Building out digital real estate - Sainsbury's scales up its omni-channel clout

Profile picture for user slauchlan By Stuart Lauchlan November 10, 2021
Summary:
The online grocery phenomenon has levelled out, but for the likes of Sainsbury's the omni-channel challenges ahead will build on a digital downpayment that's been made early on.

Image of a Sainsbury’s store

One of the most documented retail impacts of the COVID crisis was the enormous uptick in online grocery shopping. For health and safety reasons alone, despite supermarkets and grocery stores being designated essential retail and therefore able to keep their front doors open, the pandemic sent millions online to experience digital grocery purchasing for the first time.

As the Vaccine Economy has begun to take shape, it’s inevitable that the soaraway levels of online shopping will taper off somewhat, but, as diginomica has noted on many occasions, the genie is out of the bottle and grocery retailers will now have to calculate the omni-channel balance that they need to be able to offer their customers in the so-called ‘new normal’.

This can be with UK firm Sainsbury’s where the digital arm of the business is still running at twice the size it was pre-COVID, even as its customer base delivers what CEO Simon Roberts calls “a very gradual, but very clear normalization of in-store transaction and basket spend levels”

This is a logical development, he adds:

This is something that we expect to continue as customers spend more time shopping, eating, working, socializing, and having holidays outside their homes, and increasingly outside the UK.

But the scaling up of the digital side of the business isn’t something that’s going to go away. According to Nielsen data, the firm can now claim to be the second largest online grocery firm, with 17% of its overall sales in this space taking place online. That’s up from 8% two years ago - in the ‘old normal’ - and, impressively, also up on last year’s 15%. That allows Roberts to boast:

We called out the significant online market share gain we made last year as our biggest online competitors lost share. We have built on that this year, as the only one of the major online grocers to gain share. We're now the second biggest online grocer in the UK, having been number four two years ago.

He adds:

We invested ahead of the curve digitally, and we have a strong online food business. We're growing market share faster than others. You've seen how we've adapted through the pandemic as we've scaled online capacity to more than double our volume. And I think we've learned a lot as a business about, one, the speed and place we can move at, and two, how customers are shopping online.

Sainsbury’s made a number of Food First commitments last year to outline the firm’s strategic direction and one of these was to grow online capacity. Roberts now says:

We've made this a real point of difference, with the capacity that we added last year, and we've been fully committed to keeping those online customers that we gained. Order numbers have slowed as more customers have returned to stores, but our online sales have continued to be stronger than the market and we've been pleased with customer retention rates. This is showing through in continued market share momentum. We've just stepped on again, recently reintroducing our same-day offer. We dropped this offer when online demand was at its peak. It's back now, and available in many more stores than before.

Scaling

The breadth and scale of the online grocery proposition has seen the expansion of the firm’s  ‘immediacy business’ both in-house and with delivery partners collecting orders from local convenience stores. Roberts is quick to emphasize that this is not a London-centric trial, with around 40% of immediacy sales now coming outside of the capital.

But there is, of course, more to do, he says:

We had a well-invested digital real estate, heading into the pandemic, and this has enabled us to scale our digital businesses and to do that efficiently. We consistently raise the bar in challenging ourselves to be able to serve our customers whenever, wherever and however they want to shop…Digital is also giving us the opportunity to engage differently and more personally with our customers.

This is an area where there is work to be done, he admits:

I said earlier in the year that we still have more to do, to improve our customer satisfaction in grocery online. We're growing share faster than competitors, but coupled with the availability challenges, this remains a continued focus for us, to ensure we deliver the most consistent customer experience. I'm confident we're taking steps to further improve our performance, as we head into the second half.

Loyalty

One of the enablers here will be the brand’s Nectar loyalty program with Roberts citing building on the growing Nectar digital customer base with the launch of personalized pricing through Nectar Prices:

We're continuing to grow our digital Nectar base and I've talked previously about our drive to hit 10 million registered digital Nectar collectors. We're well on-track to hit that next year with over 8.2 million customers currently registered. Now, why does this matter so much? It matters because it enables us to talk to our customers in a much more effective, engaging and highly personal way.

We were really pleased to launch Nectar Prices at the end of September. Based on a customer's potential value to Sainsbury's, their price sensitivity and the types of products and offers we know will appeal to them, we can offer each and every digital Nectar customer a completely personalized set of prices on up to 10 products each and every week, and the opportunity to save up to £200 a year.

Now, we believe that this approach to truly personalize pricing is unique within grocery retail in Europe. It's early days but we're really encouraged that we're already starting to see some uplift in our SmartShop usage and penetration and also in digital Nectar.

My take

Sainsbury’s digital transformation has been impressive, albeit with a few stumbles en route. How the online/offline balance plays out in the Vaccine Economy remains to be seen, but the firm has put down its omni-channel marker early enough to be able to adapt to changing circumstances.