The new world of grocery shopping – online and big warehouses, according to Ocado


The new world of grocery shopping – online and big warehouses, according to Ocado
Stuart Lauchlan
Thu, 07/08/2021 – 08:07

Summary:
Ocado faces up to the post-COVID world and expects online to be a winner.

ocado

We’re now hopefully entering a post-COVID ‘new normal’ and the grocery market globally has changed and it’s changed for good and it’s changed permanently. 

So says Tim Steiner, CEO of Ocado, For those of us who sat behind impenetrable wait times during the peak of the pandemic, let’s hope he’s right. But, as we’ve asked previously, while the genie is out of the bottle, how many COVID behavioral trends will leak over into the Vaccine Economy?

For its part, Ocado just turned in some good numbers,  Retail revenue for the 26 weeks to May 30 2021 rose 20% to £1.2 billion pounds. The firm also announced its first post-pandemic contract with the signing of Auchan Retail to help expand the online business of its Spanish Alcampo supermarket chain.

The UK online grocery market was already ahead of the curve before COVID, but the uptick in the rest of the world, particularly the US, could be one of the legacy markers of the pandemic. But will the shift online survive a ‘new normal’? Steiner argues:

I think we’ve seen a massive acceleration in an existing trend. The channel shift was there before, but obviously, it’s been accelerated because of COVID. But what we’ve always learned is that when people try the service, they learn that it’s a better way to get their groceries.

As more people have tried it, more people have learned that benefit, and obviously, there’s an additional benefit in terms of being a safer way to get your groceries, less chances of catching anything nasty, which people are much more aware of now even if we manage to get COVID under control.

He adds:

I think as we move to a ‘new normal’, you’re going to see services like Ocado Retail in the UK building up its capacity to serve more customers. Those that couldn’t get access to that service that wanted it can migrate to it. And some of those overpriced services [from other providers] , for example, will fall away, and customers will migrate back to going to stores again.

But I think generally, the shift to online has been enormous. And whilst you’ve seen a small amount of it go back into the stores as we’ve opened up and as people have been vaccinated and stuff like that, the majority of the move has stayed, and there is still underlying growth going forward.

Local stuff?

There will also be a localization push, he predicts, although he remains sceptical about aspects of this market:

If you look at the grocery market globally, before e-commerce even emerged in grocery, you had hypermarkets, which are the main distribution method in developed markets of food. You have smaller formats like supermarkets, you have high street, you have convenience stores in local high streets and you have corner shops and petrol  forecourt stations and stuff like that.

They’re all there because consumers have got different missions. The mainstream consumer, when they’re buying the weekly grocery shop, they want large range and they want low prices, for which you can read hypermarkets. And whilst hypermarkets haven’t been the fastest growing part of the market for the last ten years for our large bricks-and-mortar customers or competitors here in the UK, they’ve nevertheless remained the vast majority of sales.

You’ve also had smaller formats and convenience growing, convenience because it is a smaller format [but] has higher operating costs that is passed on to the consumer in higher prices. Therefore, the consumer uses it sparingly. When I only need one, two, three, four items, I’m happy to pay a higher price for them because that’s still better value than driving to a hypermarket. I just need to top something up. I need dinner for tonight or I need to top up something in the fridge or I’ve forgotten we’re running out of nappies midweek.

So I think these immediacy players are really moving into that space. Now bear in mind that we have an immediacy format. We’ve called it Zoom. It’s an interesting part of the market, immediacy, but it’s not a replacement to the hypermarket. It’s solving another mission. We see that clearly in our data in Zoom, which, because it has a broad range of over 10,000 items, our average basket size is a multiple the size of, as we understand,  Deliveroo, Amazon, Getir, Weezy, this kind of stuff.

Range and pricing are what drives bigger baskets, he argues:

I’m not against our competitors or ourselves being in the immediacy space and believing there is a market there, but it’s a tiny market compared to the opportunity for the big warehouses. In the longer term, those immediacy offerings are for the mission. It’s there for the football – we just realized we’ve run out of beer, let’s get some beer and while the match is still ongoing. People are not going to swap a 45, 50, 55 item weekly basket for 20 shops of two or three items coming three times a day that’s just not how people are going to behave. People do plan their lives predominantly and then have spontaneous needs on top of them. And so I think it’s an interesting sector. But it’s not going to be as big.

Meanwhile Ocado has now signed up its latest partner in the form of Auchan in Spain. It’s global partner number ten, but there’s more to come, says Steiner:

I still see enormous runway for our global business. The sites that we’ve announced today and the intention from our clients, I think, is just the beginning. There are obviously markets beyond where we are in conversation with other retailers that we hope will come to fruition. We are hoping to develop solutions that will make the automation relevant in lower labor-cost markets as it is in the higher labor-cost markets, we’re predominantly serving today.

I think that we need to start thinking about the global TAM (Total Addressable Market) of groceries [as] the kind of $10 trillion market rather than the kind of 30%, 35% or 40% that is in the higher labor-cost markets. That’s the scale of the opportunity that we need to pursue. And that’s why we’ve got the scale and the depth of research that we’re going on to solve this challenge. The channel shift that is still to go on is enormous, and it is going to be in almost every market in the world, and we want to be at the center of that.

 

Image credit – Ocado

Tags


Source link

Leave a Reply

Your email address will not be published.

top