Digital Dollars: Making Money on eCommerce

Oct 26, 2020

Last year at this time, eCommerce penetration in the U.S. was running less than two percent. By August 2020, it had increased by 400 percent, with over 40 million Americans somewhat or regularly buying grocery products online (including pet and baby, but not health and beauty products.)* As of January 2020, less than 20 percent of independent retailers in the U.S were eCommerce-enabled. Now, that number has almost doubled (but is far short of where we need to be).

When I ask retailers why they haven’t gone to eCommerce, I get a lot of answers. One common response is fear they will take on a lot more work and not make any more money.

Let’s look at eCommerce math, using some average performance numbers from IGA stores:

  In-store  Online without pick fee Online with $5 pick fee
Average basket $28 $96 $96
Gross margin 28%


(Lower meat and produce penetration)


(Lower meat and produce penetration)

Incremental selling cost $0


($12/hour labor, 30 minute average pick time)


($12/hour labor, 30 minute average pick time)

Net $7.84 $17.04 $22.04
Net percentage  20% 17.75% 22.95%


Even for retailers who don’t charge a fee to pick and hold an order, this math shows that eCommerce orders are good business. Your time to pull an order may be more or less, and your cost of labor may be higher or lower, but changing those numbers to fit your local business climate won’t change the conclusion: big basket eCommerce orders are profitable.

Ask Questions

As with any business model, it is never this simple. To really understand, you have to get in deep and ask questions like:

Q: What percentage of orders aren’t picked up?
A: IGA's experience so far is very few.

Q: What are returns like with online orders?
A: There are fewer than with in-store purchases.

Q: What are the costs to stage orders with perishable products or frozen?
A: As volume increases, retailers do have to invest in special staging areas, including refrigerated cases. This can be expensive and, for smaller stores, create real space issues. However, you can start small and invest as you go along, matching outgoing capital to incoming incremental sales.

Q: Am I just shifting in-store shoppers to online and raising my operating costs?
A: It is true that at the beginning, the majority of eCommerce shoppers were already loyal IGA shoppers. Older Americans in particular are switching to eCommerce because they are afraid to shop in-store during the COVID-19 pandemic. But the data suggests when they shift online, you get a bigger share of existing shoppers' wallets, perhaps as much as a 20 percent increase in share!**

IGA eCommerce Results

Truly most retailers are still figuring out how to answer these questions. As with any new business, you won’t get it all right the first time. But here is what we are seeing from IGA retailers who are new to eCommerce this year:

Over a third of eCommerce shoppers are brand new customers. That is big news. When is the last time you had a promotion or marketing program that brought in net new shoppers to your store?

Online shoppers still shop the physical store, especially for meat, seafood, and produce. In fact, it looks like online shoppers increase their total shop loyalty, which means you are growing wallet share, even with existing shoppers.

Customer satisfaction is also higher with online shoppers who buy from local grocers, meaning that our already high customer service scores are even better online! And according to several national studies, satisfied eCommerce shoppers are dramatically less likely to shop other retailers, including Walmart, than their local store “as long as quality stays high.”***

Average ticket is high, but margin is slightly less because early eCommerce orders can be light on meat and produce. Over time, as new eCommerce shoppers learn to trust the quality of fresh meat, vegetables, and fruits picked for them, we see the margin grow. It only takes six transactions before shoppers start trusting that their local IGA will make sure what they order is as fresh as what they would have chosen themselves.

What Mature eCommerce Looks Like

Now I know IGA retailers are smart merchants. And despite all I have said, many of you are stuck on the math I did above. I can hear you saying, “John, I can’t afford to add $6.00 in labor to every online transaction.”

Mature eCommerce grocers know that as online purchasing percentages grow, they will have to learn how to lower operating costs. That’s why many are on their second generation of training, operating procedures, staging, and technology. And like any new business program we take on, you will become more efficient over time.

Tesco, the largest grocer in the UK, was an early adopter of eCommerce. With over 10 years of experience now, they can pull and stage an order for a shopper today in half the time as just a couple of years ago. Improvements in mobile picking applications have had a lot to do with it, and better integration with their web to POS made a difference, too. As in-store pickers get experience, they speed up, quality and completeness improve, and costs drop as well.

But the above math doesn’t take into account charging a fee to the shopper for picking their groceries. Even a small fee of $5 per order changes everything. And shoppers are willing to pay for convenience.

Over 80 percent of shoppers say they are willing to pay a fee to have their grocery order pulled for them, with the vast majority saying they would be willing to pay 10-15 percent more.****

Uber Eats has seen a 54 percent increase in sales since January. Consumers willing to pay $5 for a $25 order from a local restaurant should give you the confidence that you can charge to pick, pack, and order for the shopper.

Get Started

So, given all this data, what should an independent grocer do?

  1. If you aren’t online now, get online! IGA has a special program with Freshop, but your wholesaler may have a more integrated offering. Either way, pick a vendor and get going now!
  2. Think of the startup costs as a marketing expense to reach new shoppers. Don’t worry about cost of goods sold in your first year. Think instead about the gift of a new marketing product that can attract net new shoppers into your store.
  3. Offer a quality guarantee on meat and produce. “We guarantee that what we pick for you is what we would pick for our own family” is a promise only an independent could make credibly. You will grow your average ticket and total basket margin as shoppers learn to trust you to pick perishables for them.
  4. Charge for pick-and-collect. Give the first order free or set as “all orders above $100 are free,” but don’t be ashamed to charge for this service over time. Shoppers will pay for convenience.
  5. Don’t worry about delivery—yet. Sure, you can sign up with Instacart or hire your own drivers, but those costs can get away from you fast. Start with click and collect and learn how to be a great eCommerce retailer first.
  6. Give incentives for shoppers to try the service. We know that once a shopper loads their first full basket, they become highly loyal. Set up tables in the front of the store and sign up shoppers; put up signs everywhere; give incentives to order online; promote on social media and in your print ad. Shoppers need a nudge to try but once they do, they become exceedingly loyal.

No one knows what will happen to eCommerce shopping once COVID is a distant memory. But looking at other countries where eCommerce is more mature, or other industries where they have been at it longer, they have learned that shoppers who go online tend to stay online. If that is true, we really have no choice.

Sign up, get going, serve your shoppers in-store and online and win over the long term!

* Forester, Online grocery and COVID, 2020
** Mastercard CGF report, Global online purchasing trends, 2020
*** CapGemeni, Last Delivery Mile, 2020
**** CapGemeni, Last Delivery Mile, 2020

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