If you studied a map chronicling the evolution of online grocery, you’d see the first fledgling beginnings of the sector with some pioneers on the frontier adopting a pick in store model with catchment areas around single stores in high density conurbations with strong purchasing power and high internet penetration.
Moving onward, slowly but steadily as the territory becomes more open, the business developments become more settled and the model evolves towards semi automated dark stores, dedicated to the sector and new logistics set ups, as explosive growth rates start to put too much strain on the humble structure put in place by the pioneer spirit. It’s at this stage where the first and best players report profitability, as they reach scale effects that make their operations efficient – from picking to truck utilisation to route optimisation
As the broadband revolution gives way to the mobile internet, online grocery enters a third distinct stage in its evolution with the advancement of click & collect, drive solutions and lockers firstly offered by the multi channel players in an elegant way to make their store footprints and property assets count, then in high footfall locations, such as airports and train stations, before an outsider from the West arrives on the scene that transforms the sector yet again…
Going forward online grocery will ask for yet another different logistics set up and we have mapped 4 innovative and collaborative solutions for the sector for multichannel players and pure plays alike to explore.
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The drive is a specific French innovation to get around the onerous process of obtaining trading permits in the country. Obstacles in planning and zoning law have been a major reason behind the investment poured into “le drive”, as it is virtually impossible to open new hypermarkets in France (loi Raffarin) and various possible sites are not licensed for grocery trading.
Opening a warehouse in an industrial area, a dark store not classified as a food store and hence easy to register and getting trading permits for, and then to operate it as a click & collect grocery store is an enticing growth lever a retailer can pull in the market, where most other space based expansion is virtually impossible (c-stores and discount being an exception).
The best performing drive in southern France made sales of €44m in 2012, however in France, the birthplace of the concept, the party is now over, as the loi Duflot has put a real dampener on innovation that has spread like wildfire through the country.
Nevertheless Click & collect and stand alone drive stations are an extremely important topic in EU online grocery right now. Retailers innovate in this area, as offering a mix of delivery solutions such as click & collect and drives reduces significant costs of home delivery, raises the overall basket sizes (by up to 75% for Ahold for example), enhances loyalty of core shoppers and of course to gain shoppers from rival retailers that do not offer the service.
From a shopper perspective drives offer a clear convenience benefit of not having to wait at home for a delivery and a cost benefit, as pick up is often free or much cheaper than home delivery. The click & collect and drive stations remove a barrier to online grocery shopping and the pick up option frees up time otherwise spent in the store (in the EU typically around 1 hour for a family sized basket).
This time freed up through a drive or click & collect option suddenly offers new merchandising and marketing opportunities. Now the shopper, after having done the chores, will have enough time to take in many of the promotional materials and offers manufacturers will put into the stores to educate shoppers about the benefits of their products.
Across the EU, basket sizes at drives are much higher than in store, but lower than for home delivery and they are under-indexing on fresh produce (meat, dairy and fruit and veg), but the first retailers are already innovating around this and driving the fresh spend back up. Looking ahead, extrapolating from current rapid growth, the share drives and click & collect takes of the total online grocery spend could reach about 50% in the not too distant future, in France it is already above 80%.
The insights in our latest report are about understanding the opportunities for click & collect and drives and delves deep into questions around the different business models.
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