Background – grocery e-commerce in Australia
According to Nielsen research (Connected Commerce: connectivity is enabling lifestyle evolution, 2018) Australia currently has 3.1% of FMCG sales online. In comparison, China has 18% of FMCG sales online and South Korea 20% of FMCG sales online. The report explained what happened in South Korea grocery e-commerce model as:
“The path of e-commerce growth in South Korea was similar to what we are seeing in many markets today. Initially there was high penetration in travel and fashion, but as consumers became more familiar and confident, and retail offerings improved, they ventured into beauty, infant products and groceries, and then into areas that many thought wouldn’t succeed in e-commerce, such as fresh produce. Today South Korean online FMCG sales account for 20% compared to 6 – 7% globally – the transformation and opportunities are clearly evident.”
Ji Hyuk Park – E – Commerce Leader, Nielsen Korea
This analysis highlights the huge opportunity in grocery e-commerce in Australia. My blog “The $17B opportunity in FMCG online shopping in Australia” provides more details.
This blog suggests that Dominos has created the correct business model for grocery e-commerce sales in Australia. Why?
% of total sales online
Domino’s US 65%
Woolworths 3% **
*Coles 2.5% based on forecast online sales of $1B, total sales $40B in 2018 / 19 financial year. Forecast results from the half year results.
** Woolworths result from the 2018 annual report. Online sales of $1.1B, total sales $37.4B.
Amazon / Whole Foods
As detailed by Nathaniel Meyersohn, in his article “Amazon-Whole Foods one year later: The grocery business will never be the same” (August 2018) Amazons’ purchase of Whole Foods merely forced other grocery retailers to improve their online offer in the US. Whole Foods (Amazon US grocery stores) have not yet created a successful grocery e-commerce business.
“Meanwhile, Whole Foods trails rivals in the race to expand pickup and delivery. And although it could prove more competitive in urban areas, it still faces an uphill climb with middle-class suburban and rural shoppers.”
Also, Costco (Inside FMCG March 2019) has rated highest for online shopper customer satisfaction in a US consumer report. The American Customer Satisfaction Index (ACSI) Retail and Consumer Shipping Report 2018-2019, asked over 62,000 consumers to rate stores. Amazon had held the top spot since 2010.
These results highlight that Amazon is not the benchmark for grocery e-commerce at the moment.
Australian grocery shoppers want to buy online
Major retailers, e.g. Coles and Woolworths, regularly report strong % sales growth in online sales, from a small base. This sales growth highlights that Australian grocery retailers are improving their online offer / execution. Unfortunately, there is also a lot of research highlighting that the offer is not meeting customer expectations.
Roy Morgan research, (Inside FMCG March 2019) highlighted more Australian grocery shoppers want to buy online. Unfortunately, the offer is not strong enough so about 600,000 buy online each month whilst 5,000,000 are interested to buy online.
IBISWorld Senior Industry Analyst Tom Youl, in a Retail World article (February 2019) summarised the underlying issue as:
“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 a 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.”
So, what could Australian grocery e-commerce retailers learn from Domino’s?
By embracing technology Domino’s U.S. generates more than 65% of their sales via digital ordering. This focus on meeting changing customer demands has generated some phenomenal results. As outlined in the 2018 Annual Report:
- $13.5 (US) billion in global sales, +$5.5 (US) billion in 5 years
- In the U.S. Domino’s are the market leader in total pizza and pizza delivery markets
- 100 consecutive quarters of same store sales growth for international markets
- largest pizza brand in the world based on retail sales
- more than 50% global retail sales from digital channels
Richard E. Allison (Domino’s CEO) explains these results have been achieved by:
“focus on the basics – product, service, image, value and terrific advertising: plus, our industry-leading technology.”
Domino’s E-Commerce business model
Domino’s started in the US in 1960. This first store helped pioneer the pizza delivery business model that has evolved into an e-commerce business model of today. Some key points about the business model include:
Stores are physically located close to customers to minimise delivery times. In the 1960 / 70s the stores were located near college campuses and military bases. From the 1980s onwards stores were also located in urban markets and near residential communities.
Product / packaging innovation
To remain competitive in the marketplace Domino’s regularly changes / updates their menu. Some statistics highlighting the range innovation include:
More than 70% of items on Domino’s menu are new since 2008.
There are more than 34 million ways to create a single Domino’s pizza.
For many years Domino’s has invested in technology to support digital ordering. Today Domino’s AnyWare suite of ordering technology allows customers 15 digital ways to order. Basically, customers can order from anywhere, anytime using whatever device they prefer.
By focusing on these key areas Domino’s has been able to create a global business that has 15,900 stores in more than 85 countries that deliver more than 2 million pizzas a day.
Obviously, technology is a key factor to online sales. To meet the changing needs of customers Domino’s has continually invested in technology. A very quick timeline of some of their technology investments:
2008 – launched digital ordering in the US
2010 – created own online ordering platform, managed in house
2013 – updated online offering so customers could reorder their favourite order in 5 clicks / 30 seconds
2014 – introduced “Dom”, voice ordering application
2014 – introduced Domino’s Tracker, so customers could ‘track’ their order
2015 – introduced more ordering platforms including Samsung Smart TV, Twitter and text message
2016 – introduced zero click ordering plus Google Home, Facebook Messenger, Apple Watch, Amazon Echo
2017 – started trialling autonomous vehicles (partnership with Ford) for deliveries
2018 – launched ‘hot spots’. These are non-traditional delivery locations such as parks and beaches
All of these improvements in technology were created to seamlessly integrate with Domino’s own POS (point of sales) system (PULSE).
