Loblaws wants to reap online benefits

The leading food retailer in Canada wants to become true online contender to counter Amazon effect

Loblaws’ latest e-commerce move is significant. Canada’s largest food retailer has launched a subscription program for its PC Optimum members - more than 16 million people.

For $99 a year, members of the newly-created PC Insiders program can get perks such as extra points for certain products purchased online, along with free delivery. This is clearly based on Amazon Prime, which costs $79 in Canada.

Loblaws’ commitment to free delivery for online purchases is the first true sign that the company wants to get into the ring with Seattle-based online retail giant Amazon.

For the longest time, Loblaws focused on competing with Walmart as that chain made its ascent into the food retailing stratosphere in Canada.

Now Loblaws is fixating on Amazon — and it has no other choice.

Most surveys show that just two per cent of Canadians purchase the majority of their food online. But surveys also suggest that more than a third of Canadians are considering regular online food orders.

While it seems that actually seeing and touching your food before buying it is still preferred (surveys say almost half of Canadians aren’t even thinking of going online to grocery shop), a growing number of Canadians appreciate the benefits of grocery shopping online, especially for staples and regularly-purchased items.

Online grocery shoppers are a different breed of consumer. They tend to be more rational, more disciplined and less inclined to buy on impulse. That’s scary for the grocery sector, which clings to very traditional ways of conducting business.

But things are changing, due to an aging population and the fact that much of the Canadian workforce couldn’t imagine life without the Internet.

Loblaws’ recent online rollout tells us two things:

First, the company is capitalizing on what’s already considered one of the most successful loyalty programs in the country. This is one of the main reasons Loblaws bought out Shoppers Drug Mart in 2013. For grocers, loyalty not only pays, it’s now essential.

On average, Canadians recurrently visit 2.3 different stores and spend about 32 minutes per visit. This suggests that the average Canadian spends less time in a grocery store but will visit more locations. And it’s a trend that’s likely to continue. Shoppers are becoming more strategic and are willing to consider more outlet options to obtain similar products.

This is known as the omnichannel approach. It’s the main reason online shopping matters so much now. A higher number of contact points with the customer can leverage the entire business and increase loyalty.

Secondly, membership fees can go a long way. Raising some cash to support its online infrastructure will allow Loblaws to gradually expand its cyber reach. Online delivery is a grocer’s biggest dilemma when looking at ecommerce. The click-and-collect model was always meant to serve the industry more than customers.

The Loblaws PC Insiders play is a clear commitment that it wants a model that offers what customers really want while making money selling food online. It’s truly a first in Canada.

Amazon Prime has more than 100 million members worldwide. The vast majority live in the U.S. but Canada is likely home to more than three million members. This is nothing compared to PC Optimum’s 16 million members, but PC’s membership is free.

Converting these members into paying PC Insiders won’t be easy. Still, we shouldn’t be surprised if Loblaws does well with the program, with results likely exceeding the company’s goal of 100,000 members over the next six months. The market is poised for it.

Besides Amazon, another nontraditional food retailer is causing grocers to lose sleep. In September, Costco launched a pilot shipping program in Ontario. With over five million very loyal paying members in Canada, Costco is likely to launch a similar program in other provinces in the months to come.

This is a real menace for grocers like Loblaws, so launching PC Insiders now is crucial. Loyalty has its rewards — and so does good timing.