What you need to know:

• Australians are piling back in online shopping and loyalty apps in a hunt for value and more control over their spending in the face of tougher cost-of-living conditions, most notably across grocery and high-frequency shopping.
• Figures from Coles and Woolworths underline the trend, with major growth this year across ecommerce as well as growing app and loyalty program members, reversing last year's heavy declines.
• Outside of grocery, retailers are pinning hopes on loyalty programs and an increasing uptake of digital tools in the hunt for value to see them through what many fear will be a soft Christmas trading period, with Gen Z and Millennials, or those aged 35-54, feeling the most pain from sustained rate rises now fully playing out.

Ecom boom returns

Consumers are increasingly taking to digital tools, such as in-store shopping apps and online shopping, as a way of gaining better control over high-frequency spending and finding more value as the cost-of-living continues to bite.

That’s the view of several retail industry experts around how the economic downturn and dozen plus interest rate rises are impacting consumer sentiment and changing shopping behaviours as well as influencing ecommerce offerings and trends.

Speaking at Circana’s State of Industry virtual event earlier this month, the research company’s insights director of Australia, Daniel Bone, cited ongoing adoption of ecommerce in Australian retail and stressed the online shopping trend is “most certainly not over”.

Of particular note is the uptick in ecommerce and digital engagement seen through grocery data. Specifically, Bone saw a rise in Australians turning to digital tools, and particularly in-store shopping apps, as a way of exerting better control over their budgets.

“I use the term ‘3Cs’ shopper – cautious, considered and compromising. It’s an example of a behavioural manifestation of that trend,” Bone said. “Digitally, people are using these tools to control and rein-in their spending. That’s going to lead to an increase in app-based engagement. You’re seeing that in terms of the enormous usage numbers surrounding the rewards apps and retailer-specific apps as well.”

Financial data from the supermarket giants certainly highlights both growing ecommerce sales in recent months, as well as greater app utilisation rates. In its latest financial report, Coles Group reported ecommerce sales growth in Q1, 2024, growing supermarket sales by 24.6 per cent to reach $852 million, bringing penetration up to 9.1 per cent. Liquor ecommerce was also strong, increasing 32.3 per cent. Coles app active users grew by 39.4 per cent over this period.

It was a similar story at Woolworths Group, which reported ecommerce sales in supermarkets increasing 18.4 per cent in Q1 FY24 to $1.55 billion, bringing penetration up to 12 per cent. Group ecommerce sales were up 26 per cent year-on-year to $1.97bn, representing a penetration increase of 1.2 points. Over the same timeframe, Everyday Rewards active membership increased by 6.8 per cent to 9.2 million, and Everyday Rewards and Woolworths apps users increased 44 per cent and 37.4 per cent, respectively.

It's a stark contrast from the start of the year, when the firm acknowledged a sharp ecommerce reversal in the second half of 2022 and Woolworths CEO Brad Banducci admitted the speed of the ecom drop off had taken the firm by surprise.

Hunting value, seeking control

Recognising changing shopper behaviour and the emphasis on price, Woolworths launched a new digital tool over the past quarter, called Best Unit Price, designed to help customers find the lowest unit price for items. In its financial report, the supermarket giant said Best Unit Price had already become the most popular digital filter for customers.

Catch Group managing director, Brendan Sweeney, agreed tapping online shopping is increasingly a value play for consumers and a way for managing spend more incrementally.

“Consumers are looking for value through online shopping, where they can quickly compare prices and extra benefits like rewards or next-day delivery to make their purchase decisions,” he told Mi3. “Shopping online also helps consumers plan and stick to their budget, and not be tempted by unplanned purchases. At Catch, consumers can gain significant savings if they buy in bulk, especially on frequently used items like nappies, wipes, coffee pods and dishwashing tablets. Early access to shopping events like Black Friday is also a big bonus for online shoppers.” 

Gen X, Millennials hardest hit

According to the latest Zenith consumer panel, consumers are exhibiting a raft of new shopping behaviours to save money. At a broader level, these include focusing on discounts and promotion hunting, more cooking at home, trading down to more value brands in some specific categories and cutting back on essentials. But Zenith spied digital tools as becoming more popular in the mix too for the same reason.

“Being stricter on using shopping lists or doing their grocery shopping online are other ways Australians are activity looking to better control their spend,” Zenith Media Australia co-national head of strategy and planning, Simon Schoen, said. But while there’s plenty of value hunting to be seen, one thing Zenith doesn’t see consumers compromising on is healthy eating, he added.

It's worth also noting people aged 35-54 were seen by Zenith to be the hardest hit by interest rate rises and shouldering a lot of the economic pressure right now, leading to the biggest changes in spending patterns across the group.

Upper funnel push, in-store apps

Founder and MD of digital transformation and ecommerce consultancy firm Arktic Fox, Teresa Sperti, said categories like grocery are illustrating several key shifts in the market. 

“Consumers have always seen value in leveraging ecommerce for their grocery shop. In-store provides a much richer environment to discover products. However, for those on a budget, shopping online not only provides convenience it enables many to manage the cost of their shop and saves them from embarrassment when they reach the till,” the CMO turned consultant commented. 

“Behaviours like these are absolutely heightened in times where cost-of-living is constraining budgets which is why, in part, we are seeing strong ecommerce sales growth from the major supermarkets.” 

For Sperti, digital supports consumers to do a few key things – make even more informed decisions, shop around and compare, “save, save and save”, and enable convenience despite budget pressures.

“With spend constraints, consumers are increasingly researching and discovering online is even more important than ever. Consumers are doing more research and seeking out alternatives to trade down or save,” Sperti said. “So upper funnel activity is playing an even more critical role than it did to influence not only the eCommerce sale but also the in-store sale.”

