Background
During COVID there was substantial sales growth in digital orders (click and collect, home delivery). This is logical as shoppers’ behaviours dramatically changed. Due to legislation some had to isolate and others had to stay home (lockdown). Generally speaking, shoppers also wanted to minimise contact with other people in the community during this period.
In many markets hard discounters lost share during COVID due to no / limited digital offer. For example, Aldi and Lidl lost share in the UK for the first time in more than 10 years (The Gaurdian, Aldi and Lidl lose out as UK online grocery sales hit new heights, Mar 21). Aldi Australia share dropped from 12.4% in 2019 (Roy Morgan, Looking beyond the panic-buying, Australia’s big supermarket story is Aldi’s growing market share, Mar 20) to 9% in 21/22 (Morningstar, The supermarket wars: Aldi gaining on Woolworths and Coles, Feb 23).
During FY23 shoppers returned to stores and COL (cost of living) pressures increased shopper demands for ‘value’. Hard discounters, including Aldi Australia, started to regain lost sales / share. Many in the industry believe Aldi was growing share the most during FY23 (AFR Woolworths, Aldi winning the supermarket wars: suppliers, Jul 23). Similarly, Aldi UK hit double digit market share for the first time in April 23 (Retail Gazette, Data: Aldi market share tops 10% as discounters in demand, Apr 23). Many suggest this trend will continue in FY24 …
E-Commerce
The COVID trading period highlighted that when shoppers switch to digital orders that major supermarkets, such as Coles and Woolworths, generally increase sales / share. The following table highlights the recent increase in e-commerce sales results for Coles and Woolworths. So, will shoppers increasing demand for e-commerce stop hard discounters such as Aldi Australia increasing sales / share due to COL in FY24?
Supermarket E-Commerce Q1 Sales Results
Source Coles Group, Woolworths Group
IMHO (in my humble opinion) the e-commerce sales growth is being driven by an improved offer. The numerous improvements in the offer can be grouped as value and shopping experience.
Value
Historically, Coles and Woolworths would charge more per item for online orders to cover the cost to pick and pack. From memory online prices were +15% in the 1990s. This % slowly decreased to approx +7.5% and in 2015 Woolworths changed to have the same sell prices online and in-store (Herald Sun, Woolworths changes online grocery pricing by stealth, Mar 15). Today, for some SKUs, the online price may be cheaper than in store due to online only price promotions.
Generally speaking, Coles and Woolworths still charge a delivery fee, depending on the value of the order. 2019 Woolworths launched a subscription service (Delivery Unlimited) with unlimited home deliveries (conditions apply). Coles launched Coles Delivery Plus. Today the subscription fee is approx $10/15 a month. Generally speaking, over time delivery fees have been declining.
The changes in retail pricing and delivery fees have improved the value of the e-commerce offer for shoppers. With shoppers currently experiencing COL pressures this is an important factor supporting strong % sales growth for e-commerce.
Shopping experience
2012 Woolworths launched click and collect (SMH, Woolworths ramps up click and collect options, Oct 14). This service gave digital shoppers the option of collecting their shopping from the store or home delivery. Overtime this service has improved. For example, 2022 Coles launched Rapid Click & Collect where shoppers could select from over 20,000 SKUs and collect their shopping within 60 minutes from the store (Inside Retail, Coles launches sub-60 click and collect service in 400 stores, Nov 22).
Another change has been delivery times options. Historically most orders were delivered following day (sometimes 2 days). FY24 Q1 Woolworths 38% of e-commerce orders were same day orders (Woolworths Group). Today Coles and Woolworths have various offers with delivery times ranging from 60 minutes to same day delivery. My blog, Why Q Commerce is the ‘next big thing’ for supermarkets , explains that Q Commerce (Quick Commerce) with 60, maybe 30, minute delivery times is of increasing importance to shoppers.
During the last 10 years the UX (user experience) for e-commerce shoppers has also improved. Major retailers have apps, websites etc with improved functionality to make the shopping experience easier for shoppers. For example, Woolworths recently added a ‘Best Unit Price’ tool on their website.
