Grocery ecommerce platform: to buy or to build?
It is no novelty that the COVID-19 pandemic was the main cause for many businesses to either shut their doors due to lockdown policies all around the world or see their operations get seriously affected – for better or worse. For some, the pandemic revealed an opportunity that led to outstanding numbers in the digitalization of grocery stores, which, from what it seems, is a long-lasting trend.
Numbers don’t lie: in August 2019, U.S. online grocery sales summed up US$ 1.2 billion; in June 2020, the total was US$ 7.2 billion. Sales grew along with the number of online customers: over that same period, they went from 16.1 million to 45.6 million in the US only.
But why is this a trend in the industry? A study from consultancy firm Deloitte calling out for the “contemporary consumers”, young families who happen to personify the customers of the future, points out that they are omnichannel consumers whose behavior changed especially after the pandemic effects started to take place. It was noted, for example, that 26% of those consumers already order online and have it delivered to their houses or pickup at brick-and-mortar stores against 18% that still buy at local grocery stores. It is a clear sign of what the future of grocery shopping will look like.
It’s safe to assume that the future of the grocery industry is digital and online: the penetration of ecommerce in the food & beverage sector before the pandemic was of 2.5% in 2019 according to data from Global X; when COVID-19 hit the globe, the estimate penetration jumped to 4% in 2020.
But when it comes to taking a grocery business to the online world, a question may pop up: “should I buy or build a grocery ecommerce platform?” and “What are the costs beneath each one of those implementation strategies?“
This article analyzes what is involved and should be considered to make this decision.
The complexities of the industry
Having a grocery ecommerce operation can be very complex for multiple reasons, one of them has to do with logistics: the fact that you have several distribution centers, in different locations, from which your consumers’ orders are shipped. This is a huge layer of complexity to deal with when you’re considering to build your own grocery ecommerce platform, while, on the other hand, native commerce platforms have integrated functionalities that can handle it easily.
A second factor is OMS (Order Management System), which is extremely relevant for grocery ecommerce operations, since we’re talking about an average of 35 to 45 items per order. Besides that number, which is bigger than the average in other industries, there is also the order breakage, which is of about 8% to 12% per order. A very robust system is required to deal with the orders change and negotiations, and not every OMS has the support for it, especially when developed from scratch.
Another point to consider is the complexity to build on your own a WMS (Warehouse Management System), an essential tool to deal with several orders at the same time, attached to your grocery ecommerce platform. Without such functionality, your operations may become more expensive and time-consuming, not the ideal when it comes to grocery — retailers need better margins, and customers want agility.
Building a platform that will ensure all operations are running smoothly and securely can be an obstacle: according to a study by IDC from 2020, this was the main challenge for European retailers in driving innovation.
Long story short: the digital grocery business demands an ecommerce platform that can handle its high order volume and flow with all its complexities. In that sense, an already established ecommerce platform that you can buy may be a safer option that also simplifies a complex business process and model.
Time is money — and in a fast-changing world, it is essential for businesses to have a clear vision of how important it is to have a fast implementation of an ecommerce platform.
When it comes to buying a platform that has the needed expertise, whose team will work with commitment and that has the support to help you further, it can be fast to have your new website live and ready to receive orders.
A SaaS platform implementation project can be finished within weeks thanks to the methodologies commonly used to get everything up and running. If more time-sensitive, it is possible to go live in a shorter period with an MVP that can be improved according to priorities throughout time.
This is a way to improve time-to-market and to guarantee a smooth and successful implementation while also counting on a partner that you can trust.
There’s still plenty of room for groceries to get into the digital world, but it’s also undeniable that there’s been, for a while, huge players in the market. That makes some ecommerce functionalities a kind of commodity: every grocery must have them when going through the digital transformation or replatforming.
From that, we can say that there is no competitive advantage in developing an OMS from scratch, as it’s not worth developing a full CMS that offers the final customers the basic functionalities they’re looking for – that’s no differential compared to competitors.
To mention a few of those basic solutions for grocery ecommerce platforms: a fast and easy-to-navigate website, an efficient search engine, as well as cart and checkout functionalities.
The main question on this topic is: is it worth spending tons of money on functionalities and projects that are now commoditized and that a native and experienced ecommerce platform can offer for a smaller price?
“Once-in-a-lifetime investment” to build your own platform. Is it, though?
Many people may think that developing a grocery ecommerce platform from scratch is a once-in-a-lifetime investment: once it is online and running perfectly, there is no more need for investments or improvements. In more technical words, when it comes to P&L, we would consider it a CAPEX.
That’s not accurate for several reasons. First of all, because we’re talking about a business that’s always evolving: a few months (or maybe even weeks, who knows?) from now, there will be other ecommerce platform functionalities that not only attends to new consumers’ needs, but also creates value to businesses operations.
Those functionalities, when in place, differentiate businesses among its competitors and can also catch new clients’ attention. Besides, of course, turning your brand into an innovative one and creating a better image of it.
And the reason why we’re saying this is that, when the time comes, there’ll be the need to improve your own grocery ecommerce platform and to once again develop a functionality from scratch. That means more CAPEX investment.
The game goes on and on and on. At some point, one realizes that what initially seemed a once-in-a-lifetime CAPEX investment turned out to be an OPEX investment, since it’s ongoing and never-ending — in conclusion, there will be regular expenditures to keep your grocery ecommerce platform updated instead of the only one you had previously expected.
Being a bit more specific:
- You’ll be making regular CAPEX expenditures to improve your grocery ecommerce platform;
- Considering the amortization of each of those expenditures, they’re all gonna sum up at some point.
And then there’s the problem: even though, at a specific period of time, you didn’t have any new expenditures, all those previous investments for improvement have to be declared on your balance sheet. And their sum might stop your company from making future investments because you would lose the capacity to do so. This can be a fatal situation for businesses.
That’s specific for the case of building your grocery ecommerce platform from zero. When you buy a platform that’s already native and that can handle those improvements for you, there’s no need for constant and huge investments. It is their expertise to develop new features and constantly improve the platform to guarantee the best experience and service possible.
Besides that, there’s also the possibility of including add-on functionalities to the platform to make it tailored for your business needs.
In terms of investments, the high cost a SaaS can have at first may lead to the thought of “wouldn’t it be cheaper if I just created my own?”, but remember the points mentioned above — and the fact that in this case, you have a partner that you can count on and is already established in the ecommerce industry.
Flexibility is needed – but at what cost?
Having a headless approach allows your business to deliver the desired front-end experiences disrupting the back-end. In simpler words, you put your customer in the center of your operations to guarantee that they’re having the digital experience they’re looking for.
But developing a headless commerce platform from scratch can be a hell of a worry: you need a team dedicated to creating, building, coding and maintaining all the structure, besides keeping it updated according to the business’ needs and including new functionalities —- which, by itself, demands time and money.
With an API-based platform that also offers a headless approach, something you find on SaaS providers, you have more flexibility to turn your business into what you want it to be and to include add-ons according to yours and your customer’s needs, without the “headless fatigue”.
“Okay, but what’s the final answer?” Of course there’s always businesses specificities and needs that should be considered when making such decisions, but, taking all the points above into account, the final answer is that buying a grocery ecommerce platform allows you to focus on your core business, which is retail, not technology, while relying on a partner to develop and successfully implement your grocery ecommerce platform.
Take a look at the success story of Calimax, which managed to transform its business with a third-party SaaS in only four weeks.