Grocery innovation competition on the rise

In the wake of Covid-19, innovation is expected to be the dominant theme in the supermarkets and grocery stores industry, says IBISWorld.

Woolworth and Coles are expected to pursue new grocery delivery services, greater data analysis of consumer shopping habits, and enhanced customer experience to expand market share in 2021 and beyond.

“Competition in the supermarkets industry remains fierce and is likely to focus on capturing online market share in the year ahead,” says IBISWorld Senior Industry Analyst Tom Youl.

“Woolworths has the lead at this point, but Coles is implementing new strategies to catch up.”

Online grocery 

Revenue for the online grocery industry is rising at an “accelerated rate”, says IBISWorld.

Woolworths’ latest results showing a 91.8% increase in e-commerce revenue in the first half of 2020-21, to $1.8 billion.

Coles e-commerce sales increased by 48% in the same period, to $1 billion.

Woolworths has a store count of 1052 relative to Coles’ 824, says IBISWorld, which allows Woolworths to expand its online grocery delivery market share more easily than Coles.

“The scale and scope of online grocery shopping options is quickly expanding, providing an advantage to larger players relative to independent grocery stores,” says IBISWorld.

“Online grocery ordering is forecast to become a widely adopted service over the next decade, rather than a niche offering for tech-savvy consumers.

“Coles is currently constructing two automated warehouses in Melbourne and Sydney, to streamline online ordering and improve ecommerce efficiency. These warehouses are expected to deliver a wider range of products, with improved product freshness and more delivery windows. However, these facilities are unlikely to be operational before 2023.

“In contrast, Woolworths launched its first e-commerce fulfillment centre in October 2020, using automation to hasten the sorting, moving and picking of up to 10,000 grocery products.”

Customer experience 

Attempts to differentiate the shopping experience are also expected to accelerate in 2021 and beyond.

“While price competition is a key decider for where consumers shop, smaller factors such as popular collectibles campaigns can go a long way to both protect market share and attract new customers,” says Mr Youl.

Supermarkets, says IBISWorld, will also likely use in-store pop-ups, events and classes to enhance the consumer shopping experience and attract market share from competitors.

Recovery and outlook 

Revenue in the supermarkets and grocery stores industry is expected to grow at an annualised 2% over the five years through 2025-26, to reach $134.1 billion.

Unlike the broader economy, says IBISWorld, supermarket operators have benefited from Covid-19 due to panic-buying, a need to cook at home rather than dine-out, and an increase in household discretionary income due to fiscal assistance measures.

In 2020-21, revenue is expected to grow at an above average 5.1%, to $121.6 billion. Profit has also “surged” over the past two years, rising to 4.5% of industry revenue in 2020-21.

However, revenue growth is expected to slow as the Covid-19 pandemic fades.

“The removal of fiscal stimulus measures in 2021 is expected to reduce household disposable incomes, decreasing consumer expenditure at supermarkets,” says Mr Youl.

“In addition, supermarkets have been supported by a need to shop local amid lockdowns in recent months. Going forward, this benefit is likely to be removed.”

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