WORLD RETAIL CONGRESS 2013: Ocado: Online "long-term headache" for physical retailers
Ocado CEO Tim Steiner questioned how supermarket rivals would manage multichannel business
The rapid increase of consumers shopping online will cause a "long-term headache" for bricks-and-mortar retailers as the channel eats into sales within stores, according to UK internet grocer Ocado.
Tim Steiner, Ocado's CEO, told attendees at the World Retail Congress in Paris the grocery industry is experiencing "a major channel shift" to online.
Ocado is competing with the UK's supermarket chains online but Steiner suggested a challenge for its larger rivals is the pressure on profits from offering online services and having physical stores.
"Grocery is a low-margin industry and the traditional model has trained the customer to do half of the work, to leave the house, to walk the aisles, to pick the products themselves. We need to do all of that work for the customers. So the existing assets that exist in terms of stores are no use. You can't pick items in a store and deliver them to a customer for a token delivery fee," he insisted.
Steiner added: "As the customers migrate from stores they are creating cannibalisation in those shops, which is going to cause bricks and mortar to have a long-term headache."
Steiner told attendees that a "vicious cycle of decline in stores" will result - a situation apparent in the UK with the closure of some the country's largest music retailers.
"As the store sales migrate online, store sales densities fall, fixed costs increase as a percentage of sales, profitability decreases and the store retailer has less money to invest in shops, has less profitability and will hold less inventory in those stores and the sales environment worsens, increasing the benefits of shopping online."
Ocado this year signed a technology and distribution deal with Morrisons, which will see the UK's fourth-largest grocer offer home delivery from January. Steiner said Ocado despite the high fixed costs, particularly for delivery, associated with being an online player, he is confident the retailer has a model that works.
"As we accelerate our growth, our largest cost - delivery - is cannibalised solely by the density of our customers. We will cannibalise our fixed costs and continue to improve the profitability of our business, allowing us to reinvest in our customer proposition, taking our pricing below that of the bricks and mortar supermarkets.
"Whilst our pricing is below and our margin already larger, plus the personalisation of service that we offer to our customers, we think we have an unbeatable proposition."
2013 was a highly significant year for Morrisons. The company finally decided to develop an online grocery retailing service in partnership with Ocado. In addition, the company has capitalised on the ...
- USDA's GMO move may block mandatory labels
- Premier Foods to push on with range revamp
- Why FMCG background key for next Thorntons CEO
- Focus: Why Dairy Crest needs to offload dairies
- UK Responsibility Deal must solve credibility gap
- Unilever CFO Jean-Marc Huet stands down
- Mars launches "healthy" snacks Goodnessknows
- Premier Foods sees FY profits fall
- Kerry adds to Mattessons' adult snacking range
- Mondelez to cut jobs at Chicago site
- Mars Inc in Packaged Food (World)
- ALDI 2015: Radically transforming Anglo Saxon grocery markets
- Pizza Delivery & Takeaway in the UK - Industry Market Research Report
- Chocolate Flavors Market by Application & Region - Global Trends & Forecast to 2019
- Global Database of the Top 1000 Chocolate and Confectionery Producers - Company Names, Financial Performance, and Contact Details