Moving up the food chain: Have online grocers finally come into their own?

Have online grocers finally come into their own, after a big push to scale up amid the pandemic?

WHEN Singapore raised its Disease Outbreak Response System Condition (Dorscon) level to Orange in February, people flew into a grocery-hoarding frenzy. The usual quick supermarket run turned into a long-drawn ordeal for many, with checkout lanes lined with doomsday preppers grabbing essentials - toilet paper became a prized commodity. Consumers who turned to online platforms to avoid the queues were left sorely disappointed by delayed deliveries and empty (virtual) shelves.

The many gripes of grocery shoppinghave come sharply into focus amid the Covid-19 outbreak. Very early on, it became clear that online grocers were stymied by huge gaps in their physical delivery operations and inability to scale up quickly, and let down by product shortages when supply chains broke down. Established supermarket chains too were at the mercy of global shipping, and struggled to deal with sudden surges in demand for items they never anticipated would run short - from fresh milk and flour to pasta and yogurt.

Observers believe that the pandemic will leave a lasting impact on how grocery players cater to the evolving needs of customers in a post-virus world. Has online grocery retail finally come into its own, or will Singapore shoppers return to the familiarity of pushing shopping carts down the grocery aisles when the last of the Circuit Breaker measures are lifted?

Even before the pandemic struck, the grocery industry was charting steady growth. Research firm IGD Asia had in 2019 projected Singapore's grocery market to be worth S$9.9 billion by 2023, up 14.5 per cent from 2018.

And the industry continued to forge ahead despite the bleak outlook for the retail sector. While overall retail sales (excluding motor vehicles) dropped 32.8 per cent y-o-y in April, sales in supermarkets and hypermarkets were up 74.6 per cent from the year-ago period, according to latest figures from the Singapore Department of Statistics (Singstat).

At the same time, online grocery shopping started to pick up as people stayed home. Based on data from UOB on UOB credit card spending, online grocery spending in Singapore more than doubled from January to May 2020 compared to the same period last year.

Senior marketing lecturer Lau Kong Cheen from the Singapore University of Social Sciences' School of Business says the fact that many major supermarkets have taken their businesses online attests to the strong potential of the online market.

Heavyweights such as FairPrice and Cold Storage dipped their toes into e-commerce back when shopping for groceries online was still a novel concept. Homegrown online grocer RedMart, which had a following among early adopters in 2011, gained market share after it was acquired by Lazada in 2016, while Amazon came into the picture in 2017 bearing promises of two-hour delivery with Prime Now.

Browsing for groceries

Still, online grocery shopping accounts for only a fraction of total grocery sales. According to latest data from Singstat, online grocery sales in April made up 7.7 per cent of total grocery sales, up by 0.2 percentage point compared to March.

"We do not expect the sales growth of online grocery stores to continue to accelerate from hereon, as the recent decline in the number of new Covid-19 cases daily has assuaged fears," says RHB securities analyst Juliana Cai in a June report.

But Lazada Singapore chief executive James Chang points out that the industry has made significant headway compared to some eight years ago, when there was hardly a place for online grocery retail.

Back then, most Singaporeans had not bought into the idea of buying groceries online - fruits need to be picked up for a gentle squeeze or sniff to ensure they're fresh and ripe.

"Traditionally, the appeal of offline grocery shopping is the ability to choose and pick the freshest products, particularly when it comes to perishables such as vegetables, fruits and meats," says SUSS' Dr Lau.

Looking at groceries through a screen doesn't quite cut it for many, especially among older customers. The additional cost of delivery further adds on to the apprehension of shopping online, says Dr Lau.

But there has since been a new segment of customers that are swayed by the perks of online shopping. They are also more accustomed to paying for delivery fees with the growing number of food delivery startups here. This includes those who are busier with their careers or young families that enjoy the convenience of shopping from home, says Dr Lau.

New appetite for online shopping

Business has scaled up exponentially for RedMart compared to when it first entered the market nine years ago. Today, RedMart carries over 160,000 products compared to the 1,300 products it started out with. Growth was further accelerated during the pandemic as online grocery shopping found its way to many first-time users.

"During the Covid-19 outbreak, we saw an instant spike in the demand where people were given the opportunity to try out and lower their barriers to the e-commerce solution of buying groceries," says Lazada's Mr Chang. The number of new customers on RedMart increased four to six times between early February and end-April this year.

FairPrice Group's chief executive officer (digital business) and chief digital & technology officer Johnny Wong shares similar sentiments, saying FairPrice Online's number of visitors surged by between four and five times over the past few months. New users were drawn to benefits of online delivery which they may not have been aware of previously, says Mr Wong. For one, customers can access products found exclusively in the online marketplace due to space constraints in physical stores.

Grocers also find that customers are becoming less hesitant about buying fresh produce online.

FairPrice's Mr Wong says about 60 per cent of its online orders now contain fresh products, compared to 20 per cent before Covid-19.

Meanwhile, online demand for healthy and fresh food options drew new players into the game, spurring food delivery operator foodpanda to expand into groceries.

"We have had approximately three million searches since the start of the year for key words containing 'acai', 'salad', 'quinoa' and 'vegetarian', says a foodpanda spokesperson.

Foodpanda had officially launched pandamart, which offers over 70 varieties of fresh produce and organic food products, in October last year.

"Within three months of the launch, we saw more than 15 per cent uptake in fresh produce orders, making it the fastest-growing category on pandamart," says a foodpanda spokesperson.

Supply crunch

However, as a result of the virus outbreak, online grocery retail was so abruptly forced into the mainstream that many players fell short. A combination of the surge in demand and a shortage of transport providers meant delivery slots were snapped up quickly. Customers waited for over a week to secure a slot when they would normally have had their purchases at their door in one or two days.

