When Delhaize launched The Cube earlier this year we were warning that it wouldn’t be as successful as expected. However in a recent press release Delhaize said it was a success and that online sales increased 22.6%. So in the end, who tells the truth?
As we explained in our post Delhaize got its inspiration from Tesco in South-Korea, the online sales of which had increased 130%. As you can note there is already a huge gap between Tesco’s results and Delhaize’s results. Several factors account for this difference, the cultural factor being probably the most important. South Korea is not Belgium; South Koreans are not Belgians. The literacy of South Korean people with smartphones is much higher than the one of Belgian people. Their work habits are also different. South Korea does not have the 9 to 5 mentality that may be prevalent in Belgium. With less free time (and a tendency like in Japan to sleep not far away from the office to save commuting time and increase the working time) Tesco really brought a solution to a customer’s pains, namely shopping. Tesco gave the opportunity to commuters to make their commuting time more valuable; when you think about it it’s actually the same strategy that RIM used (consciously or unconsciously) when the Blackberry first entered the market. Blackberry customers suddenly had the possibility to stay connected and to use little pieces of time, usually lost, to become productive. You are in the queue at the supermarket? Take your blackberry out of your pocket and use the 2 minutes of waiting time to become again productive.
Let’s go back to Delhaize …. What is the ROI of their investment. When you are struggling with profitability (and closing stores to ensure profitability by the way) this should be important, right? 200,000€ were invested in the Cube campaign by Delhaize.
Supermarkets are usually low-profitability company. A recent study made by the Belgian government showed that the typical gross margin is around 3% (with the exception of Colruyt reaching 7%). Moreover in the case of The Cube, the ROI should be calculated taken the NET increase of sales compared to other existing channels. In other words, if The Cube projects allows to increase online sales of Delhaize by 22.6% but at the same time the consumers having purchased online purchased 22.6% less in stores, you will have lost 200000€.
Try to do the math and you’ll quickly come to the conclusion that you need to sell a damn lot of washing powder to make this project profitable. One could argue of course that the online channel is more profitable than the offline channel because the cost structure is different. But in reality this is not true. Online sales are only possible if you have a offline business in that case. The best evidence is actually that the goods are collected at supermarkets. Of course you don’t need cashiers and the cost structure will be different but the question remains whether it will be significantly lower to make the project profitable. I have big doubts about that …
Posted in Innovation, Marketing.