The online grocery future – who are the winners? (3/3)

(VIII) The future- positive drivers

So where is online grocery going? Much better technical infrastructure and subsequently more shoppers going online are strong drivers. South Korea’s experience of better online infrastructure promises much higher online penetration in the West. With 5G networks, Asian style penetration levels and online growth should be guaranteed in the West in future.

Large investments from retailers and service providers are pushing this positive trend further. Service levels will be much better for online grocery (also in pick up locations in US) in future. This will drive greater shopper adoption, as the retail offering and services become much better. And there should be a multitude of new players being able to start up their businesses on this better infrastructure.

PrimeNow has set a new standard for delivery times, for the rest of the market to play catch up. Rapid/rushed deliveries fit perfectly well with convenience shopping trips and the food category in general.

(IX) Future challenges

And yet considerable challenges remain. Despite the recent flurry of innovation in the space, delivery remains one of the greatest, due to the sustainability angle and congestion. As fast deliveries of online orders become standard, they threaten a traffic collapse in the major metropoles of the West.

There are solutions. But so far we have seen little concrete action, apart from some 3PL logistics players trialling shared depots to serve cities from. Perhaps drones and robots will alleviate the pressure. That said, there are questions about grocery margins and costs and whether robots (for food delivery) will be economical in the near term.

(X) Future winners

Who will win online grocery? Will it be the incumbents or the new start ups that focus on new customer journeys and different logistics set ups – such as Picnic? In the near term there should be space for both and newer models on top too.

A related question is which robot solution will win out? Large out of town sheds like Ocado’s or rather the mini fulfilment centres championed by Alert and Takeoff? Again there will be demand for both, depending on local market context and conditions in the catchments around population density and delivery drops.

This means depending on the context and local circumstances one solution will prevail. An example would be the proliferation of the drives in France (very much enabled by the legislative background as well as the investment of the major players such as Leclerc and Auchan). These drives have not fared well in other EU markets, but could be more of an option in the USA.

From a shopper’s perspective another question remains, namely what about sharing the infrastructure? This would reduce operating costs and emissions for all players – and congestion. Retailers would not need to finance new DCs and delivery fleets and instead pay service fees.

At the moment grocers treat their infrastructure as moats and competitive defences. But it has not got to be that way, as Instacart (and its clones) demonstrates by offering all grocers a shared platform. The Instacart business model also shows that the solution does not have to be imposed by the regulator. In a sense this could become the new business model for Ocado. Or with all the investments Amazon has made into logitstics, Amazon might become the delivery provider for online grocery in future – irrespective of what happens in its 1P food and store business.

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