Review: IGD Online and Digital Summit 2016
Written by Glynn Davis
Questions over the profitability of online grocery and the increasing importance of the mobile channel continue to sit high up the agendas of food retailers judging by the frequency they were mentioned at the recent IGD 'Online and Digital Summit 2016' in London.
Chris Conway, head of online trading at Morrison's, suggested to delegates that he was pleased with the two years of progress the company had made since signing the online partnership with Ocado and that it was profitability that was at the heart of the company’s online activities.
Drive towards profitability
"We need to get to profitability fast. Other food retailers have had 10, 15 even 20 years in some cases working on it and they have not achieved profitability but we're on track to deliver it [with Ocado]. We're also going to be doing store-picking and will roll it out next year when it makes sense. It's all about profitable growth," he says.
Such profitability will be essential when you consider that Conway regards online as a significant part of the future of the Morrison's business because it has not only helped the company double its shopper base since the Ocado deal but that many of these customers are "a hell of a lot younger" than the typical store customer. "It gives us the confidence to look at it as the future of Morrison's," he suggests.
Adrian Letts, managing director of online at Tesco, is also fully aware that as online sales grow - as a percentage of total group sales - they are a crucial component of its business and a part that needs to be profitable. To this end he believes the company will leverage much more value from its home delivery service in the future, which will ultimately be a profits generator.
Leveraging home delivery
"It's a huge opportunity. Our home delivery is unique and special as it is the only time a Tesco colleague is allowed into a customer’s home. The engagement and support we give is remarkable. It's a question of how we leverage this up to be additive. There is plenty we can do," he says, hinting at extra services that could be potentially offered in the future at the point of delivery.
The strategy for Tesco is very much multi-channel and Letts says online is simply being developed as part of the overall proposition: "It's an exciting piece of the puzzle. Many shopping journeys will start online but this does not mean that people do not go into a shop. We're trying to grow the whole pie and not be siloed."
Mobile and personalisation are key
He points to mobile as an important component and that "context and relevancy is everything" with this most personal, and increasingly frequently used, of channels. Personalisation - in the context of mobile - was a common theme at the summit.
Hannah Gibson, head of grocery merchandising and product at Ocado, says it is absolutely essential: "We've 45,000 products, and on a mobile, which shows only three items on the screen at a time, they have to be the right products for that customer."
Ocado has been working hard on improving the personalisation for its customers that begins with knowing more about the individuals. "If the customer is vegetarian then they don't expect to be shown meat on the 'shelves'. We need to know things like how big is their household because we'd then show them multi-packs. Everybody has got their 'favourites' and so we need to build these into our models in order that we know when they’ll run out. And also with seasonal things so we know that somebody bought mince pies this time last year," she says.
Mobile experience needs improving
Despite the work that is being done by the food retailers to improve the experience for customers on mobile, Vanessa Henry, shopper insight manager at IGD, says there is still lots of effort needed. She cites research that shows 81 per cent of shoppers say they have "useful" retail apps on their phones but only 34 per cent have a "useful" grocery app. "There is no killer grocery app. There needs to be improvement here," suggests Henry.
One area retailers can make improvements is by working with manufacturers and moving towards the adoption of digital-first design for product images, which when used on websites can massively improve the ability of customers to find products – especially when using mobiles.
Oli Bradley, global e-commerce experience design director at Unilever, says: "Packaging is still being done for [the selling of goods in] stores. We need to look at this and have digital-first design instead because 60 per cent of retail sales will be influenced by digital by 2017 and much of it will be on mobile, with 80 per cent of this traffic on screens smaller than 5.1 inches."
The China opportunity
Nowhere is mobile more prevalent than in China – where for the main sites like Alibaba and JD.com as many as 70 per cent of transactions are undertaken on mobile devices. As China is a target market for many UK retailers this gives them an added imperative to placing a strong focus on mobile.
Leah Zhang, head of development at Alibaba, says it is very much a mobile-first market and one that is being seen as very attractive to UK brands. This is a result of the triumvirate of: significant growth in the retail sector; the growing numbers of middle class consumers; and the rise of younger shoppers with disposable income.
She suggests the likes of Alibaba, with its Tmall online marketplace and Tmall.HK site that does not need the retailers to have a presence in China, were "lowering the barriers of access" for British companies to trade in China. The likes of Ted Baker, House of Fraser, Burberry and Sainsbury's are among the UK retailers presently selling goods through Alibaba in China.
Anja Madsen, head of online operations at Sainsbury's, says the company sells on Tmall and has been having great success: "We've just doubled the product range and are doing some interesting marketing activity. It's 'Singles Day' in China on November 11 and we expect to sell six months' worth of some products on that one day."
Ongoing developments at home
For all the potential of these faraway markets, Madsen is clearly very much focused on the domestic market where much is happening. As well as the launch of an app for Sainsbury’s core grocery business and a Tu clothing-specific app, Click and Collect being made available in 130 stores, and a new online fulfilment centre being built in East London, the big event at the grocer is the recent acquisition of Home Retail Group.
This deal is testament to the serious intent that the UK grocers have for making online retail work and become profitable. Sainsbury's has made it clear the Argos stores will play a significant part in the development of its multi-channel aspirations.
Madsen says Sainsbury's is looking at how to use these stores as collection points for online orders and how to combine purchases made across businesses – thereby giving a seamless shopping journey across Sainsbury's and Argos product categories.
Such moves highlight how exciting the online and digital marketplace is for the food retailers who are clearly still in the early stages of their developments in what will undoubtedly be a key battleground for the future.