Canada: Longo’s bets big on online grocery shopping
Betting that online shopping for groceries is about to take off in the GTA, family-owned Longo’s has tripled the size of its Grocery Gateway warehouse in Etobicoke.
“We believe that consumers are at a tipping point and really, the era of online grocery shopping really has arrived in the GTA,” said Anthony Longo, president and CEO, Longo Brothers Fruit Market Inc.
Longo’s operates 30 stores in the region and is the only grocer offering online shopping and home delivery of food and alcohol, although it is facing new competition from online grocery delivery startups like InstaBuggy and Urbery.
The Grocery Gateway warehouse has been expanded to 150,000 square feet from 50,000 square feet, and 6,000 items have been added to the inventory. The number of delivery trucks will also increase.
“We were running into capacity issues,” said Longo. “Business has been growing nicely over the last number of years, so we felt that in order to really take a big leap in this market, we really needed to add significant capacity.”
In the U.K., the online grocery market represents about 6 per cent of total grocery sales and in the U.S., depending on the city, it ranges between 2 and 4 per cent, said Longo. In Canada it’s less than one per cent.
“We think it could be, within the next number of years, 2 to 3 per cent of the total Canadian market,” said Longo.
“We think this is the single largest consumer category left to go online and the toughest one to crack.”
Longo’s bought the Grocery Gateway business in 2004. In the beginning, groceries were picked from five different Longo’s stores.
Moving to the warehouse four years ago boosted sales because Longo’s was able to better control inventory, allowing them to fulfill orders more quickly, said Longo.
The number of new shoppers, regular weekly shoppers and order sizes have been growing rapidly over the past two years, reaching double-digit percentage growth since the relaunch of the Grocery Gateway site in June, according to Longo.
A typical Longo’s carries 18,000 to 20,000 items, compared to the 16,000 at the warehouse, which Longo’s calls a “customer fulfillment centre.” That means the online assortment is similar to what can be found in a grocery store, but there are fewer varieties of items, Longo said, for example, one size of canned peas instead of three different ones.
They are currently delivering to 6,000 families a week, from Oshawa to Kitchener-Waterloo, Hamilton and Aurora.
He said he’s not too concerned about competitors like InstaBuggy and Urbery, which deliver groceries picked at different stores.
“None of those entrants, frankly, have actually proven their model,” he said.
Sylvain Charlebois, professor, Faculty of Agriculture, Dalhousie University, agrees online shopping for food is poised to grow, particularly among families pressed for time.
“I think the market is more ready than say, 10 years ago,” said Charlebois.
He said that when retailers go online they tend to carry their premium products – the ones with plump profit margins, on the website.
But he doesn’t think other grocers are in a hurry to compete with Longo’s on delivering groceries.
“To run a fleet is capital intensive,” he said.
Mark Satov, of Satov Consultants Inc. said Longo’s believes online shopping for groceries is about to take off because it’s invested in it.
“We’ve been talking about online grocery shopping since the 1990s and it hasn’t caught on. It’s just not a thing that works for people,” said Satov.
Satov said shoppers are reluctant to let someone buy fresh produce and meat for them, and while other grocers, like Walmart and Loblaws, have rolled out programs where customers order online and pick up in the store, it’s not where the battle for market share will be fought.
“The real battleground is in-store experience,” he said, pointing to Loblaws and Whole Foods as examples of grocers who are focusing on the in-store experience.
Mudit Rawat is the founder and CEO of Urbery, which also delivers alcohol and allows shoppers to choose the grocery store where their order gets filled.
He says his company built trust by linking customers directly to the person picking their groceries for them, so they can discuss specifics of what the produce should look like.
“We thought everyone would like a ripe avocado, but that’s not true – some people want to make guacamole in five days,” said Rawat.
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He feels the market is poised for growth because it’s become easier for people to shop using their mobile phones from wherever they happen to be and have groceries delivered by Urbery within two hours.
He believes online shopping and delivery will quickly rise to between 5 and 10 per cent of the grocery marketplace, in much the same way that ethnic foods seemed to suddenly explode on the grocery scene, after decades of being sold in specialty stores and specialty aisles in grocery stores.
Originally launched in late 2014, Loblaws currently has 19 Click & Collect locations at Real Canadian Superstore and Loblaws stores across the GTA, according to a spokesperson. There are nearly 100 locations in five provinces, and more expansion is planned in 2017.
By the end of its fiscal year on Jan. 31, Walmart plans to grow the number of stores in Ontario offering Walmart.ca grocery pick-up to 50.
Source: The Star
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