Research
FARM
April 2012
May 2012
Beyond m-commerce and
click & collect, future models
and 6 innovation ideas
O
nline
G
rocery
R
etailing
INTRODUCTION
T
his report focuses on four key issues. It provides an analysis into thecontext the sector operates in by focusing on the wider trends impac-ting online grocery and crucially it provides all the data needs, by showing how developed online grocery is in the EU now and what the state of play in online grocery retailing will be in the future.
Secondly the report focuses on real world examples where online grocery players have made the business model work against all the odds, by fo-cusing on three key case examples. The report explains Tesco, the global online grocery leader and the reasons behind its success, before assessing LeShop, a player that is similar to the UK’s Ocado, in being more of a ser-vice provider than a retailer. This case example shows how big the average basket can become in € terms in online grocery and how long it takes for such a business model to become profitable. Thirdly the report takes an in depth look at the drive phenomenon in France, that has led to a growth explosion in the sector.
In the third section the report looks at strategic issues and actionable re-commendations and highlights some innovations and growth opportu-nities in online grocery. We have identified curated shopping, subscrip-tion models, generating fulfillment efficiencies, customisasubscrip-tion, the online marketplace opportunity and shopping lists as decisive going forward and provide in-depth analysis on real life business case examples.
In the fourth and final chapter the focus shifts to providing an outlook for the sector going forward. The report explains the key learnings around costs and states that leveraging existing asset bases and infrastructure is absolutely vital. Then the real first mover benefits are discussed and we give our view on how the sector will develop when connected kitchens and the rise of the shopping lists is becoming ever more acute.
Finally a section of actionable recommendations rounds off the report, where we give detailed recommendations what retailers and FMCG manu-facturers thinking about the online sector should do next.
Whilst growth for total grocery in the EU was 2.5% last
year, achieved against considerable headwinds, online
outpaced the sector, advancing
by 22.1% in 2011
.
Accounting for just under 1.5% of total grocery spend in
the EU right now, further strong growth is predicted for
the online channel, as the leading multichannel operators
and pureplays such as Amazon continue to roll out their
services across the EU. However currently,
very few best
practise methods and benchmarks
for FMCG players
and retailers have been established, so there is still all left
to play for in the online space.
KEY QUESTIONS ANSWERED
Data
Which is the biggest European online grocery market - after the UK? •
Where is the greatest growth potential in the EU right now? How •
fast are the markets growing? Is the UK a model that the others will follow? Or is the US model, focusing on shelf stable products first, a more reliable predictor?
Structure of the market
Why is click and collect so successful in France and Belgium, but not •
in the Netherlands? What is the state of play in Germany, what is the outlook for CEE and what will happen in Southern Europe and in the periphery? Why is Scandinavia a hotbed of development for online grocery right now?
Amazon
Why is consumables the fastest growing category of Amazon’s 43 •
business units in the US? How many Amazon customers buy online grocery products from the pureplayer at the moment? How is the company transforming its front and back end business to drive even faster growth in the US? Which of these innovative techniques are hitting Europe as we speak?
Retailers
How long will it take Ocado before the company becomes profitable •
for a whole year, what player has achieved this with a similar business model before?
How big can online grocery baskets become in money terms, and •
which retailer achieves this (it’s not a UK based player)?
What are Auchan and Tesco up to in terms of internationalising their •
online grocery operations?
Who are the most promising, innovative and exciting new start ups? •
Which ones have established themselves by now?
Innovations
What are the new initiatives in online grocery beyond apps and •
mobile commerce right now?
What is the next step in the continuing evolution to drive costs down •
– after click & collect and drive throughs? Where is there untapped potential for lean supply chain management? What have most companies missed out on so far?
How are online grocers driving growth through curation and •
customisation right now? Why does grocery lend itself perfectly to these concepts?
KEY QUESTIONS ANSWERED
Marketplaces and subscriptions
Why are online marketplaces so successful? Which small players are •
rivalling the multinationals by leveraging local? Why are marketplaces so important for the FMCG industry? Why will FMCG branded storefronts become a huge growth opportunity going forward? What is the true potential in subscriptions services? What will happen •
if subscriptions will combine with curation and customisation aspects driven by the shopper? Which retailers are the ones to watch in this space?
The shopping list
What will the rise of shopping lists mean for the future of online •
grocery retailing? How can retailers and FMCG players alike exploit this new opportunity? How can they work together? Which role will smartphones play in list management?
Will the connected fridge or bin be central to the list in future? Will •
the lists of the future be about price or about nutrition? Will it be about convenience, recipes or about new products?
