Home delivery driving the online growth for Sainsbury’s

Yesterday’s post was about how Sainsbury’s has grown to become the second biggest online grocer in the UK. That growth has been done through variety of options for the customers to choose from. Sainsbury’s offers customers online ordering options from the traditional home delivery to fast deliveries. In their quarterly reporting Sainsbury’s had an interesting illustration on how these different options differ from each other.

The fast delivery options cater for a rather urban (60% of sales in London) customer with a small basket £20 to £30. The quick commerce players can be seen as a way to move convenience stores online. In the offline grocery retailing big hypermarkets and small convenience stores live alongside each other, often complementing each other.

In the online world traditional deliveries and quick commerce provide a different and often complementing service.

The quick commerce is currently only a fraction of the basket size that is ordered in a traditional home delivery based online orders. In terms of volumes, home delivery is clearly the biggest digital channel for Sainsbury’s with about 80% of deliveries. In terms of sales home deliveries are probably 85-90% of sales, because of their higher average basket sizes.

Another interesting tidbit from the image is the number of stores and coverage offered by the traditional online services.

It seems clear that the big growth in online volumes for Sainsbury’s has been enabled by the rapid increase of stores offering the online service.

Currently Sainsbury’s has 254 stores offering online home deliveries, approximately same amount than what Tesco has. This gives coverage to almost the entire country.

Profitability - the other side of the online grocery coin

Profitability is a topic almost always discussed with online grocery. In their quarterly report Sainsbury’s gave light to how they have been able to improve it’s profitability. Unfortunately the image does not convey the numbers. It still illustrates the important levers to make online grocery more profitable. By increasing basket sizes (and margins) the grocers can attract more money. At the same time they need to be improving the number of items picked per hour and especially the deliveries dropped by a van in an hour. It would have been really interesting to see how many deliveries Sainsbury’s vans are able to deliver for example compared to Ocado. One could imagine that in a store picking world where deliveries are made from the store that is close to customers, the efficiency of the deliveries would also be higher.