‘Ready for battle’: Woolworths’ game-changing grocery move

Woolworths has quietly launched a new service that will revolutionise the way you shop – but it comes at a very steep price.

When it comes to online retail, Australia is behind the rest of the world. Nowhere is this more evident than supermarket shopping. Only 31 per cent of us would consider buying groceries online, according to Roy Morgan surveys.

In America, the battle for online shopping supremacy is fierce, and Amazon is working extremely hard to win it. Amazon is famous for its Prime Now delivery service, which brings groceries to your door in as little as an hour.

Amazon has not rolled out that service in sleepy old Australia yet, of course. But apparently suddenly, we are not so sleepy. Let me tell you the story of I how I found that out.

THE CUPBOARD WAS BARE

Two days ago, at about 3pm, I realised I had stuffed up. I had no food in the house, no time to go to the shops, and a hungry family member coming home soon. I started thinking probably I was going to have to get takeaway for dinner.

Then I remembered something I’d seen online. I went to my regular grocery seller’s website and clicked the option marked “Delivery Now”. I do sometimes get groceries delivered, but have never clicked that option before, because it’s kind of expensive. Delivery fee is $19. Steep!

But at that moment, it was worth it. The alternative was Uber Eats and when I open that app it usually ends up costing $50 for dinner to be delivered, and I figured this was going to end up a lot cheaper.

I didn’t know what to expect of the delivery (it was from Woolworths). They promised to bring it in an hour and 15 minutes. I was sceptical. But my order came in one hour and five minutes and I was amazed.

It was delivered by a young man who looked like a student, driving a scrappy hatchback – not the usual uniformed delivery guy in a truck. But who cares! I needed food ASAP and I got it.

Woolworths has launched its 'Delivery Now' service, which offers near-instant grocery deliveries in 48 locations across Australia. Picture: Lawrence Pinder

WHAT IS WOOLWORTHS DOING?

Let’s be clear – not many people would be using this service. I’m someone who does get groceries delivered, and if I have only used it once, I doubt many people have ever tried it. It’s only available at 48 stores, and not across the whole country. Why is Woolies even bothering?

The answer would appear to be strategy. This is not about making money – I rather suspect Woolworths of losing money on it, even with such a high fee. (They insist otherwise, saying “Each of our online sales channels are profitable in their own right.”) Whether or not I’m right, it’s much more about making sure that when Amazon (or someone else) comes and tries to blow them out of the water, they’re ready for battle.

In 2018, Woolworths CEO Brad Banducci was asked whether moving sales online would be bad for margins, and he more or less admitted that was true, saying they are focusing on customer experience first, and worrying about costs second.

“In truth we’re just starting on the journey on efficiency inside digital,” he said.

When May 2019 rolled around, Banducci again made comments suggesting providing a range of online options was mostly about holding customers for the long term. “You may in the short term be able to hold the sale by not doing that but that would not be the right thing in the medium to long term,” he said.

Coles is a tiny bit behind Woolies in moving sales online, but it has chosen not to take them on directly. It is doing something a little bit different. (The fact Coles isn’t offering one hour delivery is a strong piece of evidence Woolies is losing money on the offer!) Instead Coles has a four hour delivery window. And also a creative arrangement with Uber Eats where they will bring you a ready meal.

Coles seems to be betting that if people need delivery that urgently, they’re probably hungry. I guess that was true for me too, but I figured I’d take the opportunity to buy milk and bread and fruit at the same time.

Woolworths is proving it hasn’t come to play in the online space. Picture: AAP Image/Dan Himbrechts

THE DOWNSIDES

As mentioned, fast delivery is expensive – $19 a time. Only really worth using in a pinch.

They limit how many items you can order. You can put 30 things in your basket. It might sound like plenty but if you order fruit and vegetables, you’re through your allocation pretty quickly. I added five apples, five bananas and then I only had 20 slots left. The trick I didn’t realise but would use next time is to order prepacked things. Buying two nectarines was two items, but 3kg of navel oranges was only one item.

Whenever you buy groceries online they sometimes don’t have the thing you ordered, so you don’t get it. For example, I ordered some yoghurt and it didn’t come. Sometimes they will substitute the missing item for something similar, but in this case they didn’t. (Those substitutions are a lottery. Sometimes okay, sometimes hilariously bad.)

The system is not perfect. But at least Woolies is trying things. It has even borrowed an idea from Google’s ideas lab (called GoogleX) and established WooliesX. Unlike Woolworths main head office in the suburbs of Sydney, WooliesX is in the hipster inner city, to better let them hire techbros. It runs a lot of their online offerings.

It seems they’ve learned a few lessons from the arrival of Aldi, and one of them is that if you want to survive, it’s better to not let a competitor get too far ahead of you. Amazon better hurry up if they’re going to shake up our grocery market.

Jason Murphy is an economist | @jasemurphy. He is the author of the new book Incentivology.