The past decade has seen an astonishing expansion of the products and services offered by supermarkets. Clothing, electronic goods, holidays, mobile phone contracts and much more have all been added to the traditional groceries that are available in-store.
Supermarkets’ online stores have also expanded to reflect the broader product offering, with many aiming to be the ultimate “one-stop shop,” where customers need not leave their website for any of their shopping needs. But making a profit from online is a challenge for many grocers. According to a Nielsen survey, a typical online grocery basket is around $90, significantly more than a traditional grocery basket of $30. But what the survey doesn’t show is that the net margin is often significantly less than traditional grocery due to added costs. To help increase margins, a number of supermarkets have launched their own consumer-facing online marketplaces, which bring together buyers and sellers of additional products under the main supermarket brand.
Increased profits without inventory restraints
Amazon Marketplace (which according to the company, accounts for more than 50% of Amazon’s business) is the most famous example of an online marketplace, but the model is also highly suited to supermarkets. A marketplace allows increased products without inventory constraints, better service and product choice for customers and more profit for the supermarket, so is a rewarding way of expanding their offering and ensuring shoppers stay on their website.
Auchan in France, Woolworths in Australia, Walmart in the U.S. and many others have projects underway that span B2B, B2C, fresh, dry/semi-dry, non-food and new business concepts such as hyper-local and international expansion at sudden scale.
But setting up a marketplace is technically complex and any supermarket should ensure that it gets the appropriate technical and business help. Before implementing an online marketplace, there are five things supermarkets should consider to ensure they reap the full benefits of an online marketplace.
1. Stay in control of the brand
A good marketplace solution must fit with a supermarket’s brand completely, ensuring the same customer experience as in existing online or offline channels. Even though more than half of Amazon’s business is conducted via its marketplace, the shopping experience remains 100% Amazon. The same should apply to a supermarket. Any business’s brand is important and a supermarket may well be known for particular brand qualities and any marketplace must reflect that.
2. Choose the sellers wisely
There are thousands of sellers out there who would love to benefit from the additional sales opportunities that come from being listed on the marketplace of a major supermarket. But that supermarket must decide what it wants from a seller. Is it to offer customers a simple grocery product extension, offering a new farmers market type service, or expanding the non-food product range?
A supermarket must then assess just how reliable and suitable each seller is. Identify the key attributes sought in a seller — type of product, ability to deliver on time, compatibility with existing products — and put in place a checklist that will allow an assessment as to whether that seller is suitable or not.
3. Vary the products sold
One of the key benefits of a marketplace is to ensure complementarity and long tail, and having a varied and exhaustive product offering can play a big part in that. Deploying a marketplace allows a supermarket to branch out into new product areas that they might not be generally known for, to test the water and see if those products are popular with their customers. There is no reason why a large multinational supermarket couldn’t provide a hyper-local service, offering locally produced, organic goods for example.
4. Make your marketplace known
Some marketplaces I have seen are buried away on website. They are hard to find, poorly signposted and are therefore not likely to succeed. A marketplace needs to be clearly available on the homepage and as per the first point, as closely integrated with a supermarket’s existing brand as possible.
5. Link online and offline channels
Marketplaces do have the potential to change the way a supermarket operates, linking the online and offline channels. If a product works particularly well in the marketplace, then it could easily be offered as a physical product in-store too. Using online to encourage customers to the store is also a key way of reducing costs, with Click & Collect-type initiatives. Extending a range with high margin, specialty or hyper-local goods and big-ticket non-food items is a good way to boost these initiatives.
Product selection is widely cited as the primary driver for a supermarket adopting a marketplace strategy, but the model does offer many other advantages too. These include incremental revenue and margin, reduced costs, improved customer service, and a new way to test and feature products that are otherwise restricted. Following the tips outlined above will set any supermarket on the path to marketplace success.