With the rise of e-commerce, you might be tempted to think that the traditional grocery shop is on the way out. But is it? While certainly facing a competitive threat, bricks and mortar grocery stores also have a couple of important advantages over the pure online retailer.
Margins – grocery retailing is fundamentally a low margin business making cost control critically important. Running an online business is however typically costlier, mainly due to increased distribution costs and depreciation of the capital investment needed in IT systems and logistics.
Fractionalisation of costs – physical stores tend to incur a greater proportion of fixed costs, primarily due to the rents paid. This means that brick & mortar grocers can increase their profit by more from every additional dollar of revenue generated than online grocers which incur a greater proportion of variable costs.
To help overcome these challenges a pure online grocer can of course levy an annual subscription and/or add a delivery fee, but in doing so it is likely to eliminate a pool of potential customers. Given that the delivery economics however work best if drivers spend the bulk of their time bringing groceries into homes from trucks rather than driving kilometers between homes, the loss of potential customers is clearly something best avoided.
If you’d like to get in touch with one of our advisers you can contact us at 1300 ELSTON or email firstname.lastname@example.org and an adviser will be in touch.
WARNINGS AND DISCLOSURES: This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.
Share this post
Our goal is to be Australia’s most trusted and respected financial services firm.