Five advantages that traditional food retailers have over online pure players and why they should definitely capitalize on it
The transition into the digital age has already disrupted many industries. Oftentimes the online pure players drive innovation and question traditional business models – be it Amazon in retail, Airbnb in accommodation services or Uber in passenger transport. Due to its complexity grocery has long been considered immune to such disruptions but since Amazon has paid more attention to this sector of the economy major changes have become inevitable.
However, established retail companies stand a good chance of maintaining their position in online grocery as well – provided they are able to exploit their advantages over potential newcomers.
#1 Grocery is different
It is no coincidence that online grocery has gained momentum relatively late. After all, there were still many “simpler” product groups to be occupied in the past, such as books or electronics. In contrast to these segments online distribution of food is much more complex due to specific features such as food safety requirements such as maintaining the proper hygenic and cooling procedures and being profitable despite low profit margins. While online pure players first have to acquire the necessary food know-how long-established grocers often have decades of experience in core issues such as logistics and pricing. This knowledge base works to their advantage.
#2 Traditional food retailers are trusted
Grocery is not only complex but also deals with extremely sensitive goods that can spoil quickly if handled incorrectly. Since mistakes in food safety can have a direct impact on the health of consumers retailers must above all build trust. As a rule established retailers have enjoyed their customer’s trust for many years, while newcomers to the market still have to build it from scratch. In essence online offers of traditional traders encounter comparatively little skepticism.
#3 Consumers already buy regularly in traditional grocery stores
Food is a convenience good. Accordingly traditional grocers enjoy the privilege of having direct and regular contact with consumers. At least for the time being a customer base does not have to be acquired with difficulty. Instead existing consumer contact should be used to get consumers accustomed to new sales channels such as an online shop by means of well thought-out marketing measures and sales strategies.
#4 Traditional food retailers have a close-knit network of branches
The dense network of stores distinguishes grocery from many other market segments. The closest grocery store is only a few minutes away for consumers in many countries of the world. For the majority of consumers having food delivered to their homes is therefore not a compelling necessity – making online grocery even more complicated. In addition stores offer another advantage for traditional grocery retailers: with appropriate preparation products ordered online in advance could be handed over to the consumer at the store. Online pure players would still have to establish such an infrastructure to offer order pickup.
#5 Delivery of fresh and refrigerated goods remains complicated
Even though many companies are currently thinking of ways to deliver fresh and refrigerated products to consumers without any loss of quality and in a profitable way, logistics remain the biggest challenge for online grocery. Under these circumstances it does not seem to be far-fetched that the sale of fresh and refrigerated goods may remain an in-store domain in the future. This would benefit traditional grocers in particular whose direct contact with consumers would thus be maintained.
Even though the industry will change as new competitors join the market traditional food retailers have a few aces up their sleeve that they can play off against new opponents. However, these advantages should not be used as an excuse to sit back and relax. Although the threshold for online retail is higher in grocery than in other segments – since well-established consumer shopping routines play into the hands of in-store retailers – it can be overcome. A current example of this is the fashion industry: a few years ago only a few experts in this market segment assumed that online retail would gain appreciable sales shares. The desire of consumers to try on clothing before buying it was considered a show stopper. Today online retail accounts for almost a quarter of fashion sales in Germany for example.
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