Following the news that Canadian grocery firm Sobeys is pausing its rollout of Ocado’s automated Customer Fulfilment Center (CFC) tech, the question arises of why North America appears to be far behind EMEA – and particularly the UK – when it comes to online grocery shopping?
That’s not just an interpretation of events. Michael Medline, CEO of Empire Company Ltd, Sobeys parent, said in response to the decision to take a break from the Ocado expansion that the penetration of online grocery commerce in Canada just hasn’t lived up to expectations:
E-commerce penetration has gone up recently and the demographics are in our favor on this one as well, but it’s at four percent. We would have expected it to be six to seven percent penetration of grocery at this time.
Hence Sobeys has taken some tough decisions, he explained:
Now, at the same time, as you can see in all of these places, we’re not waiting for the economy. We’re not waiting for everything. We are doing all sorts of things to make e-commerce more profitable for us, and not just waiting for that. But that will come. The solution’s fantastic. Customers love it. We’ll do well. But we can’t wait for that. We owe it to our investors to become much more profitable year-after-year and then make this one of our best businesses in terms of returns. So that’s what we’re aiming at.
But given the reality of the situation, why is that figure so low? Medline has some thoughts:
In terms of my own theory behind why e-commerce hasn’t caught on in grocery as it has perhaps in hard goods or soft goods in Canada, and below that of countries like the UK and the US, it’s I think twofold. One is that we have great competition and bricks and mortar stores in this country and they serve our customers well. Maybe that’s better than what others find in wherever they live. That’s one theory.
The other theory and one I subscribe to, but it’s open to debate, is when Canadians really needed to count on grocery e-commerce during the worst days of the pandemic, It stuck, right? Most of the offerings out there were terrible, with terrible substitutions and not on time, because people were just trying to get food to people in crisis, and I understand that. But I think that hurt the brand overall, e-commerce and grocery. But what we’re seeing is you try, Voilà [Sobeys e-commerce offering], you’re sticking with it. It has our highest NPS scores by a mile, even higher than Farm Boy and customers love it. We just need more people trying it, which they are now doing, as you’ve seen. And we are becoming much more confident in the industry growing.
Stats
There may be some justification for that sentiment. Overall, online grocery spending was up 30% year over year in May, according to Signifyd’s monthly Ecommerce Pulse data report. Other stats of note since January:
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Online grocery sales are up 23% over the same period last year.
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The number of orders is up 31% over last year.
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The average value of each order placed is down 6%.
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The number of new online grocery shoppers is up 10%.
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Orders placed per shopper (as identified by a unique combination of digital signals) is up 19%.
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Home delivery orders grew by 25% while curbside pickup was up 21%.
On the other hand, further examination of the numbers shows that sales of grocery and household goods in North America are down 23% year-on year for the year to date. In EMEA, they are up three percent year-on-year.
And that EMEA enthusiasm has shown itself in recent comments from grocery industry leaders. For example, Ken Murphy, Group Chief Executive of the UK’s largest supermarket chain Tesco, commented earlier this month:
We’ve had another strong year in online, with availability now over 98% and online perfect orders growing by 20 percentage points. We’ve grown the number of Delivery Saver subscribers with over 700,000 customers now benefiting from a choice of delivery plan to suit the way they shop, including early access to Christmas and Easter slots.
The firm’s rapid delivery service, Whoosh, has been a particular highlight and is now available in over 1,400 stores, he added:
Whoosh now reaches over 2/3 of the UK population and enables customers to order groceries from a curated list of around 3,000 products with 74% of orders now delivered in under 30 minutes.
Looking forward, we will develop Whoosh further, aiming to cover around 3/4 of the UK population with planned range and proposition enhancements to serve customers how and when they choose.
We’ve seen fantastic growth in Whoosh, it’s really strong. It’s now over £120 million of sales. We have another strong growth year ahead of us, and we’re pretty excited about it. And it’s driving about a 70% net incremental business. So it’s a really good business for us. I think on a marginal basis, it’s profitable, fully loaded, just slightly loss-making because of the marketing investment we put in behind it, but we’re feeling really good about it as a service. It seems to be something that’s getting increasing traction with customers.
But is it making money? That’s a different question that can be asked on a wider level as Murphy admitted:
On the overall dotcom profitability, we’ve made substantial improvements in the last 12 months. So we’ve seen a big kind of positive trajectory in kind of online profit momentum, but there’s more work to do.
Over at Marks & Spencer, the joint venture with Ocado is seeing some improvement after very public tensions were revealed earlier this year, although M&S CEO Stuart Machin makes it clear that there’s still a lot to be done:
Ocado is in the early stages of driving sales growth, which improved during the year, driven by increased choice of M&S products, and overall better value for money. There are now 4800 M&S food products listed on Ocado, which is 20% up on last year.
But there’s a but, he adds:
While the sales improvement is encouraging, profitability remains below original expectations. There is a lot of scope to improve Ocado’s delivery service and customer online experience…Ocado Retail still operates on legacy technologies for its website, delivery and supply chain. Over the next 18 months, it will be migrating to Ocado’s new technology, the Ocado Smart Platform, a solution which will offer customers increased convenience and greater personalization.
So, not all sunshine in EMEA just yet. And there are North American firms that have chalked up progress, as John David Rainey, Chief Financial Officer at Walmart, pointed out at the Evercore ISI Consumer & Retail Conference recently when he said:
We’ve done really well in e-commerce and that over the last few years has skewed more towards pick-up. In the last couple of months, we’ve seen delivery surpass pick-up and I believe that that’s a trend that’s not going to reverse, really speaks to how customers are thinking about this convenience factor for us. We’re simply getting better at our ability to serve our customers that way.
One of the areas of delivery that we’re really pleased with that is impacting in a positive way the unit economics of our e-commerce business is delivery less than three hours. We continue to see customers that are availing themselves of this option. And when you get that express delivery, sometimes customers will be paying more for that…This is a big driver of some of the improvements that we’ve seen in the overall e-commerce profitability. And I love to see this with our customers and members.
But is it making money yet? Not so much, Rainey revealed:
Profitability in e-commerce in the US is probably within the next couple of years. We’re getting close. It’s month-to-month sometimes. We’re not done yet, but excited about that opportunity…We’re just driving really strong improvements year-over-year. And so, we’ve said all along that this is not something that we feel like we have to strain our eyes to see out to the distant future. We have clear insight into how to get there and the steps that we need to take.
My take
Both in the US and EMEA the COVID-driven super-boost to online grocery shopping and delivery has inevitably fallen back. The difference still seems to be that EMEA is more open to the idea at present than North America. How that evolves over the next few years remains to be seen. I’m a weekly user of Ocado for my main grocery shop and find the service immensely useful and, in the main, frictionless and offering good customer experience. As a market watcher, I’d be happier seeing Ocado perform with better financials, but…