What About E-Commerce?

Covid has us all sheltering in place and learning to order all our groceries online. That's surely the wave of the future, right?

And so when we build Chicago Market it will need to have a big e-commerce, delivery and curbside pickup program, right? 

Well...let's dig into those assumptions.

We're always learning about the grocery industry as we plan our store and we participated in two recent webinars with grocery industry experts on the topic of e-commerce.

From Michelle Schry, Retail Support Director, National Co+op Grocers, we learned some of the simple math:

Online grocery sales: 
  •  pre-Covid: 7% of CPG dollar share
  •  during Covid: 9%

Nationally, the rise in overall grocery sales conducted online has only been 2%. It is not that large. Brick and mortar is still very much selling groceries. 

Yes, but is e-commerce profitable?

No. No one has figured out how to make a profit at online grocery.

That was pretty surprising to learn. Not even Kroger, Aldi, and Wal-Mart have figured out how to make a profit at it. They often charge more online to defray costs. And they are definitely big enough to absorb the losses while learning. The big box stores will continue to invest in solutions, but their solutions will be warehouses and robots, not things that trickle down to us well. 

Michelle looks at it like this. Grocery is a 1-2% net profit business. It tends to cost 7% to fulfill online orders. So if you're looking at a $100 bag of groceries that a customer has purchased in the store, the business nets $1-2. For that same bag ordered online, the business does NOT make that profit and instead has to keep paying up to 7%. That means we, the Co-op would be giving up our profit AND putting a $5 bill into the bag before it goes to the consumer. 

Why is online so costly? The primary answer is labor cost. Normally, the store bears the labor cost of stocking the store and having checkout labor to speed the shopper on their way. Between those two steps are all the steps of walking the aisles to select items, adjusting to product availability on the fly, making changes and even transporting goods home. In the e-commerce model, the store suddenly bears all the labor cost of that work the shopper normally does...in addition to warehousing the orders in back rooms and additional cooler space until picked up or delivered. And there is also a lot of labor lost to online tech support, helping people with their orders, making changes and so on. None of this labor cost is paid for in the process. Stores that try to levy a charge, such as a co-op that charged a $5 online fee, find people go elsewhere. 

So, if e-commerce is a cost center (meaning it costs us to offer the service), Chicago Market will not have it?

The answer to that is a little more complicated. As Jacqueline Hannah of Food Co-op Initiative points out:

  •  co-ops are different stores and Cooperative Principle #7 says that we show care for the community - many in our community need access to groceries through online and delivery means

  •  urban environments see greater pressure to be offering something online

  •  online shopping is still NOT a large percentage of overall grocery sales

  •  if you choose to offer e-commerce, it's important to control its scope so it's not a large loss; go in eyes-wide-open and manage the cost and risk

So as we work with our feasibility assessment team developing a store program and financial plan that supports it, we'll give careful consideration to whether we can manage perhaps a small cost center in e-commerce because we want to offer it as a service to those who need it. And we'll need to ensure the rest of our departments perform well to support it. Or perhaps we'll need to decide against it. In any case, we'll be well-informed and make good financial decisions balanced against the needs of our community. 

Remember, the strength of all co-ops is something you'll clearly see reflected in our vision of a better food community - local, sustainable, connected. And that sense of community does not likely happen in an online food ordering platform anyway.

Showing 1 reaction.

  • Kate Jakubas
    This is super interesting! Thanks for sharing it with us.

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