A Solvay Brussels School study at six different Belgian distributors shows that not a single one of them manages to make money with online food sales, regardless of the business model.
Volumes are too low, costs are too high
Home delivery or pick-up points: no matter which formula a distributor chooses, there is no money to be made selling food products online according to Jill Roland's dissertation. The business engineer at the Solvay Brussels School analyzed all costs made by the chains which participated in the study (Carrefour, Delhaize, Colruyt, Match, Cora and Louis Delhaize (Wink)), from computers and the additional time it takes staff to handle every order to the required infrastructure (freezers, separate cash register, additional lane, payment booths and so forth).
It is a combination of a too low online sales volume, as only 1 % of food is currently sold online (compared to 6.5 % for all trade), and costs that are too high, particularly staff costs. "Every hour costs 25 to 30 euros", professor Boffa said in business newspaper L'Echo. "But in these online formulas, the distributor is doing the customer's work, with orders taking up to half an hour. If you do the math: with a 5 to 6 euro contribution, you cannot turn this service into a profitable one. Some chains even pay their staff 7 times more for dealing with online orders!"
Most distributors also drop that particular service charge if the total amount surpassed 100 to 150 euro, which happens to 70 % of all orders. Last but not least, distributors cannot take advantage of the so-called impulse buys or last-minute decisions which do happen if the customer is strolling around in the supermarket.
Image and market share
Why do the distributors keep the service then? "Because of their image. In a time when everything and everyone is embracing the internet, you cannot afford to stay behind and leave your customers hanging if you are one of the bigger players. Some also hope this might increase their market share in a saturated market", professor Boffa said.
To make online food sales somewhat profitable, the study suggests three possible ideas: offer a service which covers the actual costs, although that may not be very realistic considering the current price competition; get bigger volumes so that the fixed costs drop proportionally; and offer products with higher margins or products that are not readily available offline.