Sainsbury's upgrades retail e-commerce ambitions as it rolls out Argos digital stores

Profile picture for user slauchlan By Stuart Lauchlan November 9, 2016
Summary:
With Argos now part of its portfolio, grocery firm Sainsbury's is ramping up its digital ambitions to become a major player in the wider retail e-commerce world.


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We would claim to be the first UK multi-channel retailer that's achieved £1 billion worth of sales through mobile devices. That would have been unthinkable five years ago and it reflects the changing shopping habits of our customers.

That’s the boast from Mike Coupe, CEO of grocery chain Sainsbury’s as he outlines the firm’s plans for significant digital expansion in the wake of its takeover of retailer Argos.

We’ve taken some long hard looks at the e-commerce strategies of both Sainsbury and Argos, not always favorably, particularly in the case of the latter. But it’s clear that Coupe sees the digital investment that has taken place, including the hiring of an additional 480 digital staff, as paying off and future-proofing his business against the likes of Amazon:

Although our view of the world is that supermarkets in grocery will still be the place that people will choose to shop in the majority of cases, we also have to accept that the rise of technology, the growth of online and the growth of digitization, is very rapidly changing the way that our customers choose to shop.

And they want flexibility, they want convenience, they want speed, they want to be able to order online, they want to be able to order on their mobile phones, and they want to have the flexibility of where those products get delivered. Whatever we've seen in the last five years, we expect to accelerate over the next period of time, and we've set out to build a business that can deal with those changing consumer habits.

He insists that while digital disruption may seem to be dramatic, Sainsbury’s operating principles map onto the new consumer requirements as:

continuations of what we were already doing as a business. So whether it's selling great quality products at fair prices, and an increasingly broad range of quality products at fair prices, delivered by then 160,000 colleagues who are motivated to serve our customers and run brilliant shops underpinned by a core set of values, those elements of our strategy were very much around the DNA and the history of the organization.

He adds:

What was different were two aspects. Firstly, the underlying principle of understanding our customers better than anyone else, and we can say that and we can do that because of our Nectar database. That gives us a huge insight into our customers' shopping habits and behaviors, and allows us to join our proposition together in a unique way.

And [secondly] the underlying principle of being there for our customers whenever and wherever they want. That's fueled a lot of the investments that we've made, whether it's in convenience stores or our online business, but of course, is a reflection of the ultimate acquisition of the Argos Home Retail Group business which gives us the ability to accelerate that move towards being an online retailer, or growing our online business.

Successes

From the point of view of Sainsbury’s qua supermarket, the firm now boasts a £1.3 billion online business with a 12% growth year-on-year in orders. Some 5% of those orders are now coming via the mobile app launched over the summer. Speed is now the next challenge, although this is something that Coupe has argued in the past isn't necessarily a major differentiator.

The firm offers same-day delivery out of 30 stores to date. It’s also rolled out a new app called Chop Chop as a pilot in London which enables users within 3km of the trial stores to order goods and have them delivered within an hour at a cost of £4.99. This is, says, Coupe:

just to test the appetite of our customers for a quicker delivery turnaround, which is quite an interesting trial, and again may point towards some of the future activities that we'll be looking at.

But what’s going to be interesting to watch in the coming months is the impact of the acquisition of Argos, the second most visited retail website in the UK, says Coupe, with over one billion visits a year. There are other stats of note, he adds:

Around 50% of the volume is online. Seventy-five percent is fulfilled through stores, which of course means that about 50% of the stuff that's bought online is actually click and collected. By opening up the channels of distribution, more shops, more sites, again, that gives us an opportunity to grow that business as we look forward.

The Argos digital stores represent about 20% of the estate. As we go through the rollout program, that will increase as a proportion of the stores. And then there's the partnership with eBay which was started roughly a year ago, and we've shipped our ten millionth parcel, which again brings footfall into the Argos stores but also in the future has the potential to bring footfall into Sainsbury's stores as well.

Getting the Argos presence into the Sainsbury’s real estate is a priority, says Coupe, with plans for an initial rollout of 250 digital stores, a significant physical presence:

By Christmas, we will open 30 Argos digital stores and create a further 30 Argos digital collection points in our supermarkets. These will form part of a rollout of 250 new digital collection points where customers can collect Tu clothing, eBay and DPD parcels.

Ultimately there are ambitions to take this rollout across the entire Sainsbury’s portfolio:

We'll have an Argos point of presence in every single, or more or less every single Sainsbury store. So where we don't have an Argos digital store, we will have Click & Collect points across our estate.

For now, Coupe wants consumers to get on their mobile phones and do their Christmas shopping via the Argos app:

Order all of your Christmas gifts through Argos and get it delivered to your local store within four hours, and store collection within 60 seconds. These are really significant sources of competitive advantage as we look forward, especially as we can bring it to more customers over the next few years. It's facilitated by unique hub-and-spoke systems and real-time supply chain data at an individual-item level. So that single-item supply chain is something again which we think is unique and is a platform on which we can build.

My take

My own online delivery experiences with Argos have not been good, to the extent that I regard click-and-collect as the only option. That does work well.  My few online grocery purchases from Sainsbury’s have gone smoothly, so maybe this will be a beneficial coming together! Certainly Sainsbury’s has done the spade work it needs to do to warrant a return from its digital strategy.