Why is online grocery shopping an ideal test bed for new product •
innovations and development? What is the future of private label in the online space? How can retailers and FMCG companies get their products on the online shopper’s lists?
TABLE OF CONTENTS (1/4)
Executive summary p15
Context – the Macro-economic outlook for the EU p17
GDP sizes: EU 27, 2011 in €bn, the structure from Germany to Malta p18
GDP sizes: EU 27, 2007-2011 in ‘000 €bn p19
GDP sizes: EU 27, 11 countries still lagging behind their 2008 levels p20 GDP sizes: EU 27, Currency devaluations, Poland keeps momentum going, ECB action p21 Unemployment: EU 27, annual average 2011 (%) from Spain to Austria p22 Unemployment: EU 27, Misery in the periphery while… p23 Unemployment: EU 27, …Germany roars on due to the right policy mix p24 Inflation: Euro Area and EU27, 2006-2011 (HICP), % p25 Inflation: EU 27, deflation avoided, lost decade in store? p26 Inflation: Euro Area 17, 2006-2011 (HICP), %, welcoming Estonia p27 Interest rates: ECB and BoE, record low rates and quantitative easing p28 Interest rates: breathing space for southern Europe, LTRO p29
Context – EU Retailing in 2012 p30
Retail sizes: EU 27, 2007-2011 in ‘000 €bn p31
Retail sizes: EU 27, crisis has left a deep, deep scar p32 Retail sizes: EU 27, 2007-2011 growth in %, CAGR p33 Retail sizes: EU 27, a sector in turmoil, e-commerce, housing markets, ageing populations p34 Per capita retail spend: EU 27, 2011 in €, from Luxembourg to Romania p35
EU Grocery Retailing in 2012 p36
Grocery sizes: EU 27, 2007-2011 in ‘000 €bn p37
Grocery sizes: shoppers cut back, shop around, trade down and go to hard discounters p38 Grocery sizes: EU 27, 2007-2011 growth in %, CAGR p39 Grocery growth rates: EU 27 2007-11 in %, growth in Poland, decline in Ireland p40 Grocery growth rates: Ireland as a template for the rest of the periphery? p41 Grocery sizes: The leading countries, Top 3 take one of every €2 spent p42 Grocery share of total retail: EU 27, 2007-2011 in % p43 Grocery share of total retail: Clear crisis impact - all but four show higher share again p44 Grocery per capita sizes: EU 27 in 2011 in €, from the UK to Bulgaria p46
EU Grocery Retailing in 2012 – Online sizes p47
Online grocery sizes sizes: EU 27, 2007-2011 in ‘000 €m e p48 Online percentage share of total grocery: EU 27, UK, France, Benelux and Spain p49 Online grocery: Scandinavia a hotbed of development, tough German market p50 Online grocery: CEE the opportunity, driven by Auchan, Tesco et al p51 Online grocery: EU Growth rates and forecast to 2015 p52 Forecast 2010-2015: data EU Total & Online grocery in €bn p53
TABLE OF CONTENTS (2/4)
Drivers of Change p54
Drivers of change: The ESTLE background p55
Drivers of change: retailer push and consumer pull p56 Drivers of change: Technological innovation and click & collect p57 Drivers of change: starting the beneficial cycle p58
A model for future development? LeShop – the service provider p59
LeShop: a model for other markets? p60
LeShop: First y – o – y decline, as Swiss shop abroad and Coop ramps up online p61 LeShop: link up with Swiss Post, home deliveries only pm or evenings p62 LeShop: Chilled storage box solution – no need for cool chain p63
LeShop: the data, 31k new customers per year p64
LeShop: M-commerce and the Migros advantage p65
A model for future development? Tesco – the multichannel retailer p66
Tesco: The European and global online grocery leader p67
Tesco: The crucial club card advantage p68
Loyalty: Why has Tesco invested in online? p69
Tesco: Market maker, moving towards dark stores p70
Tesco: Incremental online sales, higher online than offline share p71 UK – data, Tesco customers, average spend and growth p72 Tesco: a closer look at the data, the marketplace opportunity p73
Loyalty: Tesco Clubcard migrating online p74
Tesco: the opportunity in store, free Wi-Fi, click & collect and drive p75
A model for future development? Drives in France p76
Auchan: figures, hyper vs Chronodrive p77
France: The development of the drive solution p78
The Chronodrive model: growing strongly p79
France: arterial roads, pure solution versus add on, cost management p80
Click & collect: Data, Q4 2011 France p81
France: no trading permits needed, boom in the format p82 France click & collect: 892 stations, 30 new per month p83
New concepts: 6 ideas for online grocery p84
