Cost-effectiveness in Online Grocery Business

In recent years traditional bricks-and-mortar grocery businesses have begun to explore new online markets, with some paving the way for the e-grocery industry. Despite rapid advancements in technology and the popularity of online grocery shopping, according to a research, there are some businesses struggling with cost-effectiveness.

Poor operational procedures can put significant pressure on the success of online operations, with many stores looking for new ways to improve cost-effectiveness. In this article we take a look at key logistical practices, to help e-grocery businesses improve customer service and lower operational costs.

The Current Online Grocery Market

Despite promising developments within the e-grocery business, there continue to be challenges with cost-effectiveness in the grocery supply chain. In many situations, these changes are centred around last mile operations, when goods are being delivered to the customer. To overcome these issues strong relationships are needed between suppliers and customers, as well as lower supply chain costs and a larger customer base.

From the customer’s point of view, e-grocery shopping saves time and removes the need to physically visit a shop. There is a genuine desire shared by many customers to acquire products more conveniently, which indicates that there is potential to grow a successful e-commerce retail business. However, inefficient delivery operations and order picking are preventing growth in some grocery businesses. Despite the potential within the online grocery industry, there continues to be a disconnect in many situations between the online and offline performance in grocery sales.

There are many benefits for businesses which offer an online grocery service, such as limitless trading hours, increased marketing opportunities, improved customer service, shorter product cycles and an increased customer base. From a customer perspective, convenience improves alongside the ability to access a wide variety of products, while also saving time. Despite these opportunities, two decades after many retailers rushed to embrace the dot-com boom, many are struggling with e-commerce penetration.

The exponential growth of e-commerce has made online retailing more competitive, however it also means customers are more willing to shop for groceries online. While in some cases access to the required technology may hinder online sales, it is more likely that businesses are facing deeper complexities which are causing challenges.

The habit of shopping for groceries is deeply rooted, which can make it difficult to persuade customers to move to online shopping. In addition, many shoppers which trial an online service continue to split their shopping between online and offline orders, with some switching back to fully offline retail. However, these challenges are not impossible to overcome for omnichannel grocery businesses. In fact, there are opportunities to gain an increased market share by reshaping consuming behaviour.

Increasing picking efficiency to bridge the convenience gap

While some grocery stores choose to fulfill orders through existing stores, others opt for order picking through distribution centres. Both options have the ability to offer a friction free online shopping experience, however there is still a requirement to overcome the convenience gap.

Many customers prefer to visit physical stores to browse for groceries, however they are willing to shop online for products in other categories. This issue can be partly attributed to the high expectation’s consumers feel towards online shopping, they expect the right product at the right price. When it comes to purchasing groceries online, customers expect convenience without compromising on product quality.

While it is possible to heavily automated order picking to improve efficiency, it is important to balance this improvement with customer satisfaction. For example, a distribution centre or physical store should be seen by order pickers as an assembly factory, rather than a warehouse. Waste and product handling should be minimised, with a focus on improving the efficiency of product flow.

Various production principles, such as lean manufacturing can be used to improve efficiency, without compromising on product quality. For example, slower moving products can be positioned in a way where they are not blocking routes to faster-moving product lines. In addition, the physical attributes of each product should be considered, such as durability, size and weight. By grouping products with similar characteristics together, heavier items can be picked first with more fragile items chosen last.

Overcoming inventory challenges

In a traditional store, customers have decades of experience navigating stores and retailers understand how their customers think. The physical process of navigating aisles creates a marketing opportunity and allows customers to compare products and prices. Online retail needs to replicate this process as closely as possible, through helpful product recommendations and easy to navigate websites. However, providing this level of service does create challenges when it comes to managing inventory.

There are specific challenges which retailers need to overcome, such as the availability of products, cost-effectiveness of substitute products, freshness of groceries and pricing efficiency. To overcome these challenges a high level of accuracy is needed when predicting customer volume. To improve cost-effectiveness, organisations tend to carry the minimum level of inventory required, however if online order levels exceed stock levels, customers’ orders cannot be correctly fulfilled.

Another issue for cost-effectiveness is the need to substitute unavailable items with an item of a higher value. If a customer orders an item costing less which is then unavailable, the order may need to be fulfilled with a higher value item, with the retailer required to absorb this cost. This is a recurring challenge which needs to be tackled by coordinating store operations with online operations. It is an unavoidable challenge, however omnichannel technology can reduce costs and improve customer satisfaction.

The benefits of an omnichannel ecommerce platform

Innovations such as the ability to compare prices and expected use by dates are continuously offering improvements for customers. It is this omnichannel retail technology which can provide customers and retailers with advantages to shopping online, while improving cost-effectiveness of the operations.

Our omnichannel ecommerce platform is designed with large-scale enterprises in mind, with sophisticated features to allow retailers to effectively manage their omnichannel ecosystem from a single platform. The industry specific platform could provide your business with the tools required to improve cost-effectiveness within your e-grocery operations. To find out more, please contact our team today.