It’s forecasted that the online grocery retail market in Australia will grow by almost a quarter to $3.3 billion this year, with Roy Morgan indicating that more than 30 percent of Australian shoppers would consider buying groceries in the next year.
While the market in Australia is “ripe for picking” according to industry analysts, market penetration is still very low, at 3 percent. The compares to a UK rate of around 7 to 8 percent.
So why are adoption levels in Australia still so low in a market that (according to Forrester) has many favourable conditions such as high online population, high broadband and smartphone penetration, as well as higher disposable income compared to other global markets?
Up until perhaps the entry of Amazon into the local market just over a year ago, major grocery chains experienced little competition from online retailers. However, with Amazon already making a move into the space by adding dry groceries with same day delivery in some areas to its staple of Australian offerings, major retail players such as Coles and Woolworths will need to step up their games.
Coles appears to be taking note by beefing up its digital investments, recently revealing plans to build two new automated fulfilment centres and launching a new online grocery platform. Coles expects the investment will mean online costs and delivery times will drop dramatically.
No doubt this will be welcome news to most consumers who are keen to shop for groceries online, but up until now have been provided little incentive to do so.
Coles managing director Steven Cain expects the partnership with Ocado to boost Coles' online sales by about $1 billion, double its home-delivery capacity and lead to improved profit margins for Coles Online, which barely breaks even. "The reason we entered this deal with Ocado – at the half-year results we said that whilst Coles Online was growing fast at about 30 per cent and about to break even for the first time, the growth was diluting our overall margin and we would be looking for technology and automation solutions to improve efficiency and drive profitability," Mr Cain told The Australian Financial Review.