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Woolworths doubles online capacity to capture $3 billion sales shift

Amanda Bardwell, who heads up Woolworths’ WooliesX online division, told The Age and The Sydney Morning Herald the spike in demand for online orders over recent weeks had forced the retailer to get creative.

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This spurred the new partnerships with courier businesses Drive Yello and Sherpa, who will manage the delivery of the orders, which will be capped at 40 items and delivered next day.

Online grocery delivery has been in hot demand since the first wave of coronavirus panic buying in early March, with customers flocking to the service to avoid physically entering busy supermarkets.

However, both Woolworths and Coles were quickly forced to shut down the services, which buckled under the demand. Both companies have only recently re-opened online deliveries to the general public, having limited them to vulnerable customers only for the last few weeks.

Though in-store sales have started to return to normal in recent days, online demand is one channel Woolworths expects won’t materially decline, with Ms Bardwell saying the virus panic has accelerated the adoption of online grocery shopping.

“We’re expecting to see a significant increase in the number of customers who engage online,” she said. “For example, elderly customers who might have never considered shopping online before are now on our websites and placing their first-ever online orders.”

Pickers at Woolworths' new Notting Hill facility.

Pickers at Woolworths’ new Notting Hill facility.

At Woolworths’ half-year result in February, the company revealed online sales accounted for 4.4 per cent of the business’ total revenue, or around $1.4 billion. Woolworths has said previously online sales could match other major markets such as the UK, where penetration sits around 15 per cent.

Predictions from Macquarie analysts in early April estimate Coles and Woolworths’ online sales were likely tracking around 9 per cent prior to their shutdown in March.

A “sustained increase of online sales orders post the virus” will help drive Woolworths’ online penetration to 8.9 per cent, or nearly $3 billion, by the second half of the 2021 financial year, Macquarie said.

The investment bank believes the virus will push supermarkets towards a near 14 per cent online penetration by 2023, though it warned margins could suffer in the short term as more customers are drawn to the less profitable online channel.

“We believe the current online margin is around 0.5 per cent. Online is unlikely to be margin-accretive relative to a 6.0 per cent bricks and mortar margin but supermarkets could reach a 2.5 per cent margin online through efficiency gains as the business reaches scale,” they said.

Woolworths is set to release its third-quarter results on April 30, where analysts expect the supermarket’s comparable sales to jump around 14 per cent.

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