Circana has released its Industry Insights report into the state of e-commerce in Australia. The Unlocking The Next Wave Of E-Commerce Growth report identifies the breadth of opportunity available to the retail sector to drive growth through e-commerce.
The report highlights three areas of focus for the retail sector: continue enhancing e-commerce capability, view e-commerce as more than online sales; and execute across omni-channel touchpoints. Specifically, the report explores seven themes to guide decision-making to help businesses leverage the benefits of e-commerce to optimise growth.
The report is one of the most significant and in-depth reviews of e-commerce in Australia and outlines the challenges and opportunities facing the retail sector as the digital shopping space evolves at break-neck speed. The report explores the potential for e-commerce to completely reprogram the shopper experience and augment engagement both in-store and online.
The pandemic helped accelerate digital adoption across the world. Total Australian retail online dollar sales grew 7.3 times, outpacing total in-store retail sales over the last five years. Online sales increased by 186% compared to the five-year average. Despite this, in-store retail generated 2.6 times more actual dollar growth.
As the pandemic took hold, we saw an increase in the number of shoppers using online retail more frequently. The number increased from 27% in 2020 to 41% in 2021 and 2022. Now that life is returning to normal, the number has now reduced by 14% back down to 27%.
ABS research and Circana’s Shopper Panel show that Australia hit an online sales ceiling in 2022. Removal of lockdowns saw households step out to shop again and not surprisingly this resulted in a post-pandemic online shopping dip.
The opportunity for the sector is to entice shoppers back online through innovation, convenience, personalisation and value. Circana research shows there is a clear preference to buy FMCG in person. The vast majority of FMCG sales will not be digital anytime soon. Omni-channel and omni-category leadership is key. There is a need to invest in capabilities that enable a better online customer experience and this starts with creating a consistent omni-experience in store and online and bringing to life the latent benefits of digital commerce: speed, reliability, assortment and flexibility.
Revenue reversion and recovery
The report outlines that while the online retail market moderated in the 2023 financial year, the outlook for 2024 is improving. Like the total market, online grocery is back in growth.
Going forward online retail will continue to grow share amid a digitisation of society. The most recent quarter indicates a reversion to growth, although below pre-pandemic run rates. Clearly, as Australians increase their engagement with the online environment, businesses across the retail sector must equip themselves to capitalise on this growth.
The digitisation of commerce is changing the role of the physical store and spearheading the intertwined relationship between online and in-store. The clear rise in buy now, pick up in store, is a telling example.
If we look to the US, e-commerce growth post-pandemic provides signals of a prolonged sales uplift. The latest quarter shows e-commerce being 18 percent of total overall sales, however, it represents a 28 percent share of growth. The post-pandemic online recovery is well and truly underway and brands need to ensure they ride the wave of growth investing in the right strategies and tactics for long-term success.
Penetration plateau and pick-up
The pandemic virtually forced shoppers into buying online due to lockdowns and a fear of going outside. Largely, online customers were created through pandemic circumstances, not clever acquisition.
Enticing more shoppers online and encouraging increased online shopping frequency is now the new challenge for the retail sector. Circana research shows that post-pandemic customer acquisition is proving to be more challenging and more costly.
The retail sector needs to prove to Australians that it can provide superior and life-changing experiences shopping online. Unfortunately, below-par online shopping experiences encountered during the pandemic have heightened hesitations and impacted shoppers’ perceptions of online shopping.
Our Circana Shopper Panel identified the top five grocery shopping common annoyances; not getting the products ordered and receiving different replacement items, delivery costs, issues with food freshness, lack of delivery flexibility and minimum spend were the key issues for shoppers.
While the sector moved quickly during the pandemic to ramp up online shopping operations, the sheer scale and speed at which the growth happened resulted in-service issues. Retailers and manufacturers must work together to improve the online buying experience for shoppers. As this happens, we expect to see sales increase online.
Our research shows that households with higher incomes and kids and pets have a higher propensity to buy online which has helped to drive the resurgence in online shopping.
As the sector searches for ways to drive online growth, retailers and manufacturers will quickly need to identify untapped and emerging customer segments and gain a rapid understanding of their needs and preferences. Online shopping provides significant benefits for households especially those with kids who are time-poor and enjoy the convenience, ease and accessibility of online shopping. Households with kids significantly over-index online. We are also seeing this across households with pets.
Younger households are also driving online shopping growth. Households where the main shopper is aged younger than 40 years of age are driving online growth. 46 percent of household shoppers rate the online shopping experience as being either ‘very’ or ‘quite’ important when choosing which supermarket to shop with compared to 18 percent of 65-plus-year-olds.