New concepts: strategies and recommendations, curated shopping and subscriptions p85 New concepts: strategies and recommendations, running empty and customisation p86 New concepts: strategies and recommendations, marketplaces and internationalisation p87 New concepts: strategies and recommendations, the shopping list p88
TABLE OF CONTENTS (3/4)
New concepts: curated shopping p89
Linas Matkasse: the recipe pioneer from Sweden p90
Linas Matkasse: curated e-commerce in grocery p91
Linas Matkasse: an update of box schemes p92
New concepts: subscription models p93
Subscribe & save: Amazon’s transformation of US online grocery p94
Amazon: The supplier relationship potential p95
Amazon: Dynamic brand stores p96
New concepts: Beyond drive and click & collect, the potential on the return trip p97
New concepts: multichannel retailers making the store estate count p99 New concepts: making online grocery deliveries efficient p100
New concepts: Reducing the empty runs p101
New concepts: Partnerships will become a necessity as online shopping continues to expand p102
New concepts: customisation and personalisation p103
MyMuesli: The customisation opportunity p104
Customisation: Let the shopper control the personalisation of products p105
New concepts: marketplaces, collaboration potential p107
Marketplaces: FMCG - necessary online presence p108
Marketplaces: especially pertinent in online grocery p109
FMCG response: Alice the industry portal p110
Alice.com: the premier FMCG marketplace operator, the US operation p111
Alice.com: European expansion p113
Strengths of marketplaces: The model p114
Strengths of marketplaces: free market research, price competitiveness p115
Strengths of marketplaces: beneficial cash flow p116
Strengths of marketplaces: unlimited range and network effects p117
Marketplaces: the future p118
Marketplaces: from Japan’s Rakuten to Denmark’s Nemlig, from global to local p119 Foodzie: one of many US player trying to replicate etsy’s business model in food p121
TABLE OF CONTENTS (4/4)
New concepts: The rise of the shopping list p122
Shopping lists: a new reality, a change for good? p123 Shopping lists: the internet push, how to get on the list p124 Shopping lists: virtual shelf ends, nudging shoppers p125
Learnings & Outlook p127
Learnings: story so far p128
Key learning: sweat the existing asset base and infrastructure to control costs p129 Key learning: it takes time, scale and the space is getting crowded p130
First mover advantage: the benefits p131
First mover advantage: the benefits, Tesco’s gains p132 First mover advantage: the benefits, Ocado and organics, on versus offline share p133
Outlook: trends for the next three years p134
Outlook: online only brands, connected kitchen p135
Outlook: product centric versus customer centric operators p136
Actionable recommendations p137
Actionable recommendations: what multichannel and pureplayers should do now p138 Actionable recommendations: what retailers and FMCG companies should do now p139
CHARTS & TABLES, ONLINE GROCERY RETAILING IN THE EU 2012
Table 1: GDP sizes: EU 27, 2011 in €bn p18
Table 2: GDP sizes: EU 27, 2007-2011 in ‘000 €bn p19
Table 3: Inflation: Euro Area and EU27, 2006-2011 (HICP), % p25
Table 4: Inflation: Euro Area 17, 2006-2011 (HICP), % p27
Table 5: Retail sizes: EU 27, 2007-2011 in ‘000 €bn p31
Table 6: Retail sizes: EU 27, 2007-2011 growth in %, CAGR p33
Table 7: Per capita retail spend: EU 27, 2011 in € p35
Table 8: Grocery sizes: EU 27, 2007-2011 in ‘000 €bn p37
Table 9: Grocery sizes: EU 27, 2007-2011 growth in %, CAGR p39
Table 10: Grocery share of total retail: EU 27, 2007-2011 in % p43
Table 11: Online grocery sizes sizes: EU 27, 2007-2011 in ‘000 €m e p48
Table 12: Online percentage share of total grocery: EU 27 p49
Chart 1: Unemployment: EU 27, annual average 2011 (%) (1) p22
Chart 2: Unemployment: EU 27, annual average 2011 (%) (2) p22
Chart 3: Interest rates: BOE p28
Chart 4: Interest rates: ECB p28
Chart 5: Grocery growth rates: EU 27 2007-11 in %, (1) p40
Chart 6: Grocery growth rates: EU 27 2007-11 in %, (2) p40
Chart 7: Grocery sizes: The leading countries p42
Chart 8: Grocery per capita sizes: EU 27 in 2011 in € (1) p46
Chart 9: Grocery per capita sizes: EU 27 in 2011 in € (2) p46
Chart 10: LeShop: the data p64
Chart 11: UK – data, Tesco customers, average spend and growth p72
Chart 12: Auchan: figures, hyper vs Chronodrive p77
Chart 13: Click & collect: Data, Q4 2011 France p81
Chart 14: New concepts: making online grocery deliveries efficient p100
«I found it very insightful. [...] Impressed with the amount of information that has been covered by
your report.»
