On-Line Grocery Inflection Point ?!? SCOTT DEGRAEVE CONSULTING, LLC MARCH 9, 2017 1 SCOTT DEGRAEVE CONSULTING, LLC
Interactive Discussion Areas Background perspective Why now, when grocery has lagged behind for so long? What is the state of affairs? What are the different models? Fulfillment and Distribution methods Who are and who will be the key players? Ideas / Questions for CPG companies to probe 2 SCOTT DEGRAEVE CONSULTING, LLC
School of hard knocks! • Webvan – I think we can finally stop talking about this flameout! • Pure play is where things started, omni-channel is where things are headed • The issues of on-line grocery over the years: “It’s going to be huge!” Heard this year after year not to materialize “Aren’t we just cannibalizing the stores?” “Why move profitable store customers to unprofitable on - line customers?” “Customers will never allow you to pick their produce” “You are just stealing deal dollars from the fixed bucket of CPG promotion buckets” • On-line, a small % of total revenue, becomes significant to grocers in terms of $ growth The organization gets interested; reshaping thinking • Fulfillment, distribution models are really all over the place in a forming stage! 3 SCOTT DEGRAEVE CONSULTING, LLC
Are we really at an inflection point? • AT Kearney predicts 2023 on-line grocery sales 12- 16% “On -line Grocery is finally reaching an inflection point” (AT Kearney study) • Brick Meets Click predicts 2023 on-line grocery sales 11-17% • IRI predicts 10% on-line grocery sales by 2022 4 SCOTT DEGRAEVE CONSULTING, LLC
– Nielsen/FMI study: The ecommerce imperative 20% of grocery could be sold on-line by 2025 40% of center store could be sold on-line by 2025 5 SCOTT DEGRAEVE CONSULTING, LLC
CPG Growth is Strong Amazon Pantry, Boxed, Jet major contributors Source: 1010Data-Online CPG Industry Report 6 SCOTT DEGRAEVE CONSULTING, LLC
What’s Driving the Growth? • Amazon • Opportunity / Fear for Retailers • Technology • Availability Many retailers jump in expanding coverage 3 rd party providers enable retailers to quickly have an offering • Awareness • Millennials • Amazon! 7 SCOTT DEGRAEVE CONSULTING, LLC
The Framework of Selling on-line grocery and related products CPG • • • • P&G – Tide Pods Amazon Kroger Instacart • • • • Fresh Direct Peapod Shipt Unilever (Dollar • • • Shave Club) Jet Shop Rite Google Express • • • • Boxed HyVee Rosie Mondelez • • • • General Mills Thrive Walmart Deliv • • • • Nestle Door to Door Safeway Uber • • • Meal Kits Lowe’s Foods Campbells • Pepsi 8 SCOTT DEGRAEVE CONSULTING, LLC
Let’s Talk Amazon! Why is food so important? Grocery Non-Grocery 9 SCOTT DEGRAEVE CONSULTING, LLC
Amazon Prime in nearly half of US Households Prime skews somewhat younger, but still Less than 20% Prime HH in Aug ‘13 to 44% good representation throughout Prime HH in Aug’ 16 10 SCOTT DEGRAEVE CONSULTING, LLC
Amazon “Prime Now” has high penetration of grocery purchase Prime Now continues to expand coverage Grocery is highest sales category for Prime Now 11 SCOTT DEGRAEVE CONSULTING, LLC
Overall grocery growth curve is steep for Amazon Prime HH are grocery buying HH Amazon projected to grow from 21st largest grocer to 7 th largest grocer in 5 years (22% CAGR vs 2.6% total market) 12 SCOTT DEGRAEVE CONSULTING, LLC
Omni- Channel Source: Intelligrated Source: Willard Bishop and eMarketer 2015 13 SCOTT DEGRAEVE CONSULTING, LLC
• Much narrower distribution of purchase >35K SKUs offered on-line • Big basket sizes often in the $150 range (45-50 items) In-store • Private label has On-line lagged on-line but is growing On On-line orders are stock up orders 14 SCOTT DEGRAEVE CONSULTING, LLC
3rd Party is an “enabler” • More than 130 retailers • More than 1,500 stores Instacart, Shipt, Rosie and others are enabling retailers who do not have the expertise, tools, or resources to quickly push out an effective on-line offering There are challenges for retailers to give up the customer experience and data with this model It is expected the model will evolve to better serve retailers needs in an omni-channel requirement 15 SCOTT DEGRAEVE CONSULTING, LLC
