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SA’s gamble into online grocery shopping seems to be paying off

Woolworths recently announced that they will be heavily investing in their delivery service. Image, Woolworths Twitter.

Woolworths recently announced that they will be heavily investing in their delivery service. Image, Woolworths Twitter.

Published Jun 14, 2022

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In a bold step, South Africa’s popular retailers are sticking to their guns as they continue efforts in investing in online shopping and delivery services.

The grocery delivery industry erupted in the depths of lockdown, and saw stores such as Woolworths, Pick n Pay, Checkers and Shoprite innovate in getting their goods to customers, by providing online shopping services as well as delivery.

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With the ever-rising costs of food products and fuel in South Africa, investing in their delivery services may work out well for the country’s top grocers.

According to recent data released from NielsenIQ online sales for food have surged 53% in the latest three months.

In terms of year-on-year growth, consumers purchased more long-life milk which saw online sales up by 35 percent and instant coffee sales increasing by 52%.

Bread as well as alcohol added to the online sales growth.

NielsenIQ said, “This can be attributed to a significant number of consumers who are still working from home, either full time or partially and are taking breaks and making beverages like coffee that they would normally make at work. Online orders allow them to make quick and convenient top-up purchases of these products to fuel these occasions.”

Online shopping market in SA

According to Pick n Pay, online shopping penetration in the country is at about 1.1 percent but is expected to more than double to 2.6% in the next five years.

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The entire grocery retail market is projected to reach about R855 billion over the same period.

Pick n Pay

Pick 'n Pay on William Nicol Drive. Picture: Karen Sandison

In addition to Pick n Pay’s own delivery service, originally called “Bottles”, now rebranded as Pick n Pay asap! also partners with Mr Delivery in the country.

Pick n Pay asap! promises same-day delivery in as little as 60 minutes with a delivery fee of R35 and users can earn loyalty points using their Smart Shopper cards.

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Woolworths

Meanwhile, Woolworths recently announced that they will be heavily investing in their delivery service.

In what the company said is a first in the South African retail space, and in line with their vision to be one of the most sustainable retailers in the world, in collaboration with DSV and Everlectric, Woolworths said it has been trialling electric panel vans into their online shopping delivery fleet.

Zinhle Mayekiso, equity analyst at Anchor Capital, told Business Report, “This transition and reduction of Woolworths carbon footprint is positive for its ESG credentials going forward. I think that once they’ve transitioned fully to electric vehicles, their environmental score will improve significantly and will have a positive effect on its overall ESG score.”

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“In the near to medium future, this type of investment and transition to use renewable and green energy will improve its ESG rating and just means that Woolworths will screen more favourably relative to other companies on an ESG basis,” Mayekiso further said.

In their green push, Woolworths said that 3 600kg of carbon dioxide emissions were saved over the course of two months.

“To power the vans, we source electricity from renewable and sustainable sources including rooftop solar PV installations. Where onsite generation of renewable energy is not available or practical, we offset 100% of the electricity emissions via renewable energy certificates,” Woolworths said.

Shoprite and Checkers

Customers pay for goods at an outlet of retailer Checkers in Cape Town, South Africa, June 15, 2017. Picture taken June 15, 2017. REUTERS/Mike Hutchings

One of South Africa’s biggest grocery stores, Shoprite and Checkers, Checkers Sixty60 delivery service was one of the more well-received services in the country during the Covid-19 pandemic and lockdown.

In the the final quarter of 2021, it took up 75% of the market share in this industry, according to 22seven Insights, Simon Anderssen.

Spar

This past week, Spar said that its online shopping platform, Spar2U will be launched in the months to come.

Individual Spar branches will decide for themselves how they want to use the platform.

“There is great enthusiasm from our independent retailers to implement Spar’s new online shopping platform, Spar2U,” the company said.

Global concern

While high fuel costs may be assisting the grocery delivery boom in South Africa, globally, this may not be the case.

According to a report by Reuters, the industry faces a painful period of adjustment that investors say is likely to see only a handful of firms survive in each market – and then, in very different shape.

With lockdowns easing, consumers struggling with soaring costs of living, and profitability still elusive, the flood of capital that the industry saw during the pandemic, has slowed to a trickle, and firms have shifted from expansion to retrenchment.

Getir of Turkey – the biggest and oldest of the fast grocery deliverers – Germany’s Gorillas and UK-based Zapp have all said in recent weeks they are cutting staff, while Berlin-based Flink has also slowed hiring.

London’s Jiffy said last month it was ceasing delivery operations, with Zapp, which raised $200 million in January, assuming its customers.

“The current macroeconomic climate has become incredibly challenging, with very little visibility of when things will improve,” Zapp told Reuters in an email.

Sajal Srivastava, co-founder at TriplePoint Capital, a Silicon Valley firm that provides debt financing to start-ups including Flink, said he has seen a surge in demand from companies currently unable to raise equity on favourable terms.

He said that there is no one business model for food delivery, but some mix of hot meal delivery, convenience delivery, and slower grocery delivery companies will succeed in each country over time.

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BUSINESS REPORT

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