Supermarkets making massive loss from online shopping
One retail analyst has claimed that supermarkets are making huge losses from online shopping and delivery. They may charge for delivery, but with slots going for as little as £3 and costing the firms up to £20 a time, they are an enormous cost for the firms.
He claims online shopping is costing them as much as £100 million a year, and suggests that this is a waste they can ill-afford at a time when they are battling the discounters.%VIRTUAL-SkimlinksPromo%
Retail analyst Dave McCarthy will make the claims in a Dispatches documentary on Channel Four tonight. He calculated the combined costs of packing the shopping, paying delivery drivers, paying for fuel for the vans - and buying the vans themselves. He says the supermarket industry is ploughing £100 million of its profits into deliveries every year.
This is backed up by recent McKinsey research into online deliveries, which said: "Selling groceries online means taking on additional costs - in labour, delivery vehicles, and fuel - that are higher than the fees customers are willing to pay for delivery....Profitability can those seem an unattainable goal."
Pure online grocer Ocado is living proof of the fact that it's difficult to make a profit on the business. In 2013 it announced losses of £12.5 million - as it increased its customer base. This was up from a loss of £0.6 million the year before. Since the business was founded in 2000 it has only made a profit once - in 2010.
McCarthy will suggest that instead of subsidising these costs, supermarkets should ditch online shopping, and throw the money at cutting prices. He argues that right now we are experiencing a fundamental change in the way we shop, with loyalty to supermarket brands disappearing, the death of the weekly shop, and the rise of regular trips to the discounters for bargains we know we need. In this new landscape, weekly shopping deliveries are not only costing the supermarkets a fortune - they are also a poor fit for the way we want to shop today.
The McKinsey research came to a different conclusion: not that online shopping was set for an expensive death, but that in order to profit from it, supermarkets needed to introduce systems that maximised operational efficiency. It pointed out, for example: "The top performers, by implementing best practices such as the use of easy-to-maneuver picking carts and careful monitoring of pickers, have boosted their picking speeds to three times those of the worst performers- the difference between profit and loss."
It adds that websites can also be designed to increase the amount the shoppers spend, with things like "product-by-product access to recipes and recommendations based on previous purchases - which can increase the amount people spend by 5%.
And it points out that some models can improve profitability. It mentions one grocer, which sets delivery fees based on basket size and the time since the last delivery - encouraging shoppers to buy more - and buy often.
But what do you think? Are you devoted to online shopping, or do you think it has had its day? Let us know your thoughts in the comments section below