Click & collect could make online food retailing as profitable as in-store, analysts have claimed.
Growing the model to account for 30% of the online grocery market - as opposed to 8% today - would put profits on a par with those from traditional shopping, research company Bernstein said in a report on the sector.
The service would save retailers the £9 cost per home delivery while still enabling them to tap the online market, the analysts pointed out.
Click & collect also drove a “much higher portion of smaller baskets than home delivery”, said the team led by senior analyst Bruno Monteyne, who worked at Tesco.com until 2005.
The Bernstein report also refuted the commonly held belief that online grocery is inherently loss-making. “Those retailers that shout loudest that ‘it can’t be done profitably’ are those that offer such a bad experience through weak operations, and therefore make consumers lives worse rather than better,” it said.
The team concluded that online retailing could make money if customer scale and density were high enough and the retailer offered a positive customer experience through narrow delivery slots and high product availabliilty.
”Online food provides consumers with the ultimate convenience: ‘whenever, wherever and however I want, at a convenient time for me’. That is why when it is done properly (all too rare for most retailers for the first 15 years), consumers love it and are willing to pay a price for it. When it is done right, it can quickly grow to scale, at which point profitability sets in,” the analysts said.
Out of the big four online operations, Bernstein rated Tesco the highest. “Tesco’s leadership in online food retail is one of the structural drivers why it is better positioned than its peers in the UK. The growth of online food retail also provides a unique opportunity for Tesco to deal with its excess space problems.”
But it forecast that Sainsbury’s, which traditionally hasn’t had the same scale as Tesco, could become a challenger with the acquisition of Argos.
The analysts were less optimistic over the fate of Morrisons’ online offering, described as being in a “weak position”, and Amazon, which it said would struggle to turn a profit from its food division.
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