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As noted previously, one of the retail trends emerging from the COVID-19 outbreak has been a significant shift to online grocery ordering and delivery. As also noted, that’s also overwhelmed most service providers in this space, to the extent that getting a delivery slot has become a middle-class point-scoring exercise to be boasted about on social media.

According to research by Mintel, the current crisis is set to push the UK online grocery market this year up by a third, to hit £16.8 billion in business, while the habits that are being formed now will fuel growth of 41% over the next five years, creating a market sector worth £17.9 billion.

Inevitably there’s a degree of ‘think of a number’ that creeps into such predictions, particularly ones made at such febrile macro-economic times. But the uptick in online activity by consumers can’t be denied. Mintel’s research, carried out between 28 February 28 and 23 April, found that in the early days of the crisis, the toilet paper panic-buying days, only 7% of UK shoppers bumped up their online shopping for both food and non-food, but the past two months has seen that figure rise to 36%.

That may well be fuelled by the scarcity of delivery slots and a desire to make the most of one when it is secured. Certainly at Sainsbury’s that seems to be one reading, where basket size has increased 50% in recent weeks. At the same time, the number of delivery slots has also risen 50%, almost doubling the contribution that online makes to the firm’s wider grocery business, from just under 8% to almost 15%.

Pre-COVID-19, compound growth for the online grocery business had been running at roughly 7% for the past five years, according to CEO Mike Coupe. Today, it’s a totally different world:

It goes without saying that this is unprecedented and not just in my working lifetime, but in my lifetime. I think the only thing that gets anywhere near is the Three Day Week  [a period of industrial dispute in the in the 1970s]. If you’re old enough, you remember not having electricity for eight hours at a time, which is probably the only scenario that I can think in my lifetime, and that goes back to the mid-1970s, where we’ve got anywhere near the kind of situation that we’re currently in.

There had already been improvements in the operational efficiency of the online business over the past few years – Coupe cites a 40% increase in the pick-rates for items per hour as a case in point – but the COVID-19 pandemic has accelerated this evolution:

We set out from the very beginning to prioritize elderly, disabled and vulnerable customers and also to significantly increase our online capacity. In the last few weeks, we’ve seen the number of slots available increased by almost 50%. The efficiency of the business has also improved because the order sizes are higher, the drop densities because of the numbers of orders are higher, and we’ve introduced Click & Collect in more of our stores…[Click & Collect] means we’re not driving to people’s homes, we’re only driving into our own car park, which means that the distances are a lot shorter and therefore a lot more efficient.

He adds:

By 10 April we had increased the number of online delivery slots by almost 50% and actually that was almost doubling of our online volume because of course our customers are ordering more when they ordered online… It’s fair to say the demand still remains high, and we’re still not able to keep up with all of the demand that we have, and we’ll continue to look to how we can increase the number of grocery slots in our business. And we believe that we’ll get to around 600,000 delivery slots by the end of [this] week.

Changed behaviors

What’s notable, he adds, is a shift in consumer behavior and one that benefits the likes of Sainsbury’s against the threat posed of late by discount rivals, such as Aldi and Lidl:

What we’re seeing is a marked change in customer’s behaviour where in effect they are choosing to shop on a needs basis. Our transaction levels have effectively, well they’re not far off halved, but of course that means by implication they’re spending more than double what they’d spend on every shopping trip, because they’re trying to get everything they possibly can in one go. And of course that mitigates towards coming to larger sheds rather than to the discounters.

Like all other retailers, Sainsbury’s is now attempting to plan for life after lockdown, anticipating at present that there will be “more normality” in the second half of the year but with a backdrop of a weaker economy.  Any recessionary pressures are likely to hit at the firm’s non-grocery business, but Coupe sees the grocery arm holding up:

In a recession, depending on the depth of the recession, in the short term at least, that can be beneficial to a grocery business and to the mix…I could also make a very strong case [for] the fact that eating out of home won’t return to any form of normality during the course of not just the first half, but the second half of the year.

What that means for retail is more change ahead, he argues:

I think it accelerates many of the trends that were already there. So what might have been happening over a three-to-five year period, – digitization, move to online etc etc –  I suspect is going to be quite significantly accelerated. As will indeed the consolidation of certain types of the market, with businesses that might have struggled on for a few more months or years are going bust and no longer existing very sadly.

There will be a lot of volatility however, he concedes:

To that extent, your guess is as good as mine. But I would say, if we look back in, let’s say, a year or two’s time, we’d have seen an acceleration of many of the trends that were anyway. In that sense, I’d like to think it’s vindicated many of the choices that we made over the last five or six years. You look at things like SmartShop [Sainsbury’s self-scanning and packing offering] now accounting for over 30% of sales. That wouldn’t have been possible even a year ago. That’s just a testament to the sort of the investments that we’ve made in our digital online business.

The aftershock of COVID-19 will also impact further on the future/fate of the offline high street shopping experience, he adds:

Inevitably it is going to increase pressure on high streets as an example, if the trends that we’ve seen rapidly changing over the last 5,6,7,8 weeks continue for the foreseeable future and beyond…There’s clearly a marked change in behavior and if that was to stick around for any length of time, it would be hugely beneficial to our organization, whether it’s a shift away from the discounters, larger basket sizes or indeed the way that the mix has worked out in terms of online shopping.

Our experience would say that online shopping, and indeed using things like SmartShop and digital shopping becomes habit if you do it for long enough. Clearly, the longer the lockdown goes on, the more people get used to shopping for their groceries online, the more likely that is to stick. So whether it sticks at the kind of 15% plus level that we’re currently seeing, I have no idea. But I suspect it will certainly be higher than the 7%, 8% levels that we were seeing pre-crisis. So who knows? But it’s going to be at least somewhere between the two, but it may well stick at the higher level as people get more and more used to the convenience of online shopping.

That’s not necessarily always the best thing for the business, he points out:

It’s not as profitable as customers coming to the stores and buying their groceries, particularly in the way that they’re choosing currently to buy their groceries. So we still, on balance, prefer people to come to the shops. But clearly, in the world that we’re in, people are obviously taking the opportunity when they can to shop online in their droves. And we’ll continue to do everything we can to increase our capacity and to satisfy that demand.

My take

Whatever the outcome of the longer term impact of COVID-19 on the online/offline omni-channel balance at Sainsbury’s, Coupe will be observing it remotely – he steps down as CEO at the end of this month. He leaves behind a strong legacy of retail digital transformation for his successor, including the digitization of the firm’s hugely successful Nectar loyalty program.

There have been glitches – let’s gloss over the utter consumer rejection of till-free stores or the embarrassing ‘hot microphone’ moment when Coupe was caught singing ‘We’re in the money’ on camera between interviews about the (ultimately abortive) planned merger with ASDA – but he has been a strong champion of shoring up the omni-channel mix that is so important in a retail sector that was already increasingly competitive pre-COVID-19. FInal words to Coupe:

It is important to re-emphasise the way that the business has become more and more digital during my tenure. And we have moved the digital sales in 2014/15 from £1.1 billion to in the last year to £6.3 billion and I suspect post-COVID it will move a lot higher than that… I think this whole COVID-19 situation will, I think, speed that up if anything and customers I think value being able to do things on a digital platform, rather than having to speak to people now and the time that’s involved in that.