Inside Online Grocery: Industry Operators Share Their Thoughts

By Julian Thumm | 16 Nov 2015

Grocery Butler’s Michael Parthenides and YourGrocer’s Morgan Ranieri take us inside the shifting and challenging world of online grocery.

Grocery Butler

Grocery Butler founder and CEO, Michael Parthenides.

Australia’s online grocery industry has been slow to take off, at least compared with other countries. In China, the online grocery market is growing rapidly, and is set to be worth about $180 billion by 2020, almost five times the current size of the US market. According to industry research company, IBISWorld, the Australian online grocery market is forecast to be worth $3.9 billion by 2020. Even after taking population discrepancies into account, it’s clear that Australia’s online grocery market has significant room to grow.

Online grocery is gradually gaining acceptance in Australia, with consumers working out what they want and operators working out how to provide it at a profit. While there are opportunities, the industry faces a host of challenges, the most significant being negotiating the dominance of Australia’s supermarket duopoly and the difficulties of managing logistics.

To gain more insight into the state of online grocery, Power Retail spoke with a couple of online grocery’s movers and shakers: co-founder of YourGrocer, Morgan Ranieri, and founder and CEO of Grocery Butler, Michael Parthenides.

Yourgrocer

YourGrocer co-founder, Morgan Ranieri.

Both Ranieri and Parthenides launched their respective businesses about two and a half years ago, and both are currently in the process of expanding. They discuss the opportunities and challenges facing the industry, addressing customer concerns and importance of in-house logistics.

The state of the industry

While the industry is undoubtably growing, it is growing slowly, especially compared with other countries.

“Online grocery in Australia is really far behind the rest of the world,” said Ranieri, “because we have a [supermarket] duopoly that is aware that online grocery is expensive, and has cautiously edged towards it.

“But if you look at the UK, there are four major grocers over there, each looking for ways to differentiate themselves. So we don’t have as much of a competitive landscape here, which means the supermarkets aren’t pushing to differentiate themselves.”

The major supermarkets’ sluggish move into the online grocery sphere has provided opportunities for smaller, independent players. The smaller players are more nimble, more able to adjust to consumer demand through dynamic business models.

For Parthenides, “While buying groceries online is still very much in its infant stages in Australia, consumers are the big winners right now. The stigma attached to buying groceries online is reducing, and consumers are realising that it can be a really convenient way to shop.

“While some media outlets have framed us as a competitor to the major supermarkets,” said Parthenides, “this isn’t how we see ourselves nor should the supermarkets.

“At the end of the day, our Grocery Butlers are shopping at their stores, so we are actually one of their biggest customers. We see ourselves as an emerging asset for the supermarkets.”

Convenience is king

Prior to establishing YourGrocer, Ranieri had firsthand experience of the gaps in the grocery market. Because of his long working hours, he was forced to do his shopping at Coles late on weeknights. “I wished I could buy my groceries at this great greengrocer next door, but it was always shut when I wanted to do my shopping,” he said. “So I found there was this gap between what I wanted, which was good food, and what I needed, which was the convenience that the supermarkets can provide.”

Ranieri’s experience is the same as countless time-poor Australian consumers. With Australians living increasingly busy lifestyles, convenience is driving more purchase decisions, especially for younger people.

“We learned quickly,” said Ranieri, “that it’s not so much young professionals that are buying, but young families that are the real target market.”

For Parthenides, “A typical Grocery Butler customer is shopping for their groceries while on the train home from work. By the time they get home their groceries are there to meet them.

“Australian’s are becoming increasingly time poor, so any service that gives back this precious commodity will be extremely valuable,” said Parthenides. “Currently, Aussies spend 2.5 hours in their local supermarkets each week. We believe this time is better spent elsewhere.

“It’s all about options,” he continued. “If consumers need something, and next day delivery doesn’t suit them, they love the security and convenience of 90-minute delivery.”

However, this convenience comes at a cost.

