With the launch of an online discount platform, Belgian Colruyt Group is going head-on against large international platforms. The retailer has been forced to do so, but the strategic turn also entails risks.
Not separate worlds
Until now, Colruyt has always adhered to clear principles with its lowest price guarantee: in its physical stores, the retailer responds to price reductions in competitors’ physical stores and only reacts to promotions in Belgian web shops. Until now, the retailer has not responded to the often sensational offers that foreign web shops use. That is now changing: with the online platform Deals! Colruyt Group is – finally – entering the field of the big pure players.
That decision is quite logical: consumers no longer make a distinction between offline and online, so retailers cannot stubbornly maintain that they are two separate worlds. Moreover, there are no borders online: shoppers can easily place orders in neighbouring countries and have them delivered to the front door at low cost. And they are increasingly doing that, also for FMCG products. These trends are changing the whole retail sector and Colruyt could not leave them unanswered.
Lowest price guarantee under threat
The stunt promotions for well-known premium brands with which e-commerce platforms such as Amazon, Veepee and bol.com have been working for some time are hitting food retailers where it hurts – and Colruyt the most. After all, the pure players skim a portion of the turnover from the physical supermarkets. Moreover, they also undermine the lowest price guarantee that is at the heart of the Belgian market leader’s positioning: how could you keep claiming with a straight face that you guarantee the lowest prices and respond to all promos, when price-conscious consumers know all too well where best to buy their diapers or detergent – not at Colruyt, namely. In other words, this move is largely a matter of credibility.
Colruyt’s firm answer includes deep volume discounts, which allow the retailer to enhance its competitive price image. However, that decision does come with a price: competing head-on with the major platforms means Colruyt is wilfully increasing the promotional pressure in categories where it is already problematic, such as that of detergents – not the best example of value creation…
The retailer is also publicising a new sales channel that has not yet been discovered by all shoppers, amplifying the revenue shift from the (largely profitable) physical stores to online – which will inevitably weigh down productivity in the physical supermarkets. And all of this induces the question if, as a relatively small player, Colruyt can provide promotions that can withstand comparison with those of a giant like Amazon. A tough challenge indeed…
