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GUEST COMMENT A winning UK strategy despite and through Covid-19: E-Grocery

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The weather has changed for online retail in the UK. The pandemic has pushed customer expectations for new ways to operate. We’ve seen it as force majeure like the one we are living has swept through the high street and turned predictions upside down. But the UK, its people and its market, is resilient and has risen as a strong contender to be a world leader in an unlikely domain: online grocery.

With its framework of infrastructure, key players like Ocado, Asda, and Sainsbury’s, and a savvy and connected buyer, the UK is well positioned to become a front-runner in a winning model consumer are hungry for. But to do this, companies have to adopt a culture of creativity and agility to pivot with quickly changing needs, trends and customer expectations.

The time is now for innovation

In the past two decades, ecommerce has altered consumer behaviour and disrupted businesses across the board. Just as every sector is having to think strategically about how to navigate through our new reality, grocery is finally catching the wave. Inspired by the trends that have turned e-commerce upside down, including new competitive pressures, technological advances, and evolving consumer attitudes and behaviours, technology is revolutionising the grocery sector. But Covid-19 isn’t the sole catalyst. The industry has been ripe for change – and has been planning for it – for some time.

Amazon had the foresight to purchase Whole Foods Market in 2017 and invested heavily in its online grocery division and omnichannel innovations like cashier-less stores; and it’s not alone in the reinvention of the grocery experience. 

In the US, Kroger developed a partnership with the UK based digital grocer Ocado to leverage robotic automation to facilitate home delivery of groceries; while Walmart is piloting a program to deliver groceries directly into consumers’ homes – and refrigerators.  

Both have also focused on curb side pickup instead of delivery, which has among the highest customer satisfaction experiences ever tested. An increased shift in the task of collecting grocery items to retailers has opened an opportunity for automated fulfilment centres, which typically house 15,000 Stock Keeping Units (SKUs) in 10,000 square foot of space and can fulfil orders ten times faster than a human. Walmart for example, has partnered with Alert Innovation to develop the Alphabot, a robot that helps to enable fast and efficient order picking.

Meanwhile in China, ecommerce powerhouses Alibaba and have developed grocery store concepts with much tighter digital and physical integration. In Hema stores, you can build grocery lists by scanning barcodes and then place it for home delivery. There are also conveyor belt systems built into the ceiling of stores so professional order pickers can quickly aggregate merchandise. Online sales already account for more than 60% of their total orders. Alibaba’s competitor goes a step further with its 7Fresh concept, which offers an autonomous smart shopping cart that follows the shopper around the store which includes a digital screen with product information and recommendations for the consumer.

Around the world, innovation is pushing boundaries, creating new opportunities and revolutionising an industry. But unlike traditional retail, e-grocery has its own set of challenges, as retailers must maintain a cold-chain for perishable items in cities and reach rural areas with lower population density. To succeed in this vertical, grocers are investing in omnichannel strategies and relying on data to learn from their consumer’s behaviours, pivoting into new categories and trends seamlessly. By introducing transformative ecommerce, backed up with solid partnership to ensure fulfilment and logistics technology, they can reach a simple goal: bring their customers fresher food faster than ever before.

The proof is in the marketplace

Speed and agility are two of the most important assets in today’s constantly evolving economy heavily influenced by customer behaviour. Still, we live in a world where it’s no longer enough to go at it alone. Hindsight, they say, is 20/20. The traditional retailers who invested solely in in-store experiences and lacked the omnichannel strategy to source products from diversified sellers have been hit the hardest by current events. Out-of-stock products and decreased foot traffic will force them to shut their doors prematurely. There are no more excuses that can be made for not developing an e-commerce strategy that speaks to a 21st century world.

If there’s one thing Amazon can teach us, it’s that the platform business model works. But by how much? At the end of 2019, the Mirakl Platform Advisory Team looked at the financial data of US retail players and found that, while strong online retail strategy represents a net profit margin increase from 4% to 11%, a marketplace strategy takes this number to staggering 55%. 

The marketplace model isn’t a new concept in the UK. It is the leading  marketplace model market in Europe, behind only China and the US, accounting for $101bn in 2019. This is proof that the time is now. But will Amazon be the sole marketplace model player in the UK, with a substantial 30.1% of market share? Other players include: eBay with 9.8% share of the online market, Sainsbury’s (4.6%), Tesco (4.5%), Walmart/Asda (3.9%), and John Lewis (3.6%). If other UK retailers wake up to the fight, they could win a significant share of the marketplace ecosystem.

A future for UK consumers by UK grocers

It remains to be seen which digital grocery experiences will ultimately win with the UK, and who will move fast enough to mobilise their position. Capacity limits during COVID-19 have bottlenecked orders and deliveries for the likes of Ocado, proving that UK customers have already accepted e-grocery as an alternative way of buying food. This shows that local players are already mobilising. To offer customers what they want, when they want it, we’re seeing key partnerships being formed including a £1.5 billion deal between Ocado and Marks & Spencer. But this is only the beginning.

As companies pivot their business models and create foolproof digital plans that will thrive through uncertainty, governments are also grappling with ways to regulate fast moving initiatives and partnerships. By trying to understand what role these new digital forces have on the economy as a whole, there’s also growing concern around fair competition and whether taxation will be able to keep up with the companies of tomorrow reinventing business and society as we know it. This is why local players need to lead an omnichannel charge against foreign digital giants and create an e-grocery experience modelled by and for the UK consumer. 

Philippe Corrot is chief executive and and co-founder of Mirakl

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