Australia's E-Commerce Future Unveiled by Circana Report

Circana, the world's leading advisor on consumer behaviour, has released its groundbreaking Industry Insights report into the state of e-commerce in Australia. The report entitled, Unlocking The Next Wave Of E-Commerce Growth, identifies the breadth of opportunity available to the retail sector to drive growth through the embrace and revolution of e-commerce.

The report identifies three important areas of focus for the retail sector:  continue enhancing e-commerce capability, view e-commerce as more than online sales; and execute across omni-channel touchpoints. Specifically, the report explores seven themes to guide decision-making to assist businesses across the sector to leverage the benefits of e-commerce to optimise growth.  

Circana's Head of Product and Solutions, APAC, Alistair Leathwood: "Circana's latest report is one of the most significant and indepth reviews of e-commerce in Australia and outlines the challenges and opportunities facing the retail sector as the digital shopping space evolves at break-neck speed. The report explores the potential for e-commerce to completely reprogram the shopper experience and augment engagement both in-store and online.

"E-commerce provides significant opportunities to enhance the customer experience, improve convenience and access to products, improve profitability and support the role of in-store physical experiences.  Its greatest is in its ability to help our sector stay connected with shoppers through the omni-path ecosystem."

Pandemic Peak

Leathwood: "The pandemic helped to accelerate digital adoption across the world including Australia. Total Australian retail online dollar sales grew during the pandemic by 7.3x, outpacing total instore retail sales over the last five years. Online sales increased by 186 percent compared to the five year average. Despite this, in-store retail generated 2.6x more actual dollar growth.

"As the pandemic took hold, we saw an increase in the number of shoppers using online retail more frequently. The number increased from 27 percent in 2020 to 41 percent in 2021 and 2022.   Now that life is returning to normal, the number has now reduced by 14 percent back down to 27 percent.  

"ABS research and Circana's Shopper Panel show that Australia hit an online sales ceiling in 2022. Removal of lockdowns saw households step out to shop again and not surprisingly this resulted in a post pandemic online shopping dip. Under one third of Australians expect to do most of their grocery shopping online moving forward. Panel shoppers continue to express a low intent to do more online grocery shopping.

"Aldi's resurgence, despite not having an online presence, demonstrates that shoppers enjoy shopping instore and look forward to the experience of being out amongst the products. The opportunity for the sector is to entice shoppers back online through innovation, convenience, personalisation and value.

"Circana research shows there is a clear preference to buy FMCG in person. The vast majority of FMCG sales will not be digital anytime soon. Omni-channel and omni-category leadership is key. There is a need to invest in capabilities that enable a better online customer experience and this starts with creating a consistent omni-experience in store and online and bringing to life the latent benefits of digital commerce: speed, reliability, assortment and flexibility."

Revenue Reversion and Recovery

The report outlines that while the online retail market moderated in the 2023 financial year, the outlook for 2024 is improving. Like the total market, online grocery is back in growth.

Leathwood: "Going forward online retail will continue to grow share amid a digitisation of society. The most recent quarter indicates a reversion to growth, although below pre-pandemic run-rates. Clearly as Australians increase their engagement with the online environment, businesses across the retail sector must equip themselves to capitalise on this growth.

"The digitisation of commerce is changing the role of the physical store and spearheading the intertwined relationship between online and instore. The clear rise in buy now, pick up in store, is a telling example. 

"If we look to the US, e-commerce growth post pandemic provides signals of a prolonged sales uplift. The latest quarter shows e-ecommerce being 18 percent of total overall sales, however it represents 28 percent share of growth. The post pandemic online recovery is well and truly underway and brands need to ensure they ride the wave of growth investing in the right strategies and tactics for long term success."

Penetration Plateau and Pick-Up

The pandemic virtually forced shoppers into buying online due to lock downs and a fear of going outside. Largely, online customers were created through pandemic circumstances, not clever acquisition.

Leathwood: "Enticing more shoppers online and encouraging increased online shopping frequency is now the new challenge for the retail sector. Circana research shows that post-pandemic customer acquisition is proving to be much more challenging. It is also proving more costly.

"The retail sector needs to prove to Australians that it can provide superior and life changing experiences shopping online. Unfortunately, below-par online shopping experiences encountered during the pandemic have heighted hesitations and impacted shoppers' perceptions of online shopping.

"Our Circana Shopper Panel identified the top five grocery shopping common annoyances; not getting the products ordered and receiving different replacement items, delivery costs, issues with food freshness, lack of delivery flexibility and minimum spend were the key issues for shoppers.

"While the sector moved quickly during the pandemic to ramp up online shopping operations, the sheer scale and speed at which the growth happened resulted in service issues. It is imperative that retailers and manufacturers work together to improve the online buying experience for shoppers.  As this happens, we expect to see sales increase online."

Online Outliers

Circana's research shows that households with higher incomes and kids and pets have a higher propensity to buy online and have helped to drive the resurgence in online shopping.

Leathwood: "As the sector searches for ways to drive growth through online, retailers and manufacturers will quickly need to identify untapped and emerging customer segments and gain a rapid understanding of their needs and preferences. Online shopping provides significant benefits for households especially those with kids who are time poor and enjoy the convenience, ease and accessibility of online shopping. In fact, households with kids significantly over-index online. We are also seeing this across households with pets.

"Younger households are also driving online shopping growth. Households where the main shopper is aged younger than 40 years of age are driving online growth. 46 percent of household shoppers rate the online shopping experience as being either 'very' or 'quite' important when choosing which supermarket to shop with compared to 18 percent of 65 plus year olds.

