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July 30, 2015

Talking shop July 2015 – online dictates retailers’ strategy

The rapid development of online retailing has long been a key part of the strategic direction of global food retailers. While the channel represents a growth spot in what can – in many markets – seem a sector struggling for sales growth, there is as yet no clear formula for profitably exploiting it. However, as this month's Talking shop round-up illustrates, a number of grocers are further investing in the channel.

The rapid development of online retailing has long been a key part of the strategic direction of global food retailers. While the channel represents a growth spot in what can – in many markets – seem a sector struggling for sales growth, there is as yet no clear formula for profitably exploiting it.

This month, fresh research emerged highlighting the global growth of the online channel for FMCG products. A report published by Kantar Worldpanel predicted global online FMCG sales are set to reach US$130bn in the next ten years.

The researchers flagged strong prospects in markets as far apart as Asia and Europe and stressed online’s share of FMCG purchasing in advanced e-commerce markets will double in the next ten years. Kantar estimates online purchasing will reach 30% in South Korea, 15% in China and "at least" 10% in the UK and France.

Kantar's research showed FMCG e-commerce grew at a faster pace in Asia during 2014, with China being the fastest-growing market – up 34% – followed by South Korea where sales increased 22%. In Europe FMCG e-commerce grew 20% in the UK and 12% in France.

E-commerce represents an interesting opportunity for retailers in emerging markets because it offers the opportunity to establish operations in countries where the infrastructure support needed to establish physical stores can be lacking. It potentially opens up a consumer base in rural areas where access to bricks-and-motar stores is scant. The proliferation of mobile technology in these countries has prompted commentators to suggest such markets could bypass the development of physical retailing and move straight to an online model.

Not all online markets are created equal. In the US – a market where physical retailing is long entrenched and the consumer is king uptake of online retailing has been much slower. Just as suburban consumers have given a cool response to smaller format stores or the introduction of retail tech such as self-service checkouts (now the norm in markets like the UK) demand for online retail has been slower to gain momentum. But momentum is building.

According to food retail consultants Willard Bishop, online retailing represents an important opportunity for areas of the store that are otherwise struggling. In a study released last week, Willard Bishop said the big brands of top-tier CPG makers are winning share online – with a particular chance to improve centre-store sales, which have faced significant pressure in the US.

Paul Weitzel, managing partner at Willard Bishop, said: "Overall, centre store food and non-food categories are doing very well online; however, the different fulfillment models cause category performance to vary significantly…. Campbell Soup Co. ConAgra Foods, Kellogg, Kimberly-Clark and Mondelez International represent the top five manufacturers capturing a disproportionate share of online sales."

The e-commerce strategies of some of the world's largest retailers have made the headlines this month, proving the extent to which e-commerce has become a force to be reckoned with. Elsewhere, in the world of physical retail there was further evidence of the pressures retailers are facing in terms of pricing pressure and high overheads. Here are some highlights from over the past month.

Amazon planning "drive thru" grocery stores

One behemoth physical retailer have to watch is Amazon. The company is reportedly planning to launch drive thru grocery stores in California. According to The Silicon Valley Business Journal, which cited unnamed sources, the e-commerce giant is developing a click and collect style operation that will enable consumers to order groceries online and schedule a pickup at a dedicated facility. The first location looks set to be in Sunnyvale, California, where the company has apparently filed for planning permission. Amazon is working to expand its presence in online grocery retailing, through the Amazon Fresh concept and the development could represent a further challenge to physical grocers in the US at a time when the industry is in the throngs of change.

7-Eleven launching delivery service

Convenience retailer 7-Eleven is also working to drive its omnichannel strategy through the launch of a delivery service in two US cities: Austin and San Francisco. The company is working in conjunction with tech and logistics group Postmates to roll out the service. Products on offer include an array of convenience items, from hot food to snacks and cold drinks, 7-Eleven said.

"Through our partnership with Postmates, 7-Eleven’s reach extends beyond our physical stores," Raja Doddala, 7-Eleven’s vice president of innovation and omnichannel strategy, said. "The programme should work well for us because it appeals to our customers who are more on-the-go, connected 24/7 and prefer fast-paced, urban living. Plus, we have market concentration in these geographic areas, which makes shopping with us through Postmates even more convenient for customers,"

7-Eleven plans to expand delivery later this year to other areas with a high density its stores, such as New York, Los Angeles, Washington DC and Chicago.

Amazon eyes UK grocery

Amazon is also reportedly in an "advanced" planning stage as it prepares to launch Amazon Fresh, its grocery delivery business, in the UK. According to The Times, Amazon Fresh could begin operations in London as early as September.

