Covid-19 and Amazon’s Norwegian market entry creates the perfect storm for online grocery sales. The future has plenty in store for the consumers.
CEO of StrongPoint, Jacob Tveraabak
Chronicle Dagens Næringsliv, August 31
For a while, online grocery shopping has been the lifeline for many young families. Imagine how amazing it is being only a few clicks away from getting your groceries delivered. It is almost difficult to imagine living without it. Due to Covid-19, online grocery shopping has become increasingly popular, both in Norway and internationally. Bain & Company estimates that Covid-19 has accelerated the online grocery market by up to five years.
On behalf of StrongPoint, Norstat has conducted a survey regarding online grocery spending here in Norway. The findings will contribute to an increase for online grocery shopping, which in turn will increase consumer satisfaction throughout the country.
Firstly, given a satisfactory delivery, we see that customer loyalty towards online grocery retailers is very strong. Four out of five existing online grocery customers say that switching to another retailer is unlikely. Contrary to other online retail shopping, the frequency of online grocery spending is high, close to once a week. In addition, online shoppers typically purchase more items at a time than they would in a supermarket. A typical online shopping cart is three to five times the size of a regular shopping cart. These particular characteristics for online grocery sales show that it is highly valuable for each customer to get a customized online grocery store. At the same time, they get accustomed to a certain interface and user experience. In total, this gives the retailers a strong loyalty amongst the customers, and emphasizes the importance for a grocery retailer to be an early bird on the online grocery market.
Secondly, our survey shows that the latent demand and willingness-to-pay for online groceries is almost as high outside of the Greater Oslo Region as in the city. This means that grocery retailers with brick-and-mortar stores across the country have a great advantage over pure online grocery retailers. Rather than having to establish pick-up points in new geographical areas, they can use existing grocery stores as logistics centers. Modern pick-up solutions, both manual and robotized, and so-called Micro Fulfillment Centers in affiliation to existing stores combined with smooth solutions for the last leg of the journey, makes the logistical process highly effective.
The low profitability of online grocery sales has been brought up by the existing grocery retailers as an argument against investing heavily in the online grocery market. A relatively low turnover, compared to the total market valued at approximately NOK 180 billion a year, has historically made it a challenge to be profitable. The rapid increase in online grocery sales, combined with findings from our survey, should speed up the process of making online grocery shopping available, both in the city of Oslo as well as outside the Greater Oslo Region.
For the established grocery retailers, not offering online grocery sales could have dramatic consequences. Given a strong continuous growth in the online grocery retail market, the sales margins for the stores will be put under pressure. In certain geographical areas, these stores may no longer be able to withstand this pressure. For now, we eat more at home as a consequence of working from home and dining out less. At the same time, driving across the border to grocery shop is no longer an alternative. This puts wind in the sails for grocery retailers. But what will happen the day the canteens open, the restaurants once again can welcome more customers, and Amazon enters the Norwegian market? They start with books, electronics and other merchandise, before they continue with grocery sales.
The future has plenty in store for the consumers. The grocery retailers must step up the game. “Fortune favors the brave”.