Bricks and mortar grocery retailers have long realized that physical stores alone will not be enough to prosper in the coming decade. So where exactly is the excitement in the news that Sainsbury, the supermarket operator, is looking to buy a non-food retailer Argos? What does this acquisition have to do with omnichannel? Pretty much everything! It potentially signals a tipping point in the way established retailers respond to rapid changes in shopping behavior and the retail competitive landscape. And, as we outlined in our free e-book “Channel Strategy in the Age of the Digital Shopper” that affects anyone involved in consumer goods sales and marketing.
For those of you not from the UK Argos is a long-established institution, reknowned for its slightly dated stores and peculiar shopping experience. Shoppers go to stores to browse a catalog (they could browse it at home, too) and then fill out a form (with an iconic stubby little ballpoint pen), then queue, then wait while someone goes to the warehouse at the back of the store to get the product. Hardly cutting edge! Argos have been having a tough time too – with Christmas sales slipping badly. So how can this strangest of retail matches be going ahead, let alone be seen as a brave omnichannel play?
Omnichannel – the digital play
While Argos are still best known for their stubby little pens, they have quietly been investing in a pretty formidable online presence. Their website today proudly promotes click and collect, plus a fast track same day or next day delivery, depending on the size of the product. At a current Argos store, if a product isn’t in stock at that outlet it can be delivered within hours. Argos stores might not look the most sophisticated at the front end, but the back end packs some serious supply chain muscle. This is increasingly essential for retailers who wish to satisfy shoppers’ increasing demands for immediacy. Acquiring that network and know-how could be a massive boost for Sainsbury as they try and move beyond being a bricks and mortar grocery retailer – a bloody battleground in the UK at the moment. The goal must be same-day delivery of grocery, perhaps a pre-emptive step ahead of Amazon’s impending UK grocery play. It is a signal that the industry believes massive online grocery is an inevitability, and that it might come sooner than was thought.
Omnichannel – the convenience store play
Across the world convenience stores are one of the fastest growing channels. This acquisition immediately creates a small store ‘local’ footprint that could move Sainsbury forward dramatically in this area. Quite how many of the stores are appropriate for local grocery sales, who knows, but taking an Argos store and turning it into a Sainsbury Local and a click and collect pick up point has massive potential. Here too, that supply chain muscle from Argos may be a major factor. Argos stores get up to twice daily deliveries – critical to managing a local fresh operation.
Omnichannel – driving profit back into big store formats
Like many operators of larger superstores, Sainsbury has suffered as shopping trips have fragmented. Shoppers are moving to convenience stores, discounters, specialists and online – all of which is hammering store traffic and basket size. Sales per square foot is threatened, and therefore the opportunity to relocate some Argos stores into existing superstores must be of interest. Sainsbury and Argos have already trialed this (one assumes successfully). Further, a large number of Argos stores are close to Sainsbury stores. Closing stores without losing sales must be a potential big win.
There must also be some operational efficiencies, and head office staff in both businesses must be feeling a little nervous. Distribution networks and offices may well be consolidated as well as stores.
A Tipping point for brands, too
Of course much of this is speculation, but it does seem clear that Sainsbury are embarking on a brave course. They are moving from their ‘big grocery store’ heartland towards non-food, online, and convenience. And the implications for manufacturers are profound. Brands will need to keep up fast with rapid changes in shopping behavior, and the challenges and changes that this drives in retail channel dynamics. Customer managers will need to reach new heights of expertize and plans will need to reflect the multi-channel aspirations of major customers. Investments across channels and customers will need to be reviewed too. For a useful start in this brave new world, download our free e-book on managing channels in the digital age.
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