Abu Dhabi: With plans to launch an online grocery shopping service next month, Lulu Hypermarket said it had targets to expand its online business to account for five per cent of the retail chain’s total sales over the next three years.
The Abu Dhabi-based chain already has an online shopping service for electronics, and will be adding grocery products to the website just before the back-to-school season in September.
In an interview with Gulf News, Stuart Davidge, Lulu’s head of e-commerce, said that the move comes in line with a generational shift towards online shopping.
“[The service] will launch in Abu Dhabi first because we want to make sure the service level in managed correctly, and then we will slowly roll out across the UAE predominantly with our click-and-pick operations,” he said.
Davidge said the unique selling point for online shopping was its convenience and time-saving elements.
“Currently in Qatar, we have our online electronics store. In Kuwait, that’s just gone live, so the whole strategy is to get online operations going in every GCC country.
We understand today it’s not an investment for return tomorrow. The return will come probably in five or six or seven years because the FMCG (Fast-Moving Consumer Goods) business online is very small at the moment, so it’s all about putting the infrastructure in place and being ready for that uplift in the curve,” he said.
While the hypermarket did not confirm whether it plans to add a delivery charge, it said it “will at some point have to absorb the cost.”
Lulu has invested $5 million into the initial phase that includes launching the web store along with the delivery service, and a mobile app.
“There has to be a minimum spend — that goes without saying. If you look globally, [time] slot rates have different charges, so if you go to peak slots, they’re more of a premium rate. If you go to a low-end slot, it’s free, so it all depends on what model the market dictates,” Davidge said.
The minimum spend is expected to be around the Dh100 range.
In Dubai, Geant Hypermarket already has a web store that launched a few years ago with a delivery service in select areas in the emirate. The French retailer said it had plans to offer its online grocery shopping service in Abu Dhabi before expanding in the region.
“We do have other stores across the region, so the next big store to open will be in Dragon Mart, and then we will have Fujeirah opening up around October/November. At the same time, we have our stores in [the GCC], so there’s opportunity there to look at how we can replicate what we’ve done in Dubai into Bahrain and Kuwait,” said Marc Lack, chief executive officer of Geant Middle East.
Speaking to Gulf News, Lack said that the outlet in Yas Mall will have enough capacity to service the whole of Abu Dhabi.
Meanwhile, Choithrams Supermarket currently offers free home delivery service at selected locations, according to its website. The minimum purchase amount for free home delivery varies from store to store, the website said.
Despite the retailers’ growth plans, analysts said there were challenges that may hinder online grocery shopping.
Colin Beaton, managing director of Limelight Creative Services, said that perishable items such as fruits, vegetables, meat, and bakery items present the biggest challenge as consumers prefer picking them in person.
“The challenge is the products that are desirable online like canned and frozen food are the low-margin ones, and no one wants to buy the high-margin ones like perishables, which the supermarket wants to actually sell,” he said.
Beaton added that online grocery shopping in North America and Europe has had a troubled past, with many retailers launching it, but only a few finding success.
“I think the one thing that will help retailers is that, unlike the North American market, families are a lot bigger in the UAE and include staff. If you have a household of seven or eight people, which is not that uncommon here but quite uncommon in North America, then it’s actually quite a convenience to have those heavy bags delivered to you,” he said.
Beaton did not expect the trend to spread among retailers in the UAE, though, due to the high capital expense behind the launch of web stores.
Natalia Gorzawski, research analyst at Euromonitor International, said that other challenges include online payment as many residents still prefer to pay in cash.
Gorzawski said that demand for online grocery would primarily come from areas that are either newly-constructed and do not have enough stores, or those where Western European expatriates live as they are more accustomed to online shopping.
“In general, online grocery shopping is currently very small, but has a huge growth potential. Online grocery shopping is traditionally one of the last sectors to develop; electronics usually leads, and not only in the UAE,” she said.
