29. April 2020
by Bob Chermin, Casper Roex and Eva van Bruggen
When it comes to online shopping, The Netherlands has always been among the most advanced countries in Europe. According to Eurostat, the Netherlands has the third highest share of people that purchase goods and services online. For food groceries, the Netherlands is the number one. In 2017, 29% of the Dutch population shopped food groceries online, followed by the United Kingdom (28%) and Germany (21%).
The penetration of online food grocery shopping has been growing rapidly in the Netherlands. In 2012 only 8% of consumers had purchased food groceries online. Five years later the number had almost tripled. Albert Heijn, Jumbo and Picnic together account for 90% of the online grocery market. The entry and rapid expansion of online pure player Picnic in particular has helped drive development and innovation in the online channel.
The current online penetration indicates there is a lot of additional growth potential. Indeed, EY-Parthenon proprietary research suggests the upward trend will at least continue at the current pace and potentially even increase;
- First and foremost, penetration will continue to grow as more people get access to or become familiar with online grocery shopping. Based on our research, on top of the 9% already shopping groceries online on a regular basis, 12% of the respondents say they are (very) likely to start purchasing groceries online in the next six months (see exhibit 1 in the supporting slides at the bottom of this page).
- Younger people especially indicate that they are likely to switch to online in the near future (see exhibit 2). As these younger generations continue to take share of spend in the market, this will provide an additional boost to the penetration rate. Contrary to older generations, younger ones are more familiar with online shopping in other categories and put high value on convenience, making them more susceptible to switch to online food groceries in the future.
- Finally, some of the barriers that are currently holding back consumers to switch to online may be overcome in the near future. Expectations around delivery costs are mentioned by one-third of consumers as a barrier to switch to online. Among younger generations, tomorrow’s main customers, the share is higher at around 40%. Growth of propositions with free delivery, such as Picnic, and improvement of retailer economics due to higher network density will take away this barrier, providing yet another boost for growth.
The trend towards online should be a major concern for all supermarkets with a brick & mortar store portfolio. It is tempting to draw a parallel with other categories like fashion retail where the rise of online shopping impacted the number of visitors on high street completely transformed the category within a decade.
Are we going to see a similar demise of grocery retailers that are reliant on stores?
The short answer: No. While online food grocery shopping has been growing fast and taking market share, sales in grocery stores have been relatively stable or even growing. While grocery stores will eventually experience negative growth rates as consumers migrate to online, it is unlikely that this will happen at the same pace as with fashion retail.
A second important distinction are the different economics of fashion and grocery retail. Take for example the fixed cost base of the retailer. At a grocery retailer this is typically a factor 5 – 7x lower versus a typical fashion retail store, reducing the impact of revenue loss on the bottom-line. Another example of differing economics is the existence of end-of-season markdowns in fashion, which, if poorly managed, can eat away the profitability of retailers with pressure on volumes. Put differently, in grocery migration to online hurts much less than in fashion, because gross margin does not suffer from end-of-season markdowns while lower fixed cost base allows for an easier scale down of costs in line with lost revenues.
So nothing changes?Also wrong. Even though the effects will not be as severe as with for example fashion, the role of the brick & mortar grocery store will still change going forward. We believe there are two key elements for the direction of tomorrow’s physical grocery store:
- Many people still value the physical grocery store for reasons that are not easily overcome. Consumers mention preference to see the product (74%) and personal contact in the store (33%) as two of the top three reasons not to shop food groceries online (see exhibit 3). Even among the younger generation, almost two-thirds indicate that preference to see the product is a key reason not to shop food groceries online (see exhibit 4). As a result, even with the increased availability and improvement of online food grocery formulas, there will still be people that will go to a physical grocery store for all or most of their needs.
- In addition, consumers that switch to online shopping, rarely do so for all their food groceries. According to our research, 86% of people that shop online, also go to a (super)market or specialty store on a regular basis (see exhibit 1). In fact, the food grocery shopping trip is becoming more hybrid. At some moments and for some categories the online shop is better suited, for others it is the (super)market or specialty store.
Overall, this is good news for grocers, but it also points towards the need to rethink current propositions. Online and offline fulfill different, often complementary, roles for consumers, so investing in the omni-channel proposition is one aspect in staying relevant. Serving these individual shopping trips might require reconsidering the store portfolio and could imply introducing different (smaller) store formats at different locations, potentially allowing for more service to consumers. Given the types of products bought in these stores a different category and product mix is likely required. In all of this, it goes without saying that developments in general demographics and increasingly local consumer preferences are taken into account.
So yes, people in the grocery store might get a bit older, but the format of groceries in physical stores is far from outdated.
Want to know more? We welcome opportunities to discuss impact of the above more detail, please reach out!
- 2018 data not yet available at the time of writing this article https://www.cbs.nl/en-gb/news/2018/38/netherlands-in-eu-top-5-online-shopping.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms
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