Numerous improvements, over many years, have improved the overall shopping experience for e-commerce shoppers. Simply put the changes empower the shopper to shop online how they prefer. This includes more options (e.g. click and collect), more delivery times (from 60 minutes to next day) and more functionality on apps/websites etc.
As outlined in my blog, Value in FMCG, shoppers focus on the overall shopping experience when determining value. So, will shoppers value the improved e-commerce offer vs potentially lower prices in hard discounters, such as Aldi?
Other competitors
Other supermarkets, such as Coles and Woolworths, are not the only e-commerce threats to Aldi. For example, Amazon Australia sales grew from $1.75B in 21 to $2.6B in 22 (SMH, Two global retail giants pose a threat as spending slows, Apr 23). There are numerous platforms, such as catch.com.au, offering an e-commerce service for grocery SKUs (ambient) in Australia that are threats to Aldi.
QSR, with value offers and e-commerce offers for shoppers, are also another threat to Aldi. For example, for the first time in 54 years Hungry Jacks Australia sales exceeded $2B, +11% in 23. Also KFC Australia (Collins Foods) sales exceeded $1B, +10% (12 months April 23) (news.com.au, Hungry Jack’s makes eye watering sales figure, surpasses $2 billion threshold, Oct 23). These recent results highlight that some shoppers have switched from supermarkets to QSR, due in part to COL. Some QSR operators are already well established in e-commerce. For example. Domino’s ANZ generated 77.6% of sales online in FY23 (Domino’s).
Hard Discounters
Generally speaking, hard discounters are not currently offering e-commerce due to the CODB (cost of doing business). To ensure profitability they would have to increase sell prices on each unit, charge delivery fees etc. They believe their shoppers do not wish to pay for this service.
Due to declining sales / share during COVID some hard discounters did launch a digital offer. For example, Aldi UK launched click and collect of groceries in 2020. This service is now offered from over 200 stores in UK (total store count approx 1,000). As reported by The Grocer , (Aldi axing home delivery of Specialbuys and booze, Jan 23) Aldi UK has ceased home delivery for special buys, alcohol in 2023 and in 2022 ceased its partnership with Deliveroo for delivering groceries.
Aldi Australia has indicated they will only offer a digital service (click and collect and/or home delivery) for groceries once the business case highlights it will not increase retail prices for shoppers (inside retail, Aldi Australia plays down imminent e-commerce expansion reports, Aug 23).
Hard discounters are developing e-commerce capabilities by offering limited services and completing trials. For example. Aldi UK recently announced they are trialling delivering hot pizzas in 3 regions (Manchester, Edinburgh and Cardiff) (grocery gazette, Aldi launches Domino’s inspired pizzas and home delivery service, Sept 23).
The obvious challenge for hard discounters is digital orders (click and collect, home delivery) will have additional costs vs shoppers shopping in store for the foreseeable future. Even modern automated dark stores can have a higher CODB vs stores as cartons have to be broken down into retail units for picking. For example, store labour cost to put a pallet of soft drink on the shop floor is substantially less than breaking down cartons to pick and pack individual bottles for an online order.
Summation
Historically hard discounters, such as Aldi, would increase sales / share during tough economic times for shoppers. Historic events, such as the GFC, may not be repeated with COL. A major factor why is that supermarkets have improved their e-commerce offer to meet shopper demands. Another way of expressing this change is that how shoppers percieve value has changed. Today shoppers focus on the overall experience, not just product/price, when determining value.
With shoppers experiencing COL pressures many believe Aldi will gain sales / share in FY24 because Aldi are perceived by shoppers to have lower prices. If lower prices was the only reason for choosing a supermarket then wouldn’t Aldi already be the market leader? There is research highlighting that shoppers value an enjoyable overall shopping experience, including e-commerce. Recent sales results from Coles and Woolworths highlight Australian shoppers are spending more on e-commerce whilst experiencing COL pressures.
The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation. Contact Details .
