Managing online grocery profitability

Digital Foodie has been working closely with retailers and our experts are convinced that online grocery can be made profitable. With our tools retailers are at least getting very close to that.

Bill Bishop, a thought leader in grocery retailing, recently interviewed Marc de Speville, who two years ago called online grocery “the elephant in the room” for food retailers. Marc de Speville has spent many years analyzing online grocery’s evolution across three continents. Bill’s article in www.brickmeetsclick.com based on Marc’s interview actually supports Digital Foodie’s product strategy 100%. The article starts pretty provocatively though:” No one is satisfied with the costs incurred in executing online grocery because it erodes profitability.”

Digital Foodie’s fulfillment tools are designed to be used in existing stores and support compact dark stores, that are used for online fulfillment only. Digital Foodie’s tools are somewhere in between manual picking and fully automated warehouses, making store based fulfillment as effective as possible

“It’s always cheaper to pick in-store than from dedicated facilities or “dark stores.” says Marc de Speville. “The efficiency gains you get from faster picking and lower wastage in a dedicated facility are more than offset by the following three factors:

The additional occupancy and non-wage costs of operating a dedicated facility (which are fully incremental, vs. already sunk in stores).

Higher delivery costs due to additional drive-times to the stores or customers’ homes from the central facility

Inefficiencies arising from the dedicated facility operating at below full capacity during the ramp-up phase.”

“The main reason/justification for shifting to a dedicated picking facility – apart from to relieve congestion in the store – is to improve service levels, mainly better accuracy, lower out of stocks and fresher food. However, these benefits are not always so clear or significant, which explains why the majority of online orders in both the UK and France are still picked in-store.”

The fully automated online grocery fulfillment always means huge CAPEX. Thus full automation works best at scale. However, the larger the automated facility is, the greater the distance from customers’ homes. That is another cost factor that must be considered. Consumers are expecting more and more home deliveries. They are simply more cost efficient from a local existing store. Survey shows that 90% of consumers in UK and 60% of consumers in Germany are expecting to get a home delivery service.

Marc de Speville also talked about the holy grail in the online grocery. That is to be able to automate picking at the store level cost effectively. That would simply mean a combination of superior picking efficiency with lower delivery costs by still leveraging of existing assets. Marc believes that the holy grail technology is 2-3 years away. He also mentions that Digital Foodie is one of those companies today, that offer a turnkey solution with in-store picking optimization to get retailers online in a cost-efficient, easily scalable way.

The whole interview of Marc Speville, by Bill Bishop, can be read in http://www.brickmeetsclick.com/managing-online-grocery-profitability–what-we-can-learn-from-europe