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Online grocery Retail revolution: Has the time come?

If there’s one thing that is always constant in retail, it’s change. Although most of the change we have witnessed in the past few decades has been relatively incremental, today’s need for innovation represents a seismic shift in the industry.

Let’s look at the UK - the grocery market is growing at its slowest rate since 2005 and concerns are intensifying over the fortunes of big supermarkets. In the past few weeks the news has been less than positive: Sainsbury’s suffered its first like-for-like sales fall in nine years, Morrisons reported pre-tax losses of £176m as it revealed plans for a major restructuring of the business, TESCO saw its market share fall and Asda announced redundancies among their senior managers in their head office functions.

With online grocery shopping growing rapidly and multichannel becoming a major focus for the big grocery retailers, there is a sense of urgency among them all to grab a slice of the action as online sales are forecast to reach £11.1bn by 2017 here in the UK, almost double today’s value.

A lot has changed since Webvan, the first e-grocery player in the world, emerged in 1997 on the heels of Amazon. It went out of business in 2001 and became the largest dot-com flop in history. In fact the e-grocery model has taken much longer to get right than other areas of retail but now it is established the rate of change is quite staggering, driven by the rapid adoption of smartphones and tablets. Multichannel has now become the new expected norm for consumers.

Shopping online for groceries has been around for the last 14 years in the UK and retailers have pushed the boundaries of convenience looking to tailor their stores to meet the needs of local shoppers. Their focus seems to be on making services more accessible and convenient with the expectation of a rapid growth in the rollout and usage of click & collect including drive-thru facilities, as well as pick-up services from commuter hubs and workplace.

There is no doubt that both the physical and online stores have a role to play going forward; however the belief that online grocery will always stay niche has been superseded by the new need to radically rethink the online grocery store to match the requirements of today’s tech savvy consumers.

It’s clear that digital technologies are transforming the retail landscape. Samsung recently launched an E-commerce enabled refrigerator allowing consumers to order groceries directly through an inbuilt LCD display. More and more consumers are willing to start experiencing online grocery and once they realise what is available and how convenient it is they won’t return to a website that they find difficult to navigate or where they have experienced a poor service. Consumers have increasing choice about where, when and how to shop for their groceries and they are looking for solutions that not only match their busy lifestyles but that give them more choice. For many years supermarkets have tried to create partnerships or marriages with their customers and many have been successful in building this loyalty but we could be witnessing many more divorces over the next few years as more and more people opt for a new digital shopping experience.

In these turbulent times there are large opportunities to be exploited and competition in online grocery is increasing more and more. Current market share is not a sign of future success - look what happened to NOKIA, from market domination to sell-off in less than 10 years. If we look at Amazon there are some good lessons to be learnt. Back in 1997 Jeff Bezos, Amazon’s CEO, took a big risk by tackling the biggest barrier to online shopping, delivery costs, by essentially eliminating them and treating them more as a marketing expense.

Learning from the failures of others, Amazon hired the executives responsible for Webvan’s failed strategy and acquired their technology. Bezos has been building knowledge and experience in online grocery from a very niche position. AmazonFresh was launched as a trial in Seattle in 2007, before being expanded to San Francisco and Los Angeles last year. Mintel reported last month that Amazon is soon to launch its AmazonFresh grocery home-delivery service in Germany. This will be Amazon’s first fresh grocery operation outside US – it is likely to be the first of many.

Here some key questions:

  1. What has Amazon learned from Webvan’s failure and from the AmazonFresh launch since 2007? And what is going to be their next big innovation for expansion?

  2. What are going to be the most valuable assets for grocery retailers? New technology and distribution capabilities are becoming a source of competitive advantage while a legacy store network will soon act as the proverbial noose around a retailer’s neck.

  3. Will food distributors transform their business to become grocery retailers themselves?

  4. How is the relationship between retailers and suppliers going to change in the future? Will suppliers become sellers?

  5. What should a multichannel pricing, promotions, and assortment strategy be? Are supermarket own-brand products going to survive in the future? Or would they add too much complexity to the supply chain?

  6. What capabilities should be prioritized to achieve organisation agility? What metrics, processes, and structures are required to make digital plans a reality?

So far grocery retailers around the world have been navigating in relatively safe harbours and with some incremental innovation they moved away from it, however still following the shoreline. Who is going to take the leadership and the risk to go blue-ocean by betting big in the potential of online grocery?

The pioneer that is willing to go ‘all in’ will be the one that will shape the online-grocery sector. Current market share will soon be challenged as new ‘land’ will be discovered and conquered.

(To work with me or for more on topics of relevance to leadership, email me at or follow me on LinkedIn and Twitter @thinkethandco)

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