for a variety of reasons: 81% of grocery retailers believe that Instacart and others will become their direct competitors in the future. 84% fear that they will lose touch with their customer base as third-party platforms become the front-end commerce brand and disintermediate them from their shoppers. Most importantly, perhaps, grocers are troubled by the bite that third parties take out of their margins, with 59% reporting those delivery partnerships to be entirely unprofitable.
2. Digital grocery operations are inefficient:
Online grocery growth exposed operational inefficiencies in three areas at the core of profitability: knowing where the product is and how much is available (inventory visibility), picking it quickly (order picking efficiency), and getting it to the customer cheaply (curbside pickup/delivery). 72% of grocers lack an accurate view of their inventory, reported Incisiv, 92% are unhappy with online order picking efficiency, and 86% are dissatisfied with their labor utilization.
3. Grocers have not invested sufficiently in technology:
Although most grocers polled said that they had significant technology gaps to overcome in order to reduce dependency on third-party platforms like Instacart, 71% also felt that they were under-investing in technology to make their online operations more competitive. Clearly this creates a cycle of self-defeat, whereby grocers become more and more dependent on outside parties to run their digital businesses rather than embracing technology to create long term competitive advantages.
What can grocers do to improve profitability?
As Incisiv’s Chief Insights Officer, Gaurav Pant, put it: “The current model is not sustainable for grocery retailers. If the existing sales and profitability trends continue, grocery retailers will lose $14 million in gross margin for every billion dollars of sales by 2025.” To get back on track, grocers need to cut the cord from third party platforms like Instacart. Growth without profits is unsustainable.
In a nutshell, that’s why we started Wynshop. Grocers should not be operating at a loss online, and they most certainly should not be reliant upon their potential future competitors to exist. As far as I can see, the only reason so many grocers continue to go down this slippery slope is that they do not realize that there is a ready and viable alternative.
Wynshop is that alternative.
We began with deep digital expertise and technological innovation in our bones, but quickly saw that retailers in grocery and other dynamic sectors had a very unique set of challenges. And so we built an answer to those challenges that would allow our clients to grow their digital commerce businesses completely in-house, without suffering the high costs of development that only the biggest players in the market can afford. Our refreshingly easy-to-use digital commerce platform powers convenient, personalized, omnichannel shopping experiences that multiply shopper loyalty. Our process automation and optimization technology enables efficient in-house picking, reduces fulfillment costs, and gives retailers control across the customer journey. Our deep retail expertise and passionate commitment to service makes initiating and building digital commerce operations faster and yields better business outcomes than ever before.
Most importantly, our ambitious team of digital evangelists and innovators are obsessed with a solitary mission—to help our retail clients grow wildly successful online businesses. Wynshop does not just help retailers compete with the biggest players—we help them win!