Similarities between Domino’s and grocers
Domino’s can be used as a benchmark for grocery e-commerce operations due to the similarities in the business operations. Domino’s and major grocery e-commerce retailers, e.g. Coles and Woolworths, operate similar operations with a common target market. Some similarities in the business models include:
- Product range / pricing / promotion is determined by head office and then implemented online and at store level.
- Supply chain. All the businesses operate multi temperature (ambient, chilled, frozen) supply chains. Some products, e.g. fresh produce, are time critical / limited shelf life. Head office ranges products that are sent from DCs (distribution centres) to stores.
- Stores operations – all technology (POS, re-order systems etc) is seamlessly connected to head office and supply chain (operations).
How does Domino’s outperform grocery e-commerce retailers?
Nielsen research (Connected Commerce: connectivity is enabling lifestyle evolution, 2018) highlighted:
“It’s undisputed that internet availability, mobile technology and digital innovations are redefining consumers every interaction and will continue to enable and disrupt many aspects of consumers’ lifestyles into the future.”
Domino’s has a greater % of total sales online because they understand their customers’ changing demands / lifestyle and built an online business model to meet those demands. They have embraced technology / disruption and now offer a superior customer experience (CX) online.
Some areas where Domino’s deliver a better CX online vs grocery retailers include:
Domino’s stores are designed for operational efficiency.
Due to online sales being a small % of total sales, major supermarkets such as Coles and Woolworths, stores are designed for the in-store experience. This creates operational issues and decreases the CX. For example, manually picking orders in store means it is physically impossible to pick, pack and deliver an online order within an acceptable timeframe of 1 hour for customers. As outlined below grocery e-commerce retailers need to re-design their stores to meet the changing demands of customers.
“What we really want to do is provide our customer with a multitude of options in how they shop with us, whether its in-store, pick-up at store, pick-up at the front of store, pick-up via drive-through or home delivery – at a designated time or express within one hour,”
Brad Banducci, Woolworths CEO, Inside FMCG, August 2017
Product / packaging innovation.
Domino’s customers are able to personalise their order. For example, customers can choose different bases, sauces and toppings for pizzas. This means there are 34 million ways to create a single Domino’s pizza (Domino’s).
Due to changes in technology customers now expect personalisation. IGD research (survey of 223 senior industry members across 42 different markets, May 2018) predicted the online store of the future will:
“be a shopper’s personal micro store offering individualised and online-exclusive products, personalised promotions, recommendations, advertising and loyalty schemes. 69% of respondents believe some retailers will apply personalised pricing and promotions in future. An additional 77% think almost all digital communication to consumers by retailers will be personal.”
My blog, Overview of personalised ranging by Australian grocery retailers and suppliers, provides more details about customers demands for personalised ranging.
Independent research highlights Australian grocery e-commerce shoppers still shop in store because retailers are unable to personalise their order. For example, IBISWorld Senior Industry Analyst Tom Youl, in a Retail World article (February 2019) stated
“Australian consumers have demonstrated a desire to check the quality of food items before a purchase, particularly for fresh produce.”
Nielsen research, Aussie households growing in confidence making fresh online purchases (March 2018), also highlighted that the fresh produce category was achieving the lowest growth rate in online purchases.
This research highlights that Australian grocery retailers are yet to offer the personalised CX shoppers demand online, especially in fresh categories. For variable products, e.g. bananas, Australian shoppers still prefer to shop in store to ensure the product quality. For standardised products, e.g. pack of Quilton toilet rolls, Australian consumers are more likely to buy online.
Domino’s offers a broader range of options to empower the customer to order whatever, whenever, however they like.
Major supermarkets in Australia are aware of customer demands for an improved grocery e-commerce experience with improved technology. Coles has entered into an agreement with Ocado (March 2019) to utilise their technology for online orders. In 2017 Woolworths created Woolies X to improve the management of technology supporting their online offer. As reported in IT news (November 2018) Woolworths are planning to continue to invest heavily in technology.
The issue major Australian grocers face is that new international entrants, e.g. Amazon and Kaufland, have already invested in technology to improve their online CX.
Domino’s has a similar business model to grocery retailers. Over many years they have invested in their stores, supply chain and technology to create a benchmark for online CX. With Australian grocery e-commerce customers demanding a better online CX, plus the threat from international retailers (e.g. Amazon, Kaufland), Australian grocery retailers should consider benchmarking their online CX to Domino’s to realise the opportunity.
To meet the changing demands for an improved online experience Australian grocery retailers need to invest in technology (which they are doing), plus re-design stores and importantly deliver a personalised experience for shoppers.
As Michele Levine, CEO, Roy Morgan eloquently described the situation:
“The market is there for the taking however thus far consumers haven’t been convinced by the online grocery services on offer.”
The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.