Australian online food retail boom giving opportunity in infrastructure ?

Will the top growth industry over the next five to 10 be the delivery of parcels and food that have been ordered online.

To date Australia has lagged the developed world in online shopping and for most retailers online is less than 5 per cent of turnover. It is set to at least double but more likely increase fourfold over the decade. Next July eastern Australia will substantially lift shift allowances for staff in retail stores.

I believe that will trigger a big swing to internet shopping because of the boost to conventional retailing costs.

Once scale has been developed, online transactions are cheaper to execute than sales through stores. It’s true that the customer (or retailer) has to pay for the home delivery but they avoid all the extras like rent, in-store workers and sometimes expensive packaging.

The ‘packaging’ is the display on the internet site.

As retailers swing to on an online customer relationship, many retailers will have large legacy shopping centre rents to pay.

I suspect the biggest online swing will be among non-food retailers but food will catch up.

And whether it be food or non-food, every order must be delivered, creating enormous growth in that industry. I am not sure that the current big transport players will emerge the leaders in this new growth industry – but the opportunity is there for them.

Australia Post chief Ahmed Fahour had stolen a march on his rivals and taken 80 cent of the online delivery market. Toll’s new CEO Brian Kruger has reversed the decision of his predecessor Paul Little and entered the online delivery market

Other transport groups like Fox are also moving in that direction.

Toll has goodwill to restore if it is to be a major player. Toll needs to be a low-cost provider of excellent service. Similarly, Ahmed Fahour and Australia Post will need to become super-efficient.

The transport groups that are first to provide cheap, same-day service – the overseas benchmark – will be the winners.

But this transformation is causing at least some retailers to wonder what their role should be in this new growth industry.

In the first half of the 20th century, and extending into the early part of the second half, much of the retailing industry was about home delivery. Milk, bread and many foodstuffs were home delivered. In non-food, Myer trucks dominated the roads. And it was Myer and other retailers that opened up the first big, new, suburban centres.

In this new form of retailing the successful retailers will require access to the most efficient warehousing systems ever conceived and then a wonderful set of vans and van drivers. Retailers who do their own delivery will be in full control of their customers but they will need to be good. Most will outsource but some are considering their own network of vans.

And of course delivery vans can be operated by independent contractors who own their own trucks. No shift allowances and penalty rates needed here – just incentives for good service.

And there is an opportunity for disruptive banking/finance institutions to fund the independent contractors’ vans.

Shops and many big centres will of course still exist and many will prosper but rents must be realistic and, to compete over time, shop staff will need to embrace the same incentive deals as their driver rivals.

© Business Spectator 18 November 2013

 



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