Embattled Woolworths can claw back $100m in costs if it introduces click-and-collect fee

Embattled Woolworths could claw back about $100 million in costs if it starts slugging customers for standard click-and-collect, a major analyst has found.

Investment bank Citi estimates the free service is already costing Woolworths and rival Coles a combined $600m a year, a figure that could grow to $1.5 billion annually in five years.

A recent survey by Citi found of all online shoppers, about 65 per cent used click-and-collect as part of their groceries. Of this, 39 per cent were willing to pay a fee, with higher income households the most willing.

On average, customers were prepared to pay $2 to $5, which analyst Adrian Lemme said was consistent with charges overseas supermarkets applied.

He said this would recover about 25 per cent of costs, or $100m, for Woolworths.

“This income could be reinvested into pricing of non-food categories to stem share loss,” Mr Lemme said.

Woolworths only charges $5 for what it calls “direct to boot” within 60 minutes, while Coles also charges the same amount for rapid click-and-collect within 90 minutes.

Mr Lemme expects Woolworths to introduce a standard fee for click-and-collect at some stage, “given it acknowledged a need to improve online profitability at the FY25 result”.

Last financial year, Woolworths’ e-commerce arm reported a 17.4 per cent lift in sales to $7.3b, while Coles supermarket online sales grew 24.4 per cent to $4.5b.

It’s understood Woolworths has no current plans to introduce a standard fee. A company spokesman pointed to its range of online delivery options.

“We know our customers are always looking for a smooth and convenient experience when they shop with us,” he said.

“Deliveries with greater convenience or speed are charged at higher prices while we continue to maintain free options for larger baskets and pick up.”

A Coles spokeswoman said it had no current plans to introduce a charge for standard click-and-collect.

“Coles’ Click & Collect service continues to be a popular and convenient way for our customers to shop, especially as households look for ways to save time and manage their budgets,” she said.

It comes as the gap in market capitalisation between the two major supermarkets continues to shrink. By close of trade on Friday, there was a $1.3b difference, with Woolworths at $32.4b and Coles at $31.08b.

In mid-2021, Woolworths was worth over $55b and Coles at $22b.

Morgan Stanley last month found Coles had maintained superior sales momentum over Woolworths for the first time in almost a decade in what it said was a fundamental change in Australia’s supermarket landscape.

Woolworths has long been Australia’s dominant supermarket thanks to its scale advantage, with a store footprint and sales base about 30 per cent bigger than Coles.

But Morgan Stanley analysts said the Leah Weckert-led supermarket chain had now outperformed Woolworths in terms of sales growth for an extended period of four quarters.

Woolworths is set to release first-quarter results on October 29, with Coles reporting a day later.