Quality and customer service

Grocery delivery involves dealing with delicate and easily spoiled products. Delivery is often time-sensitive, and quality and freshness is paramount, especially for produce like fruit and vegetables, meat and dairy products. Managing consumer expectations around delivery and freshness remains one of the key challenges for the industry.

YourGrocer partners with local, independent retailers, essentially providing a platform, among other things, that facilitates the ordering and delivery. ForYourGrocer, product quality is largely maintained by the network of independent retailers that it partners with.

“The shops that are most likely to want to join [YourGrocer] are usually the most forward thinking, and actively want to work on their business. And they are usually the ones that are putting more effort into quality and staying relevant,” said Ranieri.

As online grocery continues to develop, the importance of not just customer service, but community engagement, is coming to the fore. One of the key difficulties of operating online is maintaining a personal face and a community connection.

“One of the things people love about local shops is that they have real people active in the community, that there’s a face and a human interaction,” said Ranieri.

So the question becomes how to recreate that experience online.

Grocery Butler emphasises the idea of the personal shopper. For Parthenides, “Our customer’s human connection with their personal shopper and immediate delivery are certainly our points of difference in what is now a competitive and hard to crack sector of the market.

“The success of any business depends on repeat business, if you do well by your customers, they will come back, and this has been key to our growth thus far.”

For YourGrocer, community engagement comes from its network of local, independent shops. “Because we’re partnering with bricks-and-mortar shops, they’re promoting us as their home delivery option and as the digital partner for their shops.”

Delivery challenges

For any online grocery operator, organising and maintaining delivery will be the number one concern. Both Grocery Butler and YourGrocery use their fast, same-day delivery options (in the case of Grocery Butler, they advertise 90-minute delivery) as primary selling points. As a result, the main challenge facing the industry is ensuring reliable, yet economically viable delivery options.

“The main challenge we face is keeping up our high delivery standards as we scale. Managing our growing fleet of subcontractors has its complexities, and ensuring they maintain the high service standards can be challenging,” said Parthenides.

For Ranieri, it’s all about finding “the sweet spot between what the customer wants in terms of ultimate convenience and what you need as a business, which is a profitable economic delivery model.”

To achieve this, YourGrocer uses a variety of methods. “In some suburbs,” said Ranieri, “we supply the driver and the van and facilitate the delivery for about a dozen shops.

“We also work with shops to enable them to do deliveries on behalf of other shops on the street, a bit like a co-operative. For example, most butchers or greengrocers will have a refrigerated van that sits idle most of the day. So we enable them to use that resource to work with other shops in their area. So a greengrocer might work with a local butcher and baker to provide a service that benefits them all.

“We’ve built tools—such as smart routings and notifications for the customer—to make it really easy for our drivers to deliver. We’ve enabled some shops to do twice as many deliveries per hour using our systems than they would be able to do on their own.”

Perfecting logistics remains a central challenge for online grocers. “It’s a competency of anyone doing online groceries and they need to solve it themselves,” said Ranieri. “If you can lower the customers expectations around convenience, then maybe there are third-party providers that could work. But most people want their groceries delivered in a two-hour window, they want them fresh, and they want them delivered to their kitchen bench by someone friendly. And to make that work, you have to do it yourself.”

Where to next

Both YourGrocer and Grocery Butler are young players in an exciting young industry. To capitalise on the growth potential of a market that’s not yet saturated, both are looking to the future and looking to expand.

“We are learning and improving every day,” said Parthenides. “Our customer feedback is extremely important to us. We are a young business, so getting as much data on what works and what doesn’t is paramount. We are constantly tuning our service and training our personal shoppers. As the business evolves we are seeing faster average delivery times, reduction in late orders, increased customer satisfaction ratings, and larger basket sizes ($84 up from $68 six months ago).

For Ranieri and YourGrocer, a Sydney launch is on the cards. “We spent a lot of time getting the unit economics of delivery right, and we’ve settled in to our logistics model. So the past two years have been spent getting it right for the consumer, and getting it right from a logistics/economics point of view. Now that we’re comfortable scaling it, we’ll be hiring a business development manager in the next couple months to start finding the right shops in Sydney.”

 

 

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