Tech Viewpoint: Responding to Online Shopping Store by Store
By Bill Bishop, Brick Meets Click
Online food shopping has grown slowly until now, but it’s about to pick up speed. In fact, momentum is so strong, Brick Meets Click now projects online grocery will exceed 10% of total grocery sales in many larger markets by 2020. For some areas in the US, online grocery spending has already reached 6% or higher.
If you sell a lot of consumable products--food and nonfood--here’s the big question: What’s going to happen to the profitability of your business if and when 10% of your shoppers’ spending shifts online?
Since growing online sales tend to shrink the dollars spent in-store, ultimately the impact will show up in the sales-per-square-foot at the individual store level, particularly for stores that are already operating close to break-even. The growth of online grocery will require you to evolve or die. Now is the time to figure out your response.
Look both ways: From the top & store-by-store
We suggest you look both ways when developing that response, from the top down and from the bottom up, store by store. At the chain level, the goal is to evolve your offering such that you hold onto your current customers while also attracting new ones--and that you do so while generating more dollar profits. From a corporate perspective, there are several ways to do this. Adding new categories to augment store sales is one way to improve profitability (e.g. increase sales per square foot), improving the efficiency of operations is another, and so is expanding into online shopping or improving your online offering.
At the store level, the growth of online grocery will have quite a different impact on profitability from store to store, so operators must also evaluate potential responses on a store-by-store basis as well. If you haven’t done so already, start by grouping the stores in your chain into three categories.
• Top performers – These stores generate most of the chain’s profit.
• Average performers – These generate a profit, but nothing special.
• Under performers – These aren’t profitable on a stand-alone basis, but contribute to corporate profits by carrying some overhead.
Responding to the challenge
With this framework based on profit performance, you’re ready to consider three potential shifts/responses that can be applied on a store-by-store basis to preserve and perhaps even increase sales-per-square-foot in the face of online shopping growth.
1. Offset lost sales with new sales.
Generating online sales from the store is one way to do this. Options include:
• Selling online from the store’s own inventory with either click-and-collect or delivery.
• Selling online from both store inventory and remote inventory with coordinated fulfillment of all the items in each transaction.
• Promoting new, more specialized items online that expand the store’s offering and encourage online browsers to visit the store (like premium restaurant-quality prepared entrees and desserts).
Another approach: When selling online from a separate facility, credit sales back to each store in return for the marketing support they provide.
2. Reduce the size of the stores to drive up sales per square foot.
In some situations, a portion of a store’s existing selling area can be leased for another purpose. If that’s not possible, it may be possible to wall off some of it or use it for public space; this may not reduce store size, but it could lower some overhead costs, which will help.
3. Rapidly exit from stores that can no longer contribute to corporate profit.
Most markets are already over-stored and there will be more “financially impaired” stores in the future. Recognizing this early, and enlisting real estate professionals to help move under-performing stores out of the portfolio sooner rather than later will be effort well spent.
Now is the time to act
Overall, this “look both ways” approach--choosing the actions needed to respond to the growth of online grocery on a store-by-store basis as well as on the corporate level--will give retailers the best opportunity to offset the profit loss that’s coming from the growth of online shopping. Think of these actions as creating some much-needed insulation from the future shock of online grocery.
Bill Bishop is the chief architect of Brick Meets Click.