What is the future for online grocery players?

What Is The Future For Online Grocery Players?

Release date: February 19th, 2020 (99 pages)
PDF/Powerpoint format. Price: GBP1,039.00


- 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

Executive Summary p7
Sizes & Growth p13
Online grocery - Asian penetration highest p14
South Korea with highest market share in 2019, forecast p15
Asian overview p16
Asia - overview, South Korea, China, Japan p17
South Korea’s online grocery market, the macro perspective p18
Focus shifts towards early morning delivery in South Korea’s online grocery market p19
Lotte using AI robots, Market Kurley and Homeplus store fulfilment centre p20
South Korea, Emart, Shinsegae PE investment, integrating platforms p21
South Korea, Homeplus converts 140 stores to online DCs p22
Homeplus - joining EMD, introducing European private label products to differentiate p23
Homeplus online strategy, average basket size p24
New start ups: Picnic, Miacar, Farmy p26
New breed of tech start ups tackling the sector p27
Introduction - a new wave of tech players muscling in p28
Netherlands/Germany: Picnic p29
Picnic - the business model, milk round, mobile only p30
Picnic, 2018 sales and outlook p31
Picnic - intelligent targeting, attacking niches p32
The Edeka relationship - bringing in Bringmeister p33
Picnic’s new robot warehouse in Utrecht, tenth German catchment opened p34
Miacar - the Swiss copycat, Migros link up p35
Farmy - pivoting from local organic online coop to a Picnic style model p36
Farmy - the stats p37
Micro fulfilment centres p38
Micro fulfilment - the second wave of new tech companies muscling in p39
Integrating robotics and AI, avoiding the drawbacks of the Ocado solution p40
Takeoff technologies p41
Takeoff - announcing Version 2.0 p42
Takeoff - being hyperlocal p43
The partnership with Knapp p44
Ahold and Takeoff partnership, turning away from the Peapod model p45
Ahold - closing down Peapod Midwest p46
The end of Peapod pureplay p47
Loblaw and Sobeys going head to head with Takeoff and Ocado respectively p48
Alphabot/Alert p49
Alert Innovation - the exclusive Walmart solution p50
How the tech fits into the Walmart business p51
Walmart’s online state of play, end of 2019 - stats p52
Fabric p53
Fabric - New York City micro fulfilment centres p54
Fabric - infrastructure could be shared p55
Robot picking and warehousing p56
Inbound logistics/order picking p57
Automation in DCs: general benefits and Amazon stats p58
Robots: the AI transformation of backend and logistics p59
Amazon: online grocery on the backend, Fresh operation bottlenecks p60
Amazon: a solution to high wastage? p61
The Ocado solution p62
Ocado: the MHE solution p63
Ocado: productivity and fulfilment benefits, highly modular and flexible design p64
Ocado: embracing automation from the beginning p65
Ocado: the Monoprix deal p66
Ocado: list of benefits of the hive solution p67
Ocado - AI, the Hive, hub and spoke logistics p69
The Ocado smart platform, autonomous warehouse management p70
Ocado: one hour delivery service p71
Ocado - mini customer fulfilment centre, switch from Waitrose to M&S p72
Ocado's 2019 earnings fall on fire impact p73
Ocado Andover - all the drawbacks p74
Has Kroger made the right bet? - the drawbacks of Ocado p75
New niche players: Move, Brandless, Hungryroot p76
Move p77
Move - US niche operator to launch in 2020 p78
Move: member only stores p79
Brandless p80
Brandless - abandoning single price point and food p81
Brandless: going into stores, betting on CBD p82
Launching a marketplace, trying to lead on CBD p83
…and going bust p84
Hungryroot p85
Hungryroot - NY based personalised subscription, adding brands p86
Hungryroot - vegan, health & wellness, launching into stores p87
France: le drive p88
France: drives stats, drive baskets higher than home delivery p89
E.Leclerc - the French champion p92
E.Leclerc with half the market, stats p93
Drive stats, sales, market shares, outlets p94
Drive stats, openings, SKUs p95
Outlook p96
Outlook - quo vadis online grocery? p97
Graphs and tables Tables Online grocery growth rates per country, online vs offline p14
Online penetration levels per country, market shares and forecast p15
Picnic, 2018 sales and outlook p31
Farmy - the stats, sales growth, SKU range p37
France, sales via drives and home delivery, household penetration, average basket sizes p90
France: number of outlets, structural overview p91
France: Drive sector sales, sales per operator, market shares, number of outlets p94
France: new openings, SKU ranges per drive operator p95
Graphs The design of the electronic scooters used by Picnic p27