How are grocery e-commerce orders fulfilled • This is where most retailers start; fastest, lowest risk, lowest cost • Challenges as volume grows: Productivity Out of stocks Traffic in store In-store pick • Dedicated fulfillment space at the store An area segmented off; a mezzanine above receiving • Still uses fresh departments and some slow movers off of floor • Improves the in-store challenges listed above • Relatively low capex, but can run out of capacity fairly quickly Wareroom 16 SCOTT DEGRAEVE CONSULTING, LLC
How are grocery e-commerce orders fulfilled • Dedicated fulfillment center away from the store • Higher capacity than warerooms • Typically manual methods, capex still reasonable • Productivity is good • Outbound docks can be a challenge Dark Store • High levels of capacity • High productivity, automation employed • Capex is high • Fixed costs leverage with high volume • Getting proper labor force can be a challenge Warehouse 17 SCOTT DEGRAEVE CONSULTING, LLC
Peapod Video 18 SCOTT DEGRAEVE CONSULTING, LLC
A Variety of Receptacles are used for picking and delivery 19 SCOTT DEGRAEVE CONSULTING, LLC
Packing and Staging Inconsistent Refrigerated totes with dry ice for frozen and ice paks for chilled Orders can be staged in a variety of approaches 20 SCOTT DEGRAEVE CONSULTING, LLC
Distribution Methods 21 SCOTT DEGRAEVE CONSULTING, LLC
Things to think about • Millennials • Automated Replenishment • Product content and transparency • Packaging 22 SCOTT DEGRAEVE CONSULTING, LLC
58 percent of Millennials agree that where you buy your groceries reflects your personal values, compared to 28% of non-Millennials Amanda Topper, Mintel Proprietary & Confidential
Millennials are frequent on-line shoppers “With growing distrust and a greater desire for transparency from food manufacturers, Millennials want brands to form a genuine, authentic connection with them and brands should recognize the impact Millennials have on their businesses.” Amanda Topper, Food Analyst at Mintel 24 SCOTT DEGRAEVE CONSULTING, LLC
Consumer Values are Evolving 59 percent of Millennials will stop buying a certain 43% of US Millennials agree they do not trust large food brand’s products if they believe the brand is unethical manufacturers compared to just 18% of non-Millennials 25 SCOTT DEGRAEVE CONSULTING, LLC
Automated Replenishment may affect where consumers buy • Nearly three in five Millennials (57 percent) say they only shop the fresh sections of grocery stores (e.g. produce, meat and deli) compared to just 30 percent of non- Millennials • Automated replenishment is appealing to them 26 SCOTT DEGRAEVE CONSULTING, LLC
The Tools for Automated Replenishment have momentum Devices, software, appliances, internet of things Hiku FethchIt Subscription Services 27 SCOTT DEGRAEVE CONSULTING, LLC
Product Images and Transparency are critical • On-line shoppers are much more likely to buy a product if it has images and nutritionals • The integrity of the data is critical in an age of full transparency and product skepticism • Having full nutritional and ingredients allow consumers to be able to effectively sort • Ensure retailers are displaying your latest packaging and labels • Recognize the need for images in mobile settings Mobile Images – eCommerce testing shows dedicated mobile images sell 15% more Smart Label – supporting brands with creation, management and serving an industry initiative 28 SCOTT DEGRAEVE CONSULTING, LLC
Work with a focused content provider Brand activation ensures that the manufacturer has reviewed and verified the quality and accuracy of the images and data 29 SCOTT DEGRAEVE CONSULTING, LLC
Focus on packaging for e-commerce “People aren’t buying products anymore, they are buying solutions” Tony Stallone • Focus on “dedicated fulfillment” as it relates to ecommerce creativity for biggest payback Significantly more retailers will be moving e-comm to a dedicated space as volume grows • Look at your portfolio, which of those products have the most upside for e-commerce • Make your packaging more efficient for fulfillment centers “Shippers” are of no value in a fulfillment center Make packages “pick ready” when they come into the facility (e.g. serrated smile in front of pack) (e.g. banana boxes come in with no lid, pick straight from the box Can case sizes be smaller so they fit better in a primary pick slot? Create bar coding so products can be sold as a “unit” or as a “case” HBC products, receive a “sleeve” by scanning a bar code, instead of individual items 30 SCOTT DEGRAEVE CONSULTING, LLC
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