By Ken Kwong
In early 2000, my brother referred me to a book by Malcolm Gladwell, “The Tipping Point: How Little Things Can Make a Big Difference”. This book opened my mind about how one might be able to rationalize the changes to practically any situation. To better understand this concept, Oxford Online defines “Tipping Point” as, “the point at which a series of small changes or incidents becomes significant enough to cause a larger, more important change.”
In this column, I would like to explore how COVID-19 may have been the tipping point for e-commerce. To help frame the context, let’s take a brief look back at the timeline of COVID-19 in Canada. In early 2020, on March 11, the World Health Organization declared COVID-19 a world-wide pandemic. By March 16, Canada begins to close its borders and implement social distancing policies. By March 21, all gatherings were prohibited. On March 23, Ontario and Quebec close all non-essential businesses. And by March 25, most of Canada was under some form of lock-down order.
In a matter of two weeks, Canadians’ way of life changed in a way no one had ever anticipated. All these drastic measures, intended to help slow the spread of COVID-19, brought about changes to in-store operations, closure of some businesses, and limitations to how consumers shopped due to physical distancing mandates. Because of these measures, Canadian consumer behaviour shifted towards online shopping. Traditionally, these types of consumer behavioural shifts take decades to achieve. The impact of such drastic changes, in such a short time, has affected all aspects of the supply chain, from demand planning and logistics to finance and technologies. These changes were best summed up in a recent edition of the McKinsey Quarterly, with the title, “The Quickening: if you’re feeling whiplash, it might be the ten years forward we just jumped in 90 days’ time”. This article, quotes Microsoft CEO Satya Nadella on a recent quarterly earnings call, “We’ve seen two years’ worth of digital transformation in two months.” According to Statistics Canada, total retail sales fell 17.9 per cent between Feb to May 2020. During this same time period, e-commerce sales almost doubled by +99.3 per cent. Mandated conditions on business operations and non-essential business closures saw a shift towards e-commerce, as an alternative. Traditional retailers who did not have an online strategy or presence in place saw an immediate loss of revenue, and some have had to shutter their doors, after a year of dismal to little sales. While those who had some form of e-commerce presence, and especially those who already evolved to offering home deliveries as an option, saw their online business demand exponentially grow since March 2020.
On a recent BNN Bloomberg online interview with the former eBay CEO Devin Wenig, he discusses the future of e-commerce in the face of COVID-19. He shares that e-commerce has been around for a little over 20 years. And until recently, e-commerce only accounted for around 14 per cent (Globally) and 11 per cent (US) of overall retail sales. He predicts that by Q2-2021, e-commerce in the US should surpass +20 per cent of overall sales. And as an additional note, he says that the grocery channel will see the biggest gain, where pre-COVID, it only accounted for six per cent.
Major retailers have been preparing (quietly) for e-commerce and home delivery for the last decade and a half. In 2004, Longo’s acquired the online grocery retailer Grocery Gateway. In 2011, Walmart acquired Kosmix and created @WalmartLabs, the technology arm responsible for innovation development of the future of retail. In 2016, Overwaitea Food Group announced their e-commerce solution development by MyWebGrocer (acquired by Mi9 Retail Solutions in 2018). In 2018, SPUD launches FoodX Urban Delivery as a white label e-grocery fulfillment and delivery service. In 2019, Loblaws launched “Online Marketplace” in an effort to diversify their offerings, and provide an alternative platform for third party sellers, with an aim to compete with Amazon. In June 2020, Empire Company Limited (Sobeys) launched Voilà as the brand for it’s online grocery home delivery service for Toronto, Ottawa and Major cities in Quebec.
It wouldn’t be complete to discuss e-commerce without mentioning Instacart. The “personal shopper” platform that allows customers to order from participating retailers. Founded in 2012 (by an engineering graduate of the University of Waterloo), Instacart expanded into Canada in 2017 by partnering with Loblaws, and in a matter of 12 months, signed on Walmart Canada, Costco, Staples Canada and M&M food Markets.
Let’s not forget the elephant of the e-commerce bunch, Amazon. In 2020, Amazon Canada sold nearly US$7.3B worth of products. Amazon’s overall global sales nears US$390B in 2020. The global revenue of Amazon in 2020 exceeded the sum of the revenue for the next 25 ranked e-commerce companies, by well over 30 per cent. As the vaccination programs make its way through the population, we begin to hear Canadians mention an economic recovery is finally on the horizon. But given this drastic shift in consumer behavior, how will the “economic recovery” look like in the coming months and years? According to Geoffrey Moore’s famous 1991 marketing book “Crossing the Chasm”, he describes the diffusion of innovations into society and how a
‘chasm’ exists between those consumers who embrace and take risks with new innovations (‘Innovators’ and ‘Early Adopters’) and the Majority who are more cautious and pragmatic. Moore estimates that around 2.5 per cent of the market are innovators and 13.5 per cent are Early Adopters, so for a product or service to ‘cross the chasm’ it has to have market penetration and acceptance beyond 16 per cent. If former eBay CEO Devin Wenig’s predictions is true, and e-commerce surpasses +20 per cent of overall sales by end of Q2-2021, then we are currently at the tipping point for e-commerce and can expect it to be a permanent and significant part of the horizon in this “economic recovery”.
Honorable mention: Shopify. It’s proprietary e-commerce platform for online stores and retail POS systems has virtually allowed anyone and especially SMBs to create their own B2C e-commerce presence online. This global platform is relatively user friendly and intuitive. The services and add-ons allow you to customize your store the way you want with relatively reasonable costs. In 2020, Shopify saw an explosive growth of 86 per cent over 2019 and total revenue was just shy of US$3B. And best of all, it’s Canadian!
Ken is currently Executive in Residence with Orionis Trading Company Ltd (OTC), a full-service hybrid distribution agency, specialized digital marketing and e-commerce distribution services, as well as warehouse fulfilment for specialty and HABA categories. His opinions expressed in this column are solely his own and do not necessarily represent those of this publication. Ken can be contacted via email (email@example.com), Twitter (@kenkwong), Facebook (@kenkwong808),or LinkedIn (@kenkwong).