Supermarkets: Time wars and the ‘Go Economy’

shopping aisle supermarketSince 2011, Australia’s supermarkets have been locked in a price battle, colloquially known as the ‘supermarket price wars’. In an unsuccessful attempt to defend themselves against the growth of global discounter Aldi, our supermarkets have pushed prices ‘down down’, ‘locked them down’, ‘price matched’ and made them ‘cheap cheap’.

The result? The weakest food and grocery sales growth in years, at 0.7 per cent, with supermarkets now dependent on population growth to build sales. Meanwhile, Aldi continues to expand across the country, planning at least another 120 stores in Western and South Australia alone in the coming years.

This relentless preoccupation on price promotion has seen product ranges cut, private label products re-launched and suppliers pressured.

What shoppers and commentators are seeing in the Australian market has been playing out in the UK market for years. While British grocers also bemoan the unsustainable price battles, despite continuing to play in this space, Sainsbury’s appear to be the first to focus on an emergent trend – the ‘Go-Economy’.

‘The ‘Go Economy’ has been created by the always-on, immediate world of digital – being able to immediately download books, music and movies, or secure services like a haircut, book a hotel or get your car washed.

While some products and services can be digitised and immediately downloaded to a smart device, physical products have naturally posed a challenge.

Retailers in this space have accordingly focused on fast delivery to compete, like Australian pureplay retailer, The Iconic, which was the first to promote a three-hour delivery window. When you are competing against others with the same offer and often the same prices, getting your product into the hands of a customer first is always going to be beneficial.

AsosThe value of time

Retailers, such as Amazon and ASOS, have paved the way for the ‘Go Economy’ by being able to provide products in, or near, real-time, and by removing the length of time and hassle it takes to plan and visit other locations to make a purchase. We are now seeing the emergence of time value.

Time is one of the most valued resources for customers, often impacting their decisions and behaviours daily. Customers often seek to save maximum time when purchasing, which has become a challenge for not just supermarkets, but all retailers.

The current fast paced nature of consumers’ lifestyles has made time saving an important factor in deciding where to shop and who to shop with. For supermarkets, cutting prices is a simple, but easily replicated strategy. Providing time value is becoming just as important as providing quality value in the products. The supermarket that becomes the fastest to market will win the ‘time wars’.

Responding to the now

While supermarkets around the world are scrambling to grasp the dynamic nature of time value, fast food retailers have battled in this space for years. Domino’s and Pizza Hut moved quickly to capitalise on online home delivery; soon followed by McDonald’s. In the battle between Pizza Hut and Domino’s, Domino’s Pizza Enterprises CEO and MD, Don Meij, has demonstrated the ‘power of now’ by investing resources to make and deliver pizzas faster than his competitor. The standard 30-minute delivery model, moved to 20 minutes, and now (for an extra $5), a 15-minute guaranteed delivery.

Supermarkets doing time

The rise of AmazonFresh in the US and UK, and the demands of the ‘I-Want-It-Now’ shopper, have put incumbent supermarkets under pressure to meet constantly changing expectations. Many, like Walmart and Morrisons, have teamed up with third-party providers like Lyft, Uber, Togle and Ocado to achieve a same-day delivery promise.

This year, Sainsburys took the bold step of hiring 900 new delivery drivers, aiming to bring delivery times down to just six hours. Not to be outdone, Marks & Spencers has announced it is partnering with e-commerce provider, Togle, to facilitate a one-hour delivery promise within London.

The time challenge

The battle between Australia’s supermarkets will soon become about ‘hours’, not ‘dollars’.

However, this new battle will not be as easy as replicating price. The size of the Australian online grocery market, in both terms of percentage and real dollars, is small – about $2 billion, compared to the UK’s £9.8 billion and the US’ US$7 billion. Only about 12 per cent of Australian shoppers currently use online grocery shopping, while almost 30 per cent of British grocery shoppers now use online. Population density as well as geographical distribution also present challenges for Australian supermarkets.

Who might be the first to move? I would suggest Woolworths are better placed to push down delivery times. Being the first supermarket in Australian to open ‘dark stores’ in 2014 provided them with greater online efficiencies. Coles opened their first ‘dark store’ in June of this year.

After a disastrous couple of years, I suspect Woolworths CEO, Brad Banducci, and his revitalised management team will move quickly to leverage their position and fire the first shot in the time wars.

Dr Gary Mortimer is an Associate Professor in Marketing and International Business at the QUT Business School.

Comments

1 comment

  1. Max posted on October 5, 2016

    Another terminology really? The 'Go-economy' - who coined this? We already had the 'always-on' economy, the 'on-demand' economy. The 'on-demand' economy is the most widely used and referenced in Google - did we really need to create another version in the 'Go' economy? Gary, did you coin this? reply

Comment Manually

Loading...

Inside Retail Polls

The Amazon effect...
What impact will the e-commerce giant have on Aussie retail?

Inside Retail Directory

Twitter

How to build a global brand like Santa Claus. https://t.co/Bne43Gw2ES

3 days ago

Swedish fashion retailer headlines centre's final stage of $350m redevelopment. https://t.co/cOQRDg4luJ

3 days ago

Surging Chinese demand for Australian-made products fuels company's growth plans. https://t.co/IlE7VaFERs

3 days ago
x

SUBSCRIBE
FREE NEWS BRIEFS Get breaking news delivered