Online grocery shopping is being hotly contested by retailing giants Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW). Both Woolworths and Coles supermarkets are pushing home delivery promotions to boost a fast growing segment of grocery shopping.
For both store chains, online grocery shopping may only be 2% – 4% of total revenue now, but sales growth is in the high double-digits. These big players combined have an estimated 72% market share control of Australian grocery shopping – an $82 billion a year business.
Yet they aren't the only ones eyeing the growth potential. Online discount retailer Kogan has added regular grocery items to its list of deep discount categories. It is known for selling electronics inexpensively, but sees the opportunity to join the online grocery party.
A shopping comparison – Kogan vs Woolworths
I'm a regular shopper at my home, so I jumped onto Kogan's website to see how deep the discounts are. As an example, I chose a popular brand name kitchen cleaner and degreaser. On Kogan's site, the 450ml cleaner retails for $0.99 a bottle, whereas a 500ml version of the same cleaner on Woolworths' online shopping site sells for $6.44.
But what's the catch? You can only order one per customer and the estimated shipping time is 1-2 weeks. So much for the joy of impulse buying. Woolworths and Coles offers much quicker delivery times and the customer can even request a date and time to suit their schedule.
Also, the Kogan item in this case is an international version made in Indonesia, so probably some cost savings from overseas production can be made.
Differences in product categories
Coles and Woolworths offer pretty much all goods categories for online shopping and home delivery. Kogan presently doesn't sell perishable goods like meats and dairy. The retailer concentrates on canned and packaged foods and drinks.
My first impressions are that if a customer wants to save on non-perishable items and can patiently wait for them to arrive, they could save a good amount of money. However, you would still have to do your other regular shopping, so many shoppers may not want to take the extra time to separately order things. Retailers like Aldi and Costco could challenge this space with their lower average prices online and at stores as well.
Who wins here?
I don't think Woolworths and Wesfarmers will be overly worried, but they do need to focus on this growth shopping category. Consumers ultimately will be the winners with better pricing. Most shoppers are used to big variety and convenience, so it may be hard to break old habits.
The retail giants may have to give up some in profit margins to drive more sales, yet the big difference in delivery service could keep shoppers mostly loyal to their local Coles or Woolies. Investors shouldn't sell off their Wesfarmers and Woolworths stock because of this, but they should keep up with how the two companies intend to maintain past long-term growth trends.
