Retail Road Warriors

The fight has spilled out from the store and onto the street. Across neighbourhoods the country echoes to the sound of Iveco and Mercedes vans reversing and parking up. The fleets of grocery deliver drivers are crisscrossing the nation on empty roads from dawn to dusk and on into the dark of night to deliver much needed basic groceries, and much wanted treats are dropped at welcoming doorsteps.

Out of the Pit Lane!

In 2018 British shopper’s online grocery orders increased to £12.3 billion, up 9% from 2017 (Mintel). The latest research from Mintel reveals the online grocery market in the United Kingdom is forecast to grow by 33% in 2020 to reach an estimated value of £16.8 billion, up from £12.7 billion in 2019.

Over the next five years, online grocery was forecast to account for 10% of all grocery shopping, with sales growing by 60% to reach £19.8 billion in 2023. This growth has been hotwired by the Virus, as online participation has screeched up to 10.2% of the Grocery Market. April 28th – Kantar.

The number of customers shopping online for groceries had dropped from 48% to 45% between 2015 and 2018. According to Mintel, younger Brits were the most enthusiastic about having groceries delivered, particularly those aged 25-34, with 61% of this group using online grocery shopping and over a quarter (27%) saying they did all or most of their grocery shopping online, their driver being convenience.

But the new “C”, is for Covid, rather than of Convenience, and has turned on the online ignition as, 50% of Brits have tried to limit the time they spend in-store, while a further 9% have used click-and-collect more. The once reluctant middle aged and older shoppers have now joined the online shopping revolution. Before Covid, their dislike was growing, as just over a third (35%) of those aged 45+ were buying some groceries online, the number in this group who had “never bought groceries online and have no interest in doing so” had grown from 34% in 2015 to 42% in 2018, as they hesitated, concerned about online technology, payments and substitutions.

But over the last few weeks, that has now all changed, as older shoppers, have put on their go faster stripes and engaged with technology to increase their online grocery shopping spend by 94% compared to last year.

Turbocharged Output

With most of the foodservice world closed, there is a significantly increased demand for food from retail, this coupled with the inability to leave the home has created a consumer clamour for delivery slots.

As has been well documented, Ocado’s website has crashed a couple of times due to the surge in pace of online activity, they currently have no slots available, but are prioritising customers identified as vulnerable for slots that will be available on general release in 24 hours.

Robert Jenrick Communities Secretary said a few weeks back that “supermarkets are working ‘very hard’ to increase capacity, and ‘I understand at the beginning of the crisis there were typically 2.1m delivery slots in the entire supermarket sector, that’s already increased to 2.6m and within a couple of weeks we’re told by the supermarkets that will be close to 3m”.

In line with this there has been a dramatic increase in the number of online delivery slots by the big four Grocers as well as Ocado, Waitrose, COOP and Iceland. Costco and several wholesalers have made late entries to the race with online services, the former offer for members and the latter for all consumers.

All competitors are now roaring up the online straight, COOP are accelerating their plans for online capacity to 770 stores, up from the planned 400 now offering delivery through their Deliveroo partnership.

Tesco has supercharged its engines and hired 4,000 new drivers and 12,000 new pickers since the outbreak began. Their output is increasing orders to 1.2million a week, an increase in slots of over 100%, and has picked more than 10 million items in a single day for the first time.

A tuned up Asda has increased the number of delivery slots from 450,000 to 700,000 per week, and Sainsburys have stepped on the gas to offer over weekly 600,000 lots across delivery and click and collect a week, with even more coming. Iceland, a smaller online rival has impressively achieved an outstanding 250% increase in delivery capacity.

Not to be totally left behind, Aldi and M&S revving up as they chase the others by offering delivery boxes through Deliveroo.

 

Feeding The Nation

The grocers have been admirable in dashing to feed the nation, with their priority being the elderly and vulnerable as each morning their squads of 3.5 tonne mobile larders are loaded with the nation’s food. Just like Tesco, Sainsburys and the others, ASDA has contacted over 242,000 people identified by the government as extremely vulnerable and shielding and has seen orders placed by 115,000 of them. Asda is also now helping 3,500 care homes, where there many people struggling to get food because of the crisis.

