Research: Marketplace will accelerate growth for Courageous Discounters.
Digital Marketplaces were characterised as a platform where the Retailer managed the customers sale but didn’t own or fulfil the stock. The Digital marketplace is winning the retail growth race in recent years; exceeding the average for all On-line growth by more than double, and it was consultancy firm OC&C who reported marketplaces have grown by +30.4% (CAGR) between 2013-2019. This growth performance is rivalled only by the discount value retail sector; accelerated by the financial crash of the ‘noughties’, discount retailing has reached a critical mass, stealing share from the ‘mediocre’, with mass market consumer acceptance in physical retail, but their on-line sales are almost non existent.
A snapshot of the UK’s largest value retailers shows that they substantially lag the market in digital commerce. Only Aldi, Home Bargains and the Range are leveraging their brand equity by exploiting the On-line Sales channel. So why have the other players not caught on so far?
In exploring this inertia I have summarised my findings. The most common mis conceptions I have heard about Digital marketplaces is. It.....
“Will dilute the sales within the existing store estate”.
“is not part of our core ‘competency.”
“can’t be financially viable for a Discounter."
“Will require big changes to our Distribution model."
“Will require extra investment in Technology."
It is this lack of appreciation of the emerging technologies and these myths, the fears and the war stories, combined with aggressive and successful Store expansion programmes that have put development into the digital channel way down the priority list. There are also some failings in leadership for not horizon scanning for sustainable strategic advantage. Ironic when you consider the single largest driver for digital commerce is price (ONS). An inherent strength of the discounter. Furthermore, the biggest benefits are achieved in digital retailing when brand reputation and economies of scale are achieved.
So, how significant could the discount value retailing sector be within the next five years if the key players start to compliment their existing operating models with digital marketplaces? The digital market place could help to double the size of the discounter growth wave; capitalising on the customer loyalty that has been established to sell products not previously found in those Stores that are carefully selected by the retailer yet fulfilled by their vendors. The best operators are able to leverage their market place to generate substantial return on investment. Their on-line marketplace offerings are designed to compliment and not cannibalise the Store sales; they can be highly proficient at growing to scale whilst protecting investment in stock and people. They don't have to remodel their distribution, nor invest heavily in new technology, and they don't need to use up cash. The growth trajectory can climb where the retailer has already established its reputation for value and attained high levels of customer trust. In this scenario digital customer acquisition costs are kept low as the emphasis is focussed on supplementing the customers store visit with a website visit.
In a recent piece of research I did for a major player the return on sales was nearly 10% pts higher than its traditional model. Though, many of the discounters are enjoying market beating growth. Market Penetration through rapid roll-out is forefront on their agenda, not digital but this response lacks courage.
The growth in the discount value retailing sector may be at risk of being under optimised by; an inherent lack of understanding of the digital marketplace and it’s own relentless re-production of the formula that brought today’s success, but could this be about to change? As retailers prepare to re-align their operating models to the Economic and Consumer threats boosted by the pandemic. Is their a discount value retailer and the digital marketplace operator poised to disrupt, and then shakeout those that are neither value focussed nor can differentiate.
At this point it seems like Aldi is starting to make some progress; currently trialling a tie up with Deliveroo to compliment the on-line sale of wine and some special buys; Home Bargains have a 'barely present' on-line offering of grocery by the case and some Homewares, and B&M have developed a non transactional App. All represent some progress but they are missing the real growth catalyst. It is yet to emerge who will adopt the digital marketplace model to accelerate Sales with enviable returns on investment. Watch this space.....
By: Julian Grindey
Sources:- *Matt Coode. International Head of Retail OC&C March ’19 speech to Retail Week Live. **Office for National Statistics - Consumer motives for E-commerce