Online supermarkets: Canadians remain wary of clicking to buy groceries, but market growing
When Grocery Gateway launched as an exclusive home-delivery service in 1997, it was an outlier in a brick-and-mortar industry that many watched closely. Could a supermarket exist exclusively on four wheels, without the broad aisles and glistening produce displays the business had come to take as gospel?
One way or another, we were about to find out.
More than 20 years later, we have our answer. In the Amazon age, where we’ve all come to expect almost everything delivered to our doorstep, groceries have become less the exception than the rule for most large retailers. In Canada, big chains like Loblaws, Sobeys and Metro all offer the service (Grocery Gateway is a subsidiary of Longo’s); others, like Safeway and Walmart offer pre-ordered grocery pickup.
Online grocery shopping is still in its early stages in Canada
Some analysts believe that the rush to online grocery sales is premature. The sector “has received a lot of attention but remains a relatively small proportion of total grocery sales in Canada,” said Michael von Massow, the director of the Food Innovation Laboratory at the University of Guelph. He noted that, while the grocery industry as a whole is worth around $100 billion annually, only $2 billion is spent online.
“Canadian retailers are still very much in a stage of testing and trying to figure out the cost infrastructure,” Suthamie Poologasingham, an e-commerce researcher and retail consultant at J.C. Williams Group, told the Financial Post recently.
That might be why Costco, the retail giant, has been something of a holdout — until recently, that is. Last fall, Costco launched CostcoGrocery, offering two-day delivery on about 500 non-perishables with free shipping for purchases of over $75. Meanwhile, it’s same-day online grocery store expanded to 1,700 items, including perishables, signalling that Costco had entered the game in a big way.
Growth projections are strong
Robert Tallack, the CEO of ConversionPoint Technologies, sees the market entry as well-timed. “While it’s true that online grocery shopping accounts for only 2% of the current market, it’s projected to double by 2020,” he said. “In Great Britain, they’re already at 7%. And when you look across the border to the United States, you’ll see projections as high as 25% by 2025. So the opportunity is absolutely there.”
Poologasingham likened the evolution to a now-mature market segment. “People said nobody is going to buy footwear online, because people have to try it on,” she said. “But retailers made the push, and provided incentives such as free shipping and free returns, and then got customers on board.” Today in Canada, she said, online shoe sales account for about 20 per cent of the total footwear market.
Costco hadn’t been hurt by keeping its focus on its brick-and-mortar operation. In the most recent quarter ending in February 2018, its sales were up 10.8 percent over the previous year. But, Robert Tallack says, to remain competitive, even a juggernaut like Costco has to respond to changing customer demands. And with Amazon having acquired Whole Foods — and with a billionaire owner like Jeff Bezos having shown he’s willing to play the long game — competitors can’t afford to cede too much territory.
“It’s not going to happen overnight,” Robert Tallack said. “But all indications are that the marketplace is changing to demand more convenience and ease. Most of these stores already have infrastructure already on place. They’re basically doing dry runs, preparing for the big shift. You don’t want to be running to catch up.”