What apps enable in-store is an ability to plan a shop and know roughly what you’re up for. From an online point of view, the ability to purchase without being tempted in an aisle and managing the budget in real time are equally appealing to cash-strapped Aussies.

“When you’re putting things in the trolley, you can’t see the cost racking up. You only find out when you get to the till. Whereas when you’re online, you get that immediacy and ability to take something out and see what the costs then is. In-store can’t rival that today,” Sperti said. “That’s where apps play an increasingly important role – I have that aid in-store to make those decisions if I choose to. Then I don’t get the shock at the end.”

Marketplaces, click and collect

Another trend Sperti detailed in grocery and high-frequency purchasing is increasing numbers of consumers shifting parts of their shop to marketplaces to save, resulting in high app and online utilisation rates. She pointed out in late June, Amazon stated its ‘subscribe and save offering’ on essentials like toilet paper, pet food and others had seen 60 per cent growth year-on-year.  

“As consumers are feeling the pain, we are seeing a rise in deal seeking behaviour online that includes utilisation of offer codes, cash back rewards and so on, which will fuel ecommerce interaction and spend – particularly in the upcoming holiday season,” Sperti continued. “Bricks-and-mortar brands stand to gain from this if they are set up to deliver great omni-channel experience as people look to save on delivery and get products they want immediately through services like click-and-collect.”

Sperti noted local brands are tracking up to 70 per cent of their total ecommerce orders coming from click-and-collect. 

“More broadly, as cost-of-living spikes and we near Christmas, more consumers are actively looking to buy early and save. Black Friday, Cyber Monday, Click Frenzy are all embedded now into the Australian calendar and these events will bring forward more spend versus previous years as consumers – particularly the under 45s – will engage heavily within these promotional periods,” Sperti added.  

Loyalty, deal stacking running hot

Outside of grocery, apps are a way of loyalty program utilisation in retail, another trend Sperti saw as critical in a cost-of-living crisis.

“Loyalty programs are hot as consumers look for additional ways to get their bang for buck to accrue and redeem points,” she said. “People are increasingly looking at deal stacking, loyalty stacking. If you think about it, I have a cost on a basket of goods. So how can I derive maximum value back from that? Can I find a online discount code to reduce the cost of my groceries, then can I get loyalty points on top of that in order to extract as much value as I can? Because again, I’m on a budget and trying to make things balance.

“In those other retail categories, the role of the app would play a big role in that space, and as a central tool to manage loyalty end-to-end.

“But equally these days, and particularly for apparel and fashion retailers, the loyalty experience has become even more seamless across channels. I walk into a store, give my phone number and bang. It’s more about redemption where the app plays a more important role.

“For those that have apps from a brand point of view and have high-frequency shoppers like grocery, the app itself plays a critical role in driving loyalty through convenience, when combined with in-built loyalty activation it enables the user to benefit from loyalty rewards inherently as they shop. When it comes to loyalty, some brands are seeing 50-60 per cent of total sales coming through loyalty. But the role the app will play in driving that loyalty really depends on how central the role of the app is to the shopping process and how mature the retailer is in this space.”

Can loyalty save Christmas?

Some retailers have made it clear they’re looking to loyalty members to ride out what is expected to be a softer Christmas retail trading season. As Australia’s peak retail body, the Australian Retailers Association (ARA), warned in early November, the Reserve Bank of Australia’s to increase the cash rate to 4.35 per cent month could be a significant blow for the retail industry heading into the all-important Christmas and holiday trading period. ARA CEO, Paul Zahra, said the decision dampened retailers’ “cautious optimism” heading into Christmas.

“This rate increase will have a significant impact on discretionary spending, at a time where many retailers are struggling to remain sustainable due to the rising cost of doing business,” he stated following news of the rate hike. The latest quarterly spending data from Commbank iQ shows discretionary spending remains flat.

Myer sees three in four total sales completed by its 4.2 million Myer One loyalty program holders and recorded 20.5 per cent of total sales through online channels in the last financial year. In its latest financial reports, the ASX-listed department store giant highlighted loyalty as a key strength providing solid positioning against the current economic environment.

“We will continue to create more value for our customers through Myer one and our strategic partnerships with specific opportunities tailored across the peak period,” the retailer stated at its AGM.  

In a similar fashion, Michael Hill CEO, Daniel Bracken, said the jewellery retailer’s Brilliance customer loyalty program, numbering 2.1 million members, will be “a key differentiator and enabler for customer engagement and sales driving events”.

Loyalty members are more valuable across average trade value by 70 per cent and gross profit by 250 basis points, he said. And they’re transacting more frequently, resulting in eight in 10 sales now being completed by members.  

For the first nineteen weeks of FY24, Group sales including sister brand Bevilles, were up 2 per cent on prior year, and up 26 per cent on FY22. For the core Michael Hill brand. Sales are down on a record start to FY23 but up 13 per cent on FY22 and 15 per cent on pre-pandemic trade in FY19, Bracken said.

“There is no doubt retail conditions have continued to be very challenging in all markets, as the group cycles record Q1 sales in the prior year,” he said. “Group gross margin has continued to be under pressure, with sustained elevated diamond and gold pricing and dampened consumer confidence due to economic challenges, leading to greater promotional activity across all retail categories and markets."

But then, he suggested, everyone's doing it tough – and claimed the firm is out-pointing rivals.

"We have seen transactional sales data from multiple external sources that demonstrates that both the Michael Hill brand and Bevilles continue to take market share in a challenging retail environment.”