Ten theses on the future of online grocery (1/3)

Despite the origins in the late 1990s, despite Tesco and Ocado, despite Peapod, despite the French drives pioneered by Chronodrive (Auchan), despite Amazon’s acquisition of Whole Foods, despite Walmart’s investments, arguably, online grocery has still not been solved. So where is online grocery going? Here are 10 theses on where we are seeing the channel heading in future:

(I) The need to go online – even though the costs are high

(II) The evolution of the store model

(III) Big beasts building ecosystems and bundling services

(IV) Small players trying social media, D2C, marketplaces

(V) The evolution of the picking model: tech, robot warehouses – mini fulfilment centres or out of town sheds?

(VI) New tech entrants (Picnic) and start ups

(VII) The death of the first generation pureplay, rise of the micro players

(VIII) The future: positive drivers

(IX) Future challenges

(X) Future winners

(I) The need to go online – even though the costs are high

Most grocers understand that offering online grocery is essential for their survival as a viable business. The old bricks & mortar USPs of range depth and price have been eroded by online. Once over a certain size threshold, analogue-only businesses simply aren’t growing anymore, or will stop doing so soon. Whether multichannel grocers can offer online grocery profitably is a very different question.

The impact of the tech revolution on the sector is immense, even before taking into account online grocery propositions. Established grocers have followed the playbook of “every company becoming a tech company” and are going through a process of digitalisation. Most grocers have started to digitalise back end operations. They have introduced AI and machine learning for forecasting demand, promotions, ranging, pricing, and also for logistics and the supply chain. Naturally the digital transformation has been radical on the front end too (social media, marketing, loyalty and so on). Tech capabilities have been vital in ensuring that retailers can react rapidly to new trends.

After lagging other regions, US grocers have now made a serious push into online grocery too. The multichannel players that have kept delivery to customers in house (and shunned Instacart or a similar service provider), have started to digitalise the delivery angle too. After launching deliveries from stores and pick up stations, almost every grocer in the US is innovating around (delivery) robots, drones and self driving cars.

And yet, much of the online grocery proposition can be seen as a loyalty strategy. Most grocers are worried about losing their highest value customers to the competition. The situation is characterised more by self cannibalisation and channel shift rather than switching shoppers from the competition.

(II) The evolution of the store model

Now, there is also significant innovation of the store model (with Amazon GO being revolutionary). This means the big tech players are muscling into retailing even more, through providing services such as cloud, payment, self/no checkout etc). For retailers reducing cost is a big advantage in taking up these services, the other is much better data capture, analysis and insight. How much they have to pay in fees and tech investment to get there is a different question.

Grocery stores are being transformed into becoming hybrids for pick up/delivery, shopping and often foodservice too. Especially players such as Freshippo or JD.com’ stores in Asia have been at the forefront of this development. But this is not really groundbreaking for the West either.

In the US all the major grocers are rolling out click & collect (Whole Foods, Walmart, Target, Kroger etc). In the EU – with the major exception of France – this is not a huge story though, with many dedicated drive stations having shut down again.

(III) Big beasts building ecosystems and bundling services

The big multichannel grocers are following a strategy of both specialisation and becoming “ecosystem players”. They are trying to monetise their shoppers by offering adjacent services. There are of course marketplaces and also fin tech players muscling into exactly the same space from the other end of the spectrum.

Offering services is not exactly new (most grocers have offered travel, insurance or telecoms for example, often for decades). Now there are new online models trying to gain a foothold in store, such as laundry, luggage storage, or the various meal kit providers. To provide all theses services through one app is again very much a China story, and not exactly translatable 1:1 to the West. In the USA Amazon is trying to leverage healthcare as an addition (Pillpack) to the Whole Foods/Amazon Prime experience.

The goal of such service bundling is much better personalisation and monetisation. This promises greater profits and loyalty. Maybe in future this will happen through personal digital assistants/voice (though currently there is no sight of this yet).

TBC