Thursday and Friday continue to be higher performing days for online grocery shopping. Regional areas over-index online and have recorded higher growth in the 2023 financial year compared to their city shopper counterparts. Edible sales growth is outperforming non-edibles, both online and in-store. Petcare is the standout in non-edibles.
Personalised precision is a key area of opportunity in the online space as the digital ecosystem allows brands to build comprehensive customer profiles ensuring a more personalised and customised shopping experience.
E-commerce provides the sector with unparalleled access to customer insights however it is important to note that fixating on online sale tracking in isolation is an overly narrow and misleading view of digital commerce and its potential, when shoppers are increasingly engaging digitally regardless of the final transaction period.
Online shopping allows brands to leverage data and use broader digital ecosystems to drive winning outcomes. Circana research shows that expanding memberships and scan rates of leading retailer reward programs reflect improving member engagement underpinned by interactions with improved personalised content. This is where loyalty programs come to the fore; personalised precision begins with loyalty programs.
68 percent of shoppers state that loyalty card rewards are extremely important or quite important when choosing which supermarket to shop in. Essentially, shoppers are seeing loyalty programs as a means of achieving better value for money through rewards and other benefits. This is particularly important as we experience a cost of living squeeze.
Coles and Woolworths are trialling member discounts alongside more sophisticated and integrated apps. 50 percent of Woolworths’ digital traffic growth is coming from their apps, particularly Everyday Rewards. Personalisation is a powerful tool in the digital environment and if optimally leveraged will deliver outstanding outcomes for both shopper and brand.
Improved online customer experiences will be crucial to ensuring digital investments are a future industry tailwind. This applies to growing and maintaining a loyal online customer base with more experienced buyers prepared to shop around for a better service. The same goes for reengaging lapsed and hesitant buyers, the recruitment of whom remains vital.
E-commerce feels old school to many across the retail sector, but the reality is we are just scratching the surface in terms of where we are headed. The majority of digital transformation and associated benefits for industry and customers are still to come. As more shoppers buy online, the speed of order fulfilment will increase in importance.
Order fulfilment will become a key battleground for the sector as more shoppers develop the confidence to use different ways to receive online orders and make use of sophisticated and integrated retail apps. The longer-term outcome will be smaller baskets and online orders that are more acutely based on need and occasion. This will force operators to rethink e-commerce, assortment, price points and multi-channel activations.
Already AI, robotics and blockchain-based smart technology are being incorporated into logistics operations to increase capacity, improve speed and support micro warehousing to increase the efficiency of operations including last-mile delivery.
When choosing where to shop, 87 percent of shoppers feel outlets that offer a wide range of products is important/quite important, versus only 32 percent that place importance on the online shopping experience. Immediacy is a key priority for shoppers. Eighty percent of Woolworths’ e-commerce sales are fulfilled within 24 hours of order. Logistics is a critical aspect of online success and it must include transparency for shoppers so they can see the transit journey of their items.
Growth will be achieved in the online space by getting the basics right. Businesses need to invest in basic omni capabilities by leveraging the currency of content and placement.
Brands need to do obvious and basic things well – things that are often taken for granted. Simply displaying a product in a visually pleasing way can make a major impact towards winning in e-commerce. Brands need to bring data together to create powerful insights. Integrate digital shelf data with online sales.
Just because you are winning in search doesn’t mean that you are winning online. Businesses across the sector need to look at best-of-breed examples globally, adapt and improve them again. Pursue partnerships with other offline and online sellers too. Online shoppers have becom more hardworking online looking for deals and value offers in the face of cost of living pressures. Brands must ensure value and benefits stand out.
Transcend typical shopper expectations. E-commerce users have become accustomed to more immersive and interactive experiences across industries. Move the dial from simply enabling an online purchase to cultivating engaging and online shopping moments. Link new capabilities to what’s trending in popular culture.
Create digital shelf benchmarks that give shoppers confidence. Spotlight visual badges and accreditations that bring to life sought-after benefits. Use content that taps into a propensity to dwell. Shoppers are experiencing subscription fatigue. Create ways to engage that excite the shopper to join your reward program or community and stay connected.
While online sales soared during the pandemic, and then dipped slightly post-pandemic, new growth drivers are already underpinning the evolution of e-commerce and the increased adoption of online shopping.
Alistair Leathwood head of product and solutions for APAC at Circana.