Fettering The Demand

But the resources are not limitless and the retailers have had to try to temper the demand, slots with the Co-op are booked up, Sainsburys is only allowing one delivery per customer per week and the whole field currently has delays of between 3 and 10 days (at the time of writing), and are asking customers to refresh or visit their websites again at another time.

Running Repairs

The demand challenge is huge; those with more the horsepower can run vehicles for longer, increase vehicle loading speeds and picking targets; as several CEO’s have stated, their businesses have changed more in the last few weeks than in the last few years. But those who are underpowered in the online department, have also had to adjust and make the most of their capabilities and capacity they have to innovate and initiate new tactics to quench the demand as overheats.

Morrisons has launched a Ramadan food box to help its Muslim customers and an Afternoon Tea box to mark the 75th anniversary of VE Day.

Aldi has launched online Food Parcels; a big change in business for the discounter; as it offers customers to order groceries online for the first time. These parcels are filled with staples and contain food items and such as pasta, tea, coffee, and household products including hand wash and toilet roll, they have also added free delivery on special-buy products, wine and child, baby and health and beauty products.

Several supermarkets, including Sainsburys, ASDA and Aldi have launched shopper vouchers to enable those unable to leave the house, self-isolating or vulnerable to use online or in-store, these can all be topped up online and used by friends and family on their behalf in store, by being emailed or posted to them.

Asda is launching a pharmacy call and collect service at 255 of it’s stores, enabling customers to call the pharmacy and order their prescription, to then collect their medication without coming into the store; their prescription delivery service is coming soon.

What is clear that the ability to execute an online operation is crucial now. But there are some who have misfired, M&S has no online route until September and is asking people to shop in-store instead, stating that “We have reserved the first hour of trading on certain days for our older and vulnerable customers, and for our brilliant NHS workers.”

M&S knows this is not enough and have a partnered with Deliveroo to deliver 60 Marks & Spencer products, such as milk, bread and juice to customers across the UK through an App. They have had to be agile, and have developed delivery boxes, these are filled with fresh produce and meat, and a vegetarian option; they contain cupboard staples such as pasta, sauces and tinned foods designed for a family of four.

The Future Pit Crew – Performance or Profit?

However, none of this is easy and as CEO Dave Lewis said last week: “In the last six weeks, we’ve built probably the biggest grocery delivery business in the world, but we know we need to do more – and we will.”

The race to ramp up capacity of all the retailers is very impressive and admirable, but what is the cost of competing in this race?

With a significant proportion of Grocery sales; over 10% and counting, moving online there is a subsequent increase in resources; the online requires a big teams, planners, drivers; pickers, warehouse colleagues, managers, behind the scene infrastructure, IT capability, delivery trays, vehicles, fuel, insurance, maintenance, repairs, dedicated store space, vehicle yards to house and load the fleet, and staff training, uniforms and much more.

Online operations are complex; getting products through the supply chain, through the dark stores or picked from the shelves in stores and onto the vehicles in an orderly,  timely and efficient manner.

This is at best, a challenging operation that replaces retail sales that were largely self-service, with shoppers entering the store, selecting their items, putting them in a trolley and passing through a till, or better still, the nirvana of retail, sliding into a high gear by self-scanning their shopping. That was an engine that operated sweetly and efficiently until a few weeks ago, but now the retail race has changed.

The allure of the new online race is undeniable, but what is the cost of this thirsty new retail powertrain that the grocers have had to quickly attach their retail ambitions to and how long is the race?

The winners will only be known once the racers have crossed the finish line, and this is no Le Mans 24 hour race with a predefined ending hour. The KPI’s will be reviewed, but will the onlooking crowds and shareholders praise the grocery pack for supporting the community, for the numbers of people recruited, for developing innovative services, for the lack of substitutions, for the deliveries available or for actual sales?

Who knows?, but profit may be left spluttering in the fumes somewhere back on the starting grid.

But one thing is clear, a significant number of shoppers will have been persuaded by the convenience of online and will not go back to stores, therefore the demand for online deliveries will have increased.

Like any Formula One Team, the grocers will need to start fine tuning and tweaking for the next race; the challenging circuit to online performance and the ultimate prize, profit.

Phil Banfield – is the MD of VentureField Consulting – Specialising in FMCG Go2Marlet Consultancy & Execution. Est.2008

Source: Date – Kantar Worldpanel FMCG data for the period to 19 April 2020 & Mintel Research 28th April 2020.

Photographs: Phil Banfield