The Co-operative today unveiled plans for its long-awaited online grocery launch. Retail Week takes a look at what the move means for the mutual and the market.
The Co-op’s plan to launch online grocery represents the most ambitious element of food chief executive Steve Murrells’ strategy to revive the fortunes of The Co-op is his venture into online grocery.
Murrells will look to channel the trail-blazing spirit of The Rochdale Pioneers – who set up the first co-operative in 1844 – in launching the first of four trials before Christmas. Each of the trials will use a different delivery model to fulfill online grocery orders in a search to find a profitable method.
Murrells admits that the launch is in part a defense strategy as The Co-op looks to retain shoppers it could lose to etail.
He tells Retail Week: “The evidence shows that it replaces bricks and mortar sales and is margin eroding. But if you are not prepared to eat your own children someone else might,” he maintains.
“We will start off with a sequence of trials this year before Christmas which will allow us to understand how we can create an online food offer that is incremental and is not as profit eroding to our bricks and mortar.”
But he adds that, with as much as a 6.6% share of the physical grocery market according to Kantar Worldpanel, The Co-op has a “dramatic” opportunity to gain shoppers online.
Although Murrells remained coy on the details of the various trials he confirmed a number of existing options are available to him. The first would be to utilise its own fleet - which it uses to deliver baskets bought in store and worth more than £25 free to customers’ homes - to deliver orders made online and picked from store in a similar model to Iceland’s.
It may also consider building its own click-and-collect service. The Co-op currently hosts Amazon Lockers in 165 stores for shoppers to collect non-food orders.
“The opportunity is still large in non-food lockers and there’s lots of interest in food lockers. We chose Amazon because they had the technology but the mission itself is the most important thing,” he explains.
“The question is – how do you move that to fresh food lockers? That will form part of the overall thinking.”
A key issue Murrells believes will need to be addressed is The Co-op’s small, £6 average basket size, which is in stark contrast to Ocado’s equivalent £115 shop. Kantar Retail insights director Bryan Roberts said earlier this year: “I’m not entirely convinced that the Co-op has the ‘big trolley shop’ shopper base that would easily and profitably shift to the online environment.”
However through the trials Murrells wants to develop a method of creating “convenient online food retailing” which also allows it to absorb the cost of delivering groceries to shoppers’ homes.
The digital push will be supported by a new ‘digital deals’ service whereby shoppers receive offers via an app and Murrells sees mobile as a key part of the grocer’s offer, adding that online grocery will form part of a wider offensive to engage with 18-25 year olds. The retailer will also roll out contactless payment, currently in 2,000 stores, next year and increase the number of self-scan tills in store.
The online launch could see The Co-op steal a march on Morrisons which is due to launch via Ocado by next January. It will leave Marks & Spencer and discounters Aldi and Lidl as the only major grocers without a digital food offer in a market which grew 17.6% to £6.1bn in 2012, according to Mintel.
However, The Co-op will have to work hard to stand out from the crowd and as such will need to create a distinct point of difference.
Head to head with Ocado’s strong service or Asda’s low prices, The Co-op’s brand will have to prove a draw with its traditional strength – good, local locations – taken out of the mix.
The Co-op unveils plans for online grocery launch
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