ANAHEIM, Calif. — Retail chains with big square footage under long-term leases may find opportunities in online grocery sales, but e-commerce is at least as likely to bring a mortal threat as a blessing.
Although online’s market share is minimal now, some attendees at a Produce Marketing Association Fresh Summit workshop on “Developing a Digital Distribution Channel” left the event suspecting turmoil lies ahead for retail in Europe and the U.S.
In the United Kingdom, for example, online accounts for just 5% of total grocery and much less — 1% — in the Netherlands. But those numbers will spike, according to John David Roeg, senior analyst on consumer foods for Rabobank International.
“By 2030 in many European countries, online will account for roughly 15% to 25% of supermarket sales — more than 25% for the United Kingdom and France,” Roeg said Oct. 17.
“Growth of online grocery is unstoppable,” he said. “It’s great for consumers, but is it for your business? We think online grocery will have the same game-changing magnitude as we saw in the previous century with the arrival of self-serve supermarkets, alternative discount formats, club stores and dollar stores.”
Brick and mortar operations, naturally, can participate online through pickup or even delivery services. In two years, pickup locations in France have doubled to 3,200, as retailers fear loss of sales to the store across the street.
Online grocery, though, has struggled to return a profit, and some companies will find it tough to reach a sustainable path.
“Retailers are in a difficult position,” Roeg said. “They have stores which are under pressure in both the Europe and U.S. Volumes are not growing, margins are under pressure year after year. You have pressure here, sales growth with no profits online. They will be killed — that’s my view — by new entrants in the market like an Amazon or Alibaba.”
“Your whole business model has to be turned upside down to survive in online grocery,” Roeg said.
Nevertheless, an approach to online grocery sales that jettisons stores for a wholesale-based model has advantages for the bottom line. “You (won’t) have all those crazy store costs, like rents which are only going up (and) stock losses,” he said.
Drastic views, perhaps, but they were taken to heart by workshop attendee Martin Kneebone, managing director for the Australian market research company Freshlogic.
“Many players in the food market are underestimating the disruptions that the growth in online shopping will bring to the existing retail infrastructure,” Kneebone said. “Many retailers are going to have to manage serious exposure to long-term leases and that’s very difficult to manage quickly. There’s a real risk that some of them won’t manage that change. Conventional distribution channels will be quite disrupted and that pressure is there in the United Kingdom now.”
In the U.S., online grocery is comparatively small potatoes now. But the number and type of pickup, delivery and other services are multiplying. Brian Numainville, principal at the Retail Feedback Group, outlined those for attendees. Many offer fresh produce.
In the week leading up to PMA Fresh Summit, Amazon Fresh announced its first East Coast location, in Brooklyn, while Google Express said it’s bringing online ordering and same-day delivery to Boston, Chicago and Washington, D.C. Several retailers will partner with Google Express, where grocery items are just part of the offerings.