Revitalised player takes on supermarket chains
Aussie Farmers Direct’s launch of The General Store last week will service a niche market and nothing more, according to analysts.
Commentators believe Australia has a long way to go before seeing sizeable increase in volume of online supermarket shopping and don’t expect Woolworths or Coles to be challenged any time soon, despite the launch by Aussie Farmers’ of an online supermarket that stocks pantry items to complement its fresh food offering.
Launching in Melbourne ahead of a planned national rollout, Aussie Farmers has said the combined product range from Aussie Farmers Direct and The General Store will far exceed the average Aldi or IGA, and provide stiff competition to supermarket heavyweights Coles and Woolworths.
Keith Louie, CEO, Aussie Farmers Direct, believes the launch of The General Store could possibly lead to the doubling of his business over the next 12-18 months.
“Our tens of thousands of weekly customers are buying fresh products so clearly the initial market is to allow those customers to buy from a broader range,” Louie told Inside Retail Weekly. “But I do think now that we have a full supermarket range, we will attract a lot of new customers who are now currently shopping online with Coles or Woolworths.”
The addition of pantry items with the new platform will allow Aussie Farmers Direct to make a play at online shoppers who err on the side of convenience and don’t want to spend hours in a supermarket.
Aussie Farmers Direct has also asserted the combined offers gives Australian food and grocery suppliers an alternative path to market that bypasses Coles and Woolworths, thereby giving more prominence to Australian-grown and Australian-made products.
“With Aussie Farmers Direct and The General Store becoming the third pillar in the online grocery market, local grocery manufacturers are no longer in the grip of an online supermarket duopoly,” said Louie.
Speaking to Inside Retail Weekly, Dr Gary Mortimer, associate professor and food retailing expert at QUT Business School, argued that The General Store will find a good niche to fill based on the home grown initiative.
“It is evident that they are tapping into Australia’s ‘local’ and ‘Aussie-made’. As long as they stick to that angle and control their operational costs, they’ll be fine,” he said.
However, baiting and taking on the supermarket duopoly based on Aussies’ goodwill is a tall order. For all the reported woe and catastrophe that’s said to be dragging Woolies down the gurgler, it remain Australia’s largest online supermarket. According to Ibisworld data, Woolies holds 42.3 per cent marketshare. Wesfarmers’ Coles holds 30.9 per cent, with Aussie Farmers holding 14.2 per cent.
Over the past five years, Woolworths has significantly invested in its online strategy, expanding its delivery network and click and collect presence. A Woolworths spokesperson told Inside Retail Weekly that the retail giant’s online shopping platform has been around for nearly two decades and is an integral cog in their strategic rationale.
“We have seen the demand for online shopping constantly grow during this time with more than two million Woolworths customers regularly purchasing their favourite items through our consumer site today.”
Woolies online shopping delivery service spans over 96 per cent of Australia. This gives the conglomerate a significant advantage given it can reach remote locations including non-mainland areas such as the Magnetic and Macleay Islands.
So will The General Store actually shake up the supermarket sector in Australia?
“I don’t imagine Coles or Woolworths are too concerned with a revitalised online player,” said Mortimer. “We really haven’t seen Kogan Pantry having an impact in this space. The supermarket sector is more currently focused on ongoing price deflation, eroding margins and Aldi.”
Although admiring and supportive of the goals and objectives of the new venture, Brittain Ladd, a business strategist and contributor to academic journals, told Inside Retail Weekly that the economics remain challenging for online grocery retailers.
Ladd believes a significant challenge for The General Store will be costs, quality and assortment; three things that are extremely important to Australian consumers.
“I believe The General Store will find a niche market, but consumers will continue to favour Aldi, Coles and Woolworths to a large degree for their groceries.
“If Lidl enters the market, as expected, consumers will flock to their stores as Lidl does an exceptional job of providing consumers with low-cost, high-quality fresh fruits and vegetables, among other items.”
When asked if there are parallels between Aldi’s private label strategy making inroads into the ‘duopolies’ market share and Aussie Farmers Direct’s home-grown produce and goods potentially biting into Coles’ and Woolies’ online marketshare, Louie was quick to point out that Aldi had not been a consideration at all.
“This is not an unlabelled play – these are well-known, well trusted brands from our offer, so that’s not been a consideration,” he said. “What has been a consideration is customers have asked us, ‘can you please provide a full basket because we don’t want to physically go to the supermarket; we want to buy our fresh produce off you’.”
According to Ladd, sentiment rarely succeeds as a business model. “The General Store cannot depend on Australian consumers to be willing to pay higher costs merely to support Australian farmers and food manufacturers – just as traditional supermarkets enter into price wars, the same will hold true for online grocery retailers. Coles and Woolworths have already learned a tough lesson about failing to view Aldi as a threat.
“I have no doubt that Coles and Woolworths will not underestimate The General Store and I fully expect some form of deterrent strategy with harsh competition to be implemented by Coles, Woolworths and even independent grocers, who are the most vulnerable to a new entrant into the market,” he said.
Woolies, Coles, Aussie Farmers and The General Store and a few select independents are now slugging it out for online grocery market share. One major competitor they don’t have to worry about anytime soon online is the Aldi. An Aldi Australia spokesperson told Inside Retail Weekly that the German discounter has no plans to move towards developing an online offering as it prefers to focus on its instore experience.”
“We are constantly reviewing our business operations and processes to ensure we can continue to deliver exceptional value for our customers every day,” said an Aldi Australia spokesperson. “This includes eliminating many of the costly extras associated with traditional supermarkets.”
Aldi’s success stems from its mix of quality products, low prices and a no fuss, no frills operational style. Aussie Farmers Direct and The General Store have the potential to mirror Aldi’s physical success in the online sphere, though this may be restricted to having more impact on swallowing up independents’ share of the pie, particularly as price as a differentiator is a game exclusively to be played by the duopoly and potentially Amazon Fresh.
Mortimer said Australia’s grocery retail sector is evolving rapidly despite the online grocery channel still at an embryotic stage, accounting for about $2 billion a year of the $90 billion grocery market.
“The majority of this revenue is coming from Coles and Woolworths, but other players are testing the waters, such as Kogan Pantry and Farmers Direct/The General Store. Amazon have had some success in this space in the US and more recently in the UK.”
The attraction of convenience for time poor, tech savvy, early adopters who have taken to online shopping doesn’t hide the fact that there is a long way to go before we see real volume online. Mortimer said two challenges exist for online pure-play/multi-channel grocers – the first being the ‘last mile’.
“It is easy to pick and pack, but more challenging to facilitate delivery efficiently,” he said. “Any new player in the market, such as Farmers Direct/The General Store, needs to have a clear and better value proposition to compete against the majors. I suspect that will come down to a faster delivery service; order online and get those groceries on your kitchen bench top in under an hour.
“The second is trust. While dry packaged groceries are comparable, fresh is very subjective. To grow and succeed in this market, emerging players need to deliver on quality.”
Coles and Woolworths are evolving, albeit ever so slowly, according to Ladd, who believes neither have come close to implementing a world-class online grocery model for consumers.
“Over time, I expect both retailers to make significant investments in improving their online grocery service,” he said. “In a battle among Coles, Woolworths, and The General Store, Coles and Woolworths will win on price. And with minimal differences on quality, The General Store may be relegated to being a niche player for the long-term.”