In February, RedMart's orders exceeded 300 per cent its weekly average, including a single purchase that exceeded 800 kilograms. In April, the online platform had to stop taking orders completely for two days, limit orders to 35 items and reduce its range of goods to focus on the essentials.

"By controlling the number of orders, we were able to significantly increase the number of customers we can serve," says Mr Chang. He admits that it was not an easy decision to make, leaving many disgruntled shoppers in its wake, but it was the "right thing to do" at that point in time.

RedMart also hired 500 new staff over a course of a few weeks in April to boost its warehouse and delivery capabilities. It also reconfigured its delivery strategy by grouping orders by geographic sector and delivering them on designated days. Consumers were able to have daily essentials delivered once every three days.

With the new delivery model and other measures in place, RedMart was able to serve 50 per cent more customers to cope with the demand.

Likewise, FairPrice's Mr Wong says that the surge in online orders placed heavy demands on its existing online grocery infrastructure.

"One of the biggest logistic challenges we faced was to ensure that our supplies were delivered in a timely and safe manner to meet the unprecedented demand," he says.

Apart from having to ensure there were adequate number of delivery trucks and loading bays, FairPrice had to maintain different levels of refrigeration for fresh food items and ensure that temperature control is maintained throughout the journey for a demand much larger than its available physical storage, he says.

Amazon, on the other hand, reevaluated its short-term forecasts to ensure sufficient supply for customers in the event global supply chains were disrupted during the pandemic, says Amazon Singapore's country manager Henry Low.

"For a start, we created an 'essential items' list and set aside dedicated inbound capacity to stock up on these selected items. The list was reviewed weekly to reflect any new trends and developments," he explains. This allowed Amazon to anticipate customer needs across product groups and evaluate shifts in demand patterns as the Covid-19 situation evolves.

Mr Low shares that between March and June 2020, grocery items such as rice, dressings, sauces, condiments, and pasta were the most highly sought after items on Amazon Singapore. During the second week of the circuit breaker, cold beverages, snacks and ice-cream gained popularity. Baking essentials became the platform's fourth biggest product category in May and June, while its beer, wine and spirits selection also made its way into the top five.

The company had to increase the number of staff at fulfilment centres to process more customer orders. It was subsequently able to "significantly increase" the number of Prime Now delivery slots available to customers and expanded delivery window on select days (Tuesdays-Fridays) from 8am to midnight.

Meanwhile, pandamart taps the resources of partners such as ComfortDelGro to work with taxi drivers to fulfil delivery orders. It also taps its dispatch algorithm to plan and adjust manpower needs throughout the day. This allows pandamart to cope with surges in orders and better manage wait times, says a foodpanda spokesperson.

Rising beyond the crisis

Convenience and speed will be among the key features consumers zero in on when it comes to grocery shopping, according to industry players.

Bonar Silalahi, head of industrials and consumer goods and sector solutions group at UOB, says grocery retailers should delve into meeting the increased demand for reliable and regular deliveries as the quality of a company's delivery service could be a key differentiator.

"Given the perishable nature of groceries, consumers not only expect their orders to be delivered on time but also fresh. Should there be issues with the order, retailers must also be able to provide strong customer service support to resolve issues quickly and in a customer-centric manner," he says.

Grocers have therefore been stepping up on efforts to strengthen their capabilities in order to meet the demand of more customers and differentiate themselves.

Currently, pandamart has warehouses in high consumer density areas such as Woodlands and Yishun but it is looking to expand its service districts to include the Central Business District (CBD) and to introduce 30 more pandamart warehouses by end-2020, according to a foodpanda spokesperson.

FairPrice, on the other hand, has launched "Scan-and-Go" where customers are able to pick products in store, scan and pay with their mobile phones, and skip the checkout queue.

"It uses the same user and payment information as our online app, and thus saves time for users on entering this information, and they can immediately benefit from all store promotions and discounts," says Mr Wong.

And with online shopping packaging contributing to huge amounts of waste, Amazon is anticipating an increased focus on sustainability. "As part of our efforts to create more sustainable packaging, we are working with vendors and suppliers to enable 'Ship in its own container' solutions and reduce the volume of packaging used to deliver our products," says Amazon's Mr Low.

Can growth be sustained?

To be sure, the initial surge for groceries amid widespread panic-buying has eased. FairPrice's Mr Wong says that they are already seeing a dip in demand. "The softening could be due to a change in shoppers' mentality as people recognise that the pandemic is going to last for a while," he explains.

"They are feeling more assured of having stable access to daily essentials and food supplies and therefore, not stocking up as much as before," he adds.

Having said that, market watchers agree that online grocery shopping will continue to grow.

Even traditional businesses like brick-and-mortar supermarkets and convenience stores are looking at ways to digitise their businesses to meet the demands of the increasingly digital-savvy consumers who seek the convenience of shopping for essentials at any time of the day, says a foodpanda spokesperson.

For grocers who have scaled up their resources, it is unlikely for them to take a step back even after the dust settles. Those that BT spoke to declined to disclose how much they had invested in stepping up operations in the last few months.

They are therefore likely to run promotions to encourage more online grocery shopping in order to "maximise the infrastructure which they have developed", says Dr Lau.

It remains to be seen whether online grocery platforms will outpace physical stores, though more people than before will be shopping through their screens.

"After all, with most people going back to work and being held up with busy schedules, having the convenience of shopping at any time and not having to be bothered with carrying heavy loads of groceries home will be a boon for many," says Dr Lau.