"Thursday and Friday continue to be higher performing days for online grocery shopping. Regional areas over-index online and have recorded higher growth in the 2023 financial year compared to their city shopper counterparts. Edible sales growth is outperforming non-edibles, both online and in-store. Petcare is the standout in non-edibles.

"There are significant opportunities for online growth however industry operators need indepth insights to be able to identify and capture them."

Personalised Precision

Personalised precision is a key area of opportunity in the online space as the digital ecosystem allows brands to a build comprehensive customer profile ensuring a more personalised and customised shopping experience.

Leathwood: E-commerce provides the sector with unparalleled access to customer insights however it is important to note that fixating on online sale tracking in isolation is an overly narrow and misleading view of digital commerce and its potential, when shoppers are increasingly engaging digitally regardless of the final transaction period.

"Online shopping allows brands to leverage data and use broader digital ecosystems to drive winning outcomes. Circana research shows that expanding memberships and scan rates of leading retailer reward programs reflect improving member engagement underpinned by interactions with improved personalised content. This is where loyalty programs come to the fore; personalised precision begins with loyalty programs.

"68 percent of shoppers state that loyalty card rewards are extremely important or quite important when choosing which supermarket to shop in. Essentially, shoppers are seeing loyalty programs as a means of achieving better value for money through rewards and other benefits. This is particularly important as we experience a cost of living squeeze.

"Coles and Woolworths are trialing member discounts alongside more sophisticated and integrated apps. 50 percent of Woolworths' digital traffic growth is coming from their apps, particularly Everyday Rewards.  Personalisation is a powerful tool in the digital environment and if optimally leveraged will deliver outstanding outcomes for both shopper and brand."

Flexing Fulfilment

Improved online customer experiences will be crucial to ensuring digital investments are a future industry tailwind. This applies to growing and maintaining a loyal online customer base with more experienced buyers prepared to shop around for a better service. The same goes for reengaging lapsed and hesitant buyers, the recruitment of whom remains vital.

"E-commerce feels old school to many across the retail sector but the reality is we are just scratching the surface in terms of where we are headed. The majority of digital transformation and associated benefits for industry and customers are still to come. As more shoppers buy online, the speed of order fulfilment will increase in importance.

"Order fulfillment will become a key battleground for the sector as more shoppers develop the confidence to use different ways to receive online orders and make use of sophisticated and integrated retail apps. The longer term outcome will be smaller baskets and online orders that are more acutely based on need and occasion. This will force operators to rethink e-commerce, assortment, price-points and multi-channel activations.

"Already AI, robotics and blockchain based smart technology is being incorporated into logistics operations to increase capacity, improve speed and support micro warehousing in order to increase the efficiency of operations including last mile delivery.

"When choosing where to shop, 87 percent of shoppers feel outlets that offer a wide range of products is important/quite important, versus only 32 percent that place importance on the online shopping experience. Immediacy is a key priority for shoppers. 80 percent of Woolworths' e-commerce sales are fulfilled within 24 hours of order. Logistics is a critical aspect of online success and it must include transparency for shoppers so they can see the transit journey of their items."

Engaging Environments

Growth will be achieved in the online space by getting the basics right. Leathwood emphasises the need for businesses to invest in basic omni capabilities by leveraging the currency of content and placement.

"The Circana report not only covers key areas of focus for the sector but also reminds brands to do obvious and basic things well - things that are often taken for granted. Simply displaying a product in a visually pleasing way can make a major impact towards winning in e-commerce. Brands need to bring data together to create powerful insights. Integrate digital shelf data with online sales. Just because you are winning in search doesn't mean that you are winning online. Businesses across the sector need to look at best of breed examples globally and then adapt and improve them again. Pursue partnerships with other offline and online sellers too. Online shoppers have become even more hardworking online looking for deals and value offers in the face of cost of living pressures. Brands must ensure value and benefits stand out online.

"Transcend typical shopper expectations. E-commerce users have become accustomed to more immersive and interactive experiences across industries. Move the dial from simply enabling an online purchase to cultivating engaging and online shopping moments. Link new capabilities to what's trending in popular culture. Create digital shelf benchmarks that give shoppers confidence. Spotlight visual badges and accreditations that bring to life sought after benefits. Use content that taps into a propensity to dwell. Shoppers are experiencing subscription fatigue. Create ways to engage that excites the shopper to join your reward program or community and stay connected. Look outside of the box for different ways of doing things. Leverage digital influence in offline environments."

Leathwood states that while online sales soared during the pandemic, and then dipped slightly post pandemic, new growth drivers are already underpinning the evolution of e-commerce and the increased adoption of online shopping.

Leathwood: "Circana is the industry leader in helping retailers to imagine and embrace new technology, strategy and tactics to leverage the benefits of online shopping. E-commerce has a clear role to play in not only driving growth but also supporting and augmenting the role of physical shopping environments.  Our insights demonstrate that shoppers enjoy the shopping experience both in store and online and they are looking to brands across the sector to continue to excite, amaze and rethink their expectations. We are helping the industry to achieve this.

"Our message to the FCMG sector is very simple, if you want to see continued success and growth in e-commerce, you need to think more broadly than online sales. This requires a different mindset and a fresh approach to digital engagement including cutting edge strategies to really accelerate and drive growth in this space. We can help. We have a global team that has helped and is continuing to help brands of all sizes to cut through and achieve success in the digital space."

About Circana:

Circana is the leading advisor on the complexity of consumer behavior. Through unparalleled technology, advanced analytics, cross-industry data, and deep expertise, we provide clarity that helps almost 7,000 of the world's leading brands and retailers take action and unlock business growth. We understand more about the complete consumer, the complete store, and the complete wallet so our clients can go beyond the data to apply insights, ignite innovation, meet consumer demand, and outpace the competition.

www.circana.com