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FMCG online shopping

The $17B opportunity in FMCG online shopping in Australia

Australians want online shopping

The recent ‘Black Friday’ and ‘Cyber Monday’ promotions (Nov 18) in Australia highlight that:

  • Aussies want to buy online
  • Australia is now part of the global online marketplace

Many Australian businesses understand this, so they offer Black Friday and Cyber Monday promotions. Finder.com.au highlighted over 550 Black Friday and Cyber Monday promotions for Australians. Finder.com.au also estimated that Australians would spend $320 million on Black Friday promotions.

Other statistics, from Australia Post, that highlight the growth of online shopping in Australia include:

  • In 2017, marketplaces, e.g. eBay, and discount department stores were the favourite destination sites for online shoppers
  • In 2017, online sales reached 8% of traditional retail sales
  • In 2017 Australians spent $21.3B buying goods online, +18.7%.

All of these statistics highlight Australians want to shop online … but Nielsen estimates only 3.1% of FMCG / supermarket retail sales in Australia are by online shopping.

Global online shopping

The 2018 Connected Commerce, report by Nielsen, has highlighted that many people throughout the world now shop online. Some of the results include:

  • 4 billion people are connected to the internet
  • 85% users connect to the internet and on average spend 6.5 hours online
  • Global online sales (2017) were US$2.3 trillion / 10.2% of total retail sales

The key message from the report is:

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.”

Asia Pacific online shopping – FMCG / supermarkets

Nielsen research highlights the top 3 categories* for online shopping in the Asia Pacific region were travel 70%, fashion 69%, IT & Mobile 55%. (*% consumers claimed purchasing in 2017 – 18). What is interesting is how many people are now doing their supermarket shopping (fresh grocery, packaged grocery) online in Asia Pacific. The following chart highlights that a greater % of consumers in Asia Pacific bought supermarket items online than video games!

  • 44% of consumers bought packaged grocery items online vs 33% of consumers buying video games online.
  • 40% of consumers bought fresh grocery items online.
  • 44% of consumers bought packaged grocery items online in Asia Pacific vs 21% in North America.

 

ONLINE PURCHASING – EVOLVING PRODUCT CATEGORIES BY REGION

 % Global Consumers Claimed Purchasing, 2017 – 2018

online shopping

Source: Nielsen

Personally, I was surprised that more (%) people bought FMCG items (packaged grocery) online in Asia Pacific than North America. Considering all the news about Amazon I would have thought North America would have performed much better.

Australian FMCG online shopping opportunity – $17B a year

The previous statistics highlight an opportunity for Australian FMCG suppliers and retailers. Consumers want FMCG online shopping but unfortunately the offer is not strong enough … yet.

Online shoppers generally start with other products, e.g. travel, then over time buy FMCG items such as grocery and fresh food online. This has already occurred in many parts of Asia. According to Nielsen research 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. So what could Australian FMCG suppliers and retailers learn from the South Korean example? The report explained what happened in South Korea 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

Using South Korea as a case study there is now a huge opportunity in Australia for suppliers and retailers to grow sales. Assuming the Australian grocery industry has annual sales of $100B (IBIS estimates $102B) then the opportunity is worth $17B a year (if online sales grow from 3% to 20% of total retail sales). The opportunity can be realised by meeting Australian FMCG consumers demands for FMCG online shopping. As Ji Hyuk Park stated this was achieved in South Korea when “retail offerings improved”.

The obvious question is who will realise this opportunity in Australia?

Australian FMCG online shopping major players

Aldi

Aldi Australia does not currently have an online shopping option. March 2017 Aldi Australia started to sell items, sourced from Australia, online to Chinese customers, via T-Mall. Interestingly Aldi USA uses a third party, Instacart, to pick / pack / deliver online orders. After starting to trial the service in August 2017, Aldi USA rolled the service out to all USA stores in September 2018. Maybe Aldi Australia could go online with a third party in Australia?

Amazon

Amazon entered the Australian market with warehouses for non FMCG lines in Australia (VIC 2017, NSW 2018). October 2018 Amazon Australia started to offer FMCG lines (pantry food and drink category). The launch of FMCG lines, in warehouses, is a step towards offering a bigger FMCG online shopping offer in Australia. There are many rumours about how Amazon Australia’s will build their FMCG online shopping offer. Some suggest they will purchase an Australian retailer. In the US they purchased Whole Foods in 2017 and have started to improve their online offer. Others suggest they will acquire sites and build unique supermarkets, based on their Amazon Go concept stores with an online offering. It is obvious Amazon Australia will build a stronger FMCG online shopping offer.

Coles

June 2018 strategy briefing highlighted Coles plan to improve their online offering. Then CEO, John Durkan, outlined Coles ‘fresh, tomorrow strategy’. Coles plan to evolve to ‘offer anytime, anywhere shopping’ to meet the changing demands of Australian shoppers. They will offer:

  • Home delivery, including same day, one hour express delivery
  • Click and collect. Delivered to your car, pick up in store, vans deliver to a Coles Express store, vans deliver to a Locker, e.g. Australia Post Drop & Go service.

Coles has delivered on some aspects of this plan already. For example, by June 2018 Coles had 1,000 click and collect sites. Coles also has dark stores dedicated to online shopping. To help implement the fresh tomorrow strategy, including the anytime, anywhere shopping Coles are planning on having 2 new automated warehouses built in the future and close / leave 5 older warehouses. The 2 new automated warehouses could be funded by Coles 2019 capex of between $600 – $800M (SMH). This investment in supply chain is another indication of how Coles plans to improve the customer experience, including online shopping.

September 2018 Steven Cain officially became the CEO of Coles supermarkets. November 2018 Coles demerged from Wesfarmers. It is currently unclear whether these changes in people and structure will change Coles online strategy.

Woolworths

It is fair to say that Woolworths currently are the leader in FMCG online sales in Australia. Since 2015 they have had a customer centric or customer first strategy. This strategy has included meeting Australian shoppers demands for improved online shopping. An example of how this customer centric strategy supporting online shopping was the decision to match online pricing to in store pricing in 2015. In 2017 Woolworths also created WooliesX that merged digital, e-commerce, data and customer division to again, in part, support online shopping. Woolworths have also invested in ‘dark stores’ dedicated to online shoppers.

Woolworths are due to open their most expensive warehouse ever in Victoria next year. AFR reports the investment is ’$562 million in a new automated distribution centre, the largest and most technologically advanced in the southern hemisphere.’ One of the goals of this new warehouse is to improve the online offering of Woolworths.  

Summation

Since the 1990s people have predicted the ‘boom’ in online FMCG (supermarket) sales. In Australia today still only 3.1% of FMCG sales are online (Nielsen). Other countries, such as South Korea, have highlighted the potential for FMCG online sales to be 20% or more. This means there is a $17B opportunity in FMCG online sales in Australia today.

Previous barriers to increased online FMCG sales have now been overcome. Consumers are now comfortable with the concept of online shopping and understand the convenience of the service. The technology is now available to support increased online FMCG sales, e.g. South Korea. Major players such as Amazon, Coles and Woolworths are currently or plan to invest significantly in their supply chain (warehouses) to help support an improved online offer. This supply chain investment is being supported with an improved online experience such as Woolworths matching in store and online prices and Coles and Woolworths offering click and collect at more sites. Coles and Woolworths also have dark stores dedicated to online shopping.

The obvious question is who will realise this opportunity in Australia? Today the answer is not clear, but it would appear all the major players are investing today for the online shopping opportunity of tomorrow.

 

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.