(Retail merchandising company)
«I found the document easy to read, well laid out and the content thought-provoking. It reminds me
of the major considerations that affect our markets, and to address these key issues when
approa-ching the global brands and retailers. Retail Predictions 2011 is a very good demonstration of the
quality of how ResearchFarm operates and communicates.»
(Technology supplier)
«The content is very interesting to us, as we look after many of the largest shopping centres and we
also represent many international retailers entering our market. There is plenty of food for thought.»
(Property consultants)
«It looks impressive.»
(Property company)
«It was helpful. It helped me to persuade my boss to take on a project about e-commerce research. I
was really surprised by the importance of legal issues. I never read that elsewhere before.»
(Govern-ment)
«Thank you again for the study. These are very, very interesting, well explained (so, logical)
predic-tions. Highly reliable and useful (I like the idea very much that loyalty schemes will move onto
smart-phones). It’s quite impressive!»
(Publishing group)
«Great research, very useful.»
(Retailer)
«We have enjoyed reading your research information and have found it to be helpful in validating
some of the other Grocery industry news information and predictions.»
(Retailer)
«On DLF’s (Danish Association of Fast Moving Consumer Goods Manufacturers) New Years
Conferen-ce on the 20th of January 2011 we had the great pleasure to hear ResearchFarm speak about future
trends in online grocery retailing. The feed back from the conference participants was very positive as
they gave ResearchFarm’s presentation the highest score of all speakers, finding the analysis about the
key success factors of chosen EU and US online retailers both very interesting and inspiring. We can
therefore give ResearchFarm our best recommendation.»
Dagligvareleverandørerne – Danish Association of Fast Moving Consumer Goods Manufacturers
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90 ResearchFarm - Retail Analysts
No part of this report may be reprinted or reproduced in any way without the written permission
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Linas Matkasse: The Recipe Pioneer Fr
om Sweden
39 ResearchFarm - Retail Analysts No part of this report may be reprinted or reproduced in any way without the written permission of ResearchFarm.
Grocery Sizes: Eu 27, 2007-2011 Growth In %, Cagr
Table 9
SAMPLE PAGES
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112 ResearchFarm - Retail Analysts No part of this report may be reprinted or reproduced in any way without the written permission of ResearchFarm.
This means Alice can be light on capital expenditure as FMCG players fund the stock and inventory, all items on the site are covered by a direct-from-the-supplier sales model. While Alice charges suppliers a service fee on each sale to cover costs, it does not own the inventory itself.
What stands out at Alice.com is the deep discounting, which is not usually part of the online grocery selling model. Previously it made no economic sense for FMCG players to sell low-margin products directly to consumers online, but Alice could change that, especially as other US online retailers in the dry grocery arena such as Diapers.com and Drugstore.com have prices that are above physical stores such as Wal-Mart or Kroger.
Alice.Com:
The Premier Fmcg Marketplace Operator
The single online platform provided by Alice allows FMCG players to interact with the consumer in a broader way than if suppliers only went through their own operations as Alice reaches the online customers of the FMCG competition as well.
Moreover once an online ordering system has trained its customers to keep working shopping lists, it is compelling them to make ordering routine. Once it has become routine the customer is hooked. This is really where online grocery retailers need to focus their attentions on in terms of loyalty. 112 ResearchFarm - Retail Analysts No part of this report may be reprinted or reproduced in any way without the written permission of ResearchFarm.
This means Alice can be light on capital expenditure as FMCG players fund the stock and inventory, all items on the site are covered by a direct-from-the-supplier sales model. While Alice charges suppliers a service fee on each sale to cover costs, it does not own the inventory itself.
What stands out at Alice.com is the deep discounting, which is not usually part of the online grocery selling model. Previously it made no economic sense for FMCG players to sell low-margin products directly to consumers online, but Alice could change that, especially as other US online retailers in the dry grocery arena such as Diapers.com and Drugstore.com have prices that are above physical stores such as Wal-Mart or Kroger.
Alice.Com:
The Premier Fmcg Marketplace Operator
The single online platform provided by Alice allows FMCG players to interact with the consumer in a broader way than if suppliers only went through their own operations as Alice reaches the online customers of the FMCG competition as well.
Moreover once an online ordering system has trained its customers to keep working shopping lists, it is compelling them to make ordering routine. Once it has become routine the customer is hooked. This is really where online grocery retailers need to focus their attentions on in terms of loyalty.