The move will pit Amazon directly against the UK's supermarkets – Tesco, Sainsbury's and Asda – all of which have significant and entrenched online sales networks. The UK also has well-established pure-play online grocers, such as Ocado, or more specialised "veg box" providers like Abel & Cole. UK online sales are growing at a rapid pace – but the market already boasts a number of power players.

While Amazon could face some tough competition in the UK, the news does not come at a good time for the country's large supermarket operators, which are being squeezed by the rapid expansion of the German discounters, Aldi and Lidl. Growing online sales and the fact that big-box stores have fallen out of favour have left the UK's supermarkets scratching their heads over what to do with much of their real estate portfolios.

Sainsbury's looks to digital to "reinvent" the supermarket

Sainsbury's boss Mike Coupe came out fighting this month. Tesco, Morrisons – which is in its own peculiar pickle at the moment – and Wal-Mart's Asda are focusing on lowering prices and ranging to win back core customers lost to the discounters. Sainsbury's CEO Coupe outlined quite a different vision in an interview with The Daily Telegraph.

Coupe said Sainsbury's will use technology and digital developments to regain ground against online, the discounters and convenience channels – all of which have been stealing share from traditional grocers. The new format – details of which were thin on the ground – will be rolled out at six UK locations.

"Our challenge is to reinvent the superstore for the next generation, for the future," Coupe said. "This year for us is all about experimentation and starting to understand how we can make our larger stores in particular different for the future."

Jumbo expanding online offer

Dutch retailer Jumbo wants to strengthen its online offering by expanding the its e-commerce range to include products that have so far only been available at its Foodmarkt banner. The company wants to appeal to households of varying sizes through flexible and convenient meal solutions. E-commerce is viewed as a valuable way of expanding Jumbo's shopper base. However, Jumbo’s e-commerce director Roland van den Berg conceded profitability online was challenging.

Wal-Mart takes full-ownership of Yihaodian

Wal-Mart acquired the outstanding shares in Yihaodian, taking full ownership of its fast-growing e-commerce business in China. The US retailer, which previously held a 51% stake, plans to invest in both accelerating e-commerce and creating a "seamless experience" for customers across online, mobile and stores.

"Yihaodian has excelled as one of China’s top e-commerce businesses. We’re excited about the team at Yihaodian and their strong local e-commerce experience," said Neil Ashe, president and CEO of Walmart Global eCommerce. "This local experience, combined with Walmart’s global sourcing and our strong local retail presence and supply chain will allow us to deliver low prices on the products customers need in new and exciting ways. Our investment in Yihaodian is part of our long-term commitment to grow in China, and we look forward to continuing to play a positive role in the development of the e-commerce industry.

Wal-Mart is aggressively driving its e-commerce expansion in emerging markets and, in a separate development, the group also extended its online platform to members of all 20 Best Price Wholesale stores in India.

Wal-Mart continues to grow China supply chain

Wal-Mart also continued to invest in its supply chain capabilities in China with the opening this month of a distribution centre in Tianjin.

The retailer is developing this distribution centre into its largest logistics park in northern China with global brands such as Nestle and Unilever using the facility, the company revealed.

"As an important part of Walmart China's long-term strategy, the development of supply chain is given high priority in the business. Walmart has been optimising and improving its distribution network in China." said Peter Sharp, leader of Wal-Mart's Asia realt division. "The development of such an international logistics park also mirrors Walmart’s endeavour to achieve win-win for the government, suppliers and retailer by building a strong supply chain network and system, to ultimately achieve our goal of saving people money so they can live better by lowering the cost."

Alibaba starts same-day delivery in China

Not to be outdone, China's largest e-commerce player Alibaba announced it will be debuting same-day grocery delivery for Beijing users through its Tmall.com portal. Beijing residents who order from Tmall’s supermarket before 11am will be eligible for same-day delivery service.

Supported by a promotional investment of RMB1bn (US$161m), the company said it aims to take advantage of the rapid growth of online grocery sales in the country – a "strategic area of interest" for Alibaba.

In the future, Tmall Supermarket and Cainiao plan to roll-out same-day delivery services to Shanghai and other Chinese cities.

Carrefour sales slow as China declines

Carrefour reported a slow-down in second quarter sales as declining consumption in China dampened the group's otp line.

Second-quarter sales increased 4.2% to EUR21.4bn (US$23bn) the French retailer revealed. Like-for-like sales in China, which accounted for 6.5% of group revenue last year, dropped 12% in the three month period.

Domestic sales were up – reflecting Carrefour's investments in France. Markets where the macro-economic outlook has not been bright – such as Brazil and Spain – also booked sales gains, the company revealed.

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