What Is The Future For Online Grocery Players? Release date: February 19th, 2020 (99 pages) PDF/Powerpoint format. Price: GBP1,039.00 PDF brochure Buy

Abstract

- Despite the origins in the late 1990s by Tesco, despite Ocado, despite Peapod, despite Amazon’s acquisition of Whole Foods, despite Walmart’s investments, despite the French drives pioneered by Chronodrive (Auchan) online grocery has still not been solved. So where is online grocery going?

- Grocery stores are more and more seeing a transformation towards becoming hybrids for pick up/delivery and 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 groundbreakingly new 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 most dedicated drive stations having shut down again.

- There is much activity such as selling via social media (especially in Asia, China, perhaps health & beauty lends itself best to this in conjunction with influencers), subscription models, and D2C models with many FMCGs buying digital businesses (Unilever, Dollar shave club, Graze, Mars and Foodspring, Nestle and tails.com). However most of this remains quite small scale in the greater scheme of things.

- What seems more promising is a new breed of tech players trying to crack online grocery. On the one hand there are new warehousing services providers such as

Takeoff or Alert/Alphabot with their micro fulfilment centres. • Looking ahead, we see a battle looming between micro fulfilment centres and the Ocado solution, with the new breed of start ups going for the weak spots of the Ocado robot operated sheds model, which are set up costs, set up time, high space requirements and inability to serve rapid/ rushed deliveries. In a way this battle follows on from the one raging between home delivery and click and collect, with equilibrium coming only after a couple of years and the market finding a mixed solution. For now grocers have Instacart and the various clones as a bridging solution.

- In our view a better solution than Ocado’s Hive are Amazon’s robotics solutions - we think Ocado stores too much air in their pods (due to standardised sizes of the bins), and that the sheds are too big and too expensive. Moreover should market demand change it is not easy to see how these sheds could be used for something different.

The other challenge in online grocery comes from online grocery start ups such as Picnic, focussing on new customer journeys (app only) and new logistics models and the new model they pioneer - by radically reducing delivery time/window choice and operating a milk round principle based on AI and machine learning. While reducing delivery options these new start ups offer free deliveries and great reliability of actually delivering at the time when they promised.
- The concept of reducing choice is also explored by new start ups in the D2C space, which try to reduce range choice by focusing on health & beauty, CBD products, sustainability and other niches. Again, this approach currently employed by Move and Hungryroot is very difficult to execute and scale and - as the historic record suggests - often doomed to failure (see Brandless).

- Another reading of the evolution of online grocery suggests that we have entered a new phase. As the major players have moved from in store picking to dark stores and robot operated warehouses, there has been a separation between well capitalised grocers able to afford a multi and omni channel transformation and those who were not. (The latter group have had the recourse to Instacart like operators or include the discounters which - though extremely well capitalised - are still on the sidelines).

- This means two things: the big beasts have defended their turf reasonably well (with Amazon not nearly as dominant in food as in other categories and let’s see where Amazon is going to go in grocery).

- Secondly, in many cases the days of the first generation pure plays look numbered with Leshop in Switzerland treading water, Peapod being shut down, FreshDirect struggling, some of the smaller scale German online players disappearing (Gourmondo, allyouneedfresh) and Ocado focusing on becoming a service provider - despite what M&S do.

- What would fit into this thesis is that the online grocery space seems to be fragmenting into even smaller product category niches. Examples for a fragmenting in online grocery would be niche specialists only offering one product category such as coffee/tea (blue bottle) or the ancient MyMuesli and other D2C models for proteins/meal replacement such as Huel/Soylent.

- But we do not really buy this reading 100%, simply as growth rates are still so strong and forecasts still get progressively widened - so there will be growth outside the niche too.

Table of contents