Efficiency will be key to profitability as Covid dynamics shift

6 may 2021

Erik Wallin

Mark Rogers, VP of Growth at Northfork, is calling on retailers to focus on efficiency, as shifting Covid dynamics are tipped to slow the growth of online grocery shopping.

"Retailers need to invest correctly in new tech, innovation and practices," he comments. "They need to drive efficiency if they want to see their online profits flourish."

Dispelling misconceptions

It's a common misconception that e-commerce is more profitable than bricks and mortar stores. Analysis from Foley Retail Consulting shows why. Online retail costs less in terms of premises and personnel, but so much more in terms of logistics and distribution that profits are squeezed significantly.

Working example: Tesco

We can see this clearly when looking at Tesco. The largest supermarket in the UK, Tesco saw revenue grow by 7% over the past year. Online sales increased by 77%. Yet pre-tax profits dropped by almost 20%.

"Online grocery retail is a very different business model to in-store delivery," comments Northfork's Mark Rogers. "The pandemic has increased demand for online groceries significantly. Retailers who want to make the most of that need to drive up profitability through technology."

Ambitious plans

In the US, supermarket operator Kroger is doing just that. The firm plans, by the end of 2023, to double its digital sales. Key to that aim will be more efficient order fulfilment.

Indeed, efficiency and convenience are certainly the watchwords for increasing profitability. A strategic approach is essential - unlike the short-term, knee jerk reactions seen as supermarkets scrabbled to expand their online business at the start of the pandemic.

As Covid dynamics shift in the coming months, it will be agile businesses who move ahead. Embracing technology to boost efficiency won't be a 'nice to have.' It will be an essential strategy for achieving profitability and thus longevity.