Speedy service: Woolworths’ general manager of multi-channel retail Kate Langford says the store's layout ensures that customers' orders are processed quickly.

Speedy service: Woolworths’ general manager of multi-channel retail Kate Langford says the store's layout ensures that customers' orders are processed quickly. Photo: Brendan Esposito

It looks like a normal supermarket, complete with fruit and vegetables, meat and freshly baked bread, but there’s one thing missing from Woolworths’ newest store – the customers.

Woolworths has opened its first ­dedicated online store at Mascot, in the heart of the biggest online retail market in Australia.

Australia’s largest retailer currently picks products to fulfil online grocery orders from supermarkets closest to online shoppers’ homes.

But, as online grocery shopping becomes increasingly popular, Woolworths is considering opening ­dedicated online stores – also known as dark stores or “shadow warehouses” – in each of its major markets.

According to consulting firm AT Kearney, which has analysed dark stores operated by retailers such as Tesco, Asda, Sainsbury and Waitrose, dedicated online fulfilment stores can be almost three times more efficient than traditional supermarkets.

Retailers can fulfil online orders faster because dark stores are laid out for optimal picking and pickers or “personal shoppers” can whirl their trolleys around night and day, without having to navigate around slow-moving customers, promotions and check­out queues.

Woolworths’ general manager of multi-channel retail, Kate Langford, says early results from the Mascot store are encouraging.

“The advantage for our online shopper is the range in store is designed according to their needs – that means we get orders to customers faster,” Ms Langford said.

More flexibility

“We have more flexibility to be able to pick and deliver customers’ orders throughout the day – in a busy store environment we are somewhat limited to when we can pick our online orders,” she said.

Woolworths normally picks online grocery orders from traditional stores at night and again in the morning.

The dedicated online store enables pickers – who number 80 at peak periods – to pick for longer in the morning and evening and there is even scope to pick 24 hours a day.

At 7000 square metres, the Mascot store is larger than Woolworths’ ­average supermarket, with more space in the docks to allow multiple dedicated delivery trucks to pull up at the same time.

The store, which serves a catchment extending from The Spit in Sydney’s north to Maroubra in the south and Bankstown in the west, has a bakery, freezers, chilled goods, fresh foods and ambient groceries and is laid out to reflect the way online consumers shop.

The product range reflects the shopping habits of Woolworths’ online ­customers, most of whom are busy families with children.

There are three times the usual ­volume of nappies and double the ­volume of bulky goods such as toilet paper, washing powder, bottled water, dog biscuits and cat litter.

The average online basket spend is about $200 and customers who spend more than $300 are entitled to free delivery.

Efficiency gains

Woolworths will test the efficiency of the results of the Mascot store before deciding whether to open similar dark stores in major markets such as Melbourne and Brisbane.

“We can definitely see value and efficiency in the model, but it’s too early for us to share business case results,” said Ms Langford, who worked for direct liquor retailer Cellarmasters for 20 years before it was acquired by Woolworths three years ago.

Woolworths will need to weigh up the cost of leasing and fitting out dedicated online stores with efficiencies from faster fulfilment and improved productivity.

Woolworths’ total online sales, including general merchandise, exceeded $1 billion for the first time in 2014 – growing 40 per cent in the December half – and now represent about 1.7 per cent of total revenues.

Online food and liquor retailing is growing fast, according to the Commonwealth Bank’s online sales data, but still only accounts for about 2 per cent of total spending in the category.

In comparison, online penetration rates in categories such as apparel and consumer electronics are as high as 9 or 10 per cent.

“The food and liquor category is one of the highest-growth categories in online retail. That highlights the opportunities we see in the space,” said Ms Langford.

Woolworths’ online grocery shopping app has been downloaded more than 3 million times and it has 4 million unique visitors to its site each month, making it the most-visited online food and liquor site in Australia.

“We are pleased with the growth and progress we’ve made,” Ms Langford said. “But we can still see lots of opportunities to build the revenue and service we provide to customers.”