Addressing the ecommerce profitability challenge

Date : 11 February 2022

Adam Jones

Commercial Solutions Manager

Understanding profitability in ecommerce

We’ve heard the same narrative for some time now: relationships are at straining point; cost price is king. It is time to think differently to understand profitability in ecommerce. But why now?

10 years of innovation in 10 months

A lot has changed in the last 18 months, fundamentally requiring humans to adapt almost every aspect of their working, social and home lives. The drive to online from new age groups, geographies and backgrounds has meant that retailers have had to innovate and scale at an unforeseen rate. The online channel is in most cases unprofitable and it’s fair to assume as it becomes a larger proportion of businesses that retailers will look to address commercial terms with suppliers. You need to be prepared for these conversations so you understand the options available, and so it doesn’t become a cost-led negotiation.

Online revenue opportunities

It’s not all bad news – there are tactics we can deploy to drive margin, be it through marketing, delivery fees or more effective use of shopper data. To fully exploit these opportunities, we need a deep understanding of where margin is being eroded across the end-to-end value chain, out to shoppers’ homes. Much of this data is often difficult to find, but understanding it is essential to unlocking online profitability.

As we know, there are multiple fulfilment options available for shoppers in the online channel, from delivery to household, to click and collect. Each of these models will have their own profit and loss drivers for your retail customers, so understanding what they are is critical. When we know where costs are being absorbed, we can then work on better supporting customers in addressing them.

Grasp your opportunity

The time to address this challenge is now – to stand still is to move backwards. It’s not possible to run the online channel the same as when it was less than 5% of your organisation. As the channel continues to grow, and new entrants continue to proliferate, competition will increase. So, this really is an area of your organisation that will provide a point of competitive difference.

Are you aware of how you can directly impact your retailers’ online P&L? Are you having difficult negotiation conversations in this area? If you would like to continue the conversation and understand how IGD supports the food and grocery in this area, get in touch with me at [email protected]