Findings from lectures at the Groceryshop 2018

Unfortunately I couldn’t visit the Groceryshop in the USA myself, but fortunately the organizers shared some selected lectures of the main stage on YouTube. Since the speakers are mainly people who are not seen at German conferences – for example representatives of retailers like Instacart, Ocado and Kroger were present in Las Vegas, but also manufacturers like KraftHeinz – I watched the recordings with great enthusiasm. Furthermore I have collected the most important insights.

Short overview:

• What is the Groceryshop?
• How to build a winning model for grocery online by Luke Jensen – CEO, Ocado Solutions
• Features of the Instacart Business Model by Apoorva Mehta – Founder & CEO, Instacart
• Online organic food trading by Nick Green – Co-Founder & CEO, Thrive Market
• A traditional food retailer becomes digital by Yael Cosset – CDO, Kroger
• The Albertsons Digital Strategy by Narayan Iyengar – SVP Digital & eCommerce, Albertsons
• Digital initiatives from a manufacturer perspective by Nina Barton – President Global Growth, KraftHeinz

What is the Groceryshop?

Over 8.000 visitors speak a clear language: In the past years the Shoptalk has developed into one of the leading e-commerce conferences in the United States. But this success was not enough for the organisers: As the interest in the online grocery lectures and tracks in particular grew over the years, the organisers decided to have their own event for the first time in 2018, the Groceryshop, for online grocery. From 28 to 31 October, more than 2,000 visitors met in Las Vegas to discuss the disruptive trends in grocery.

How to build a winning model for grocery online by Luke Jensen – CEO, Ocado Solutions

Ocado is currently much talked and written about. In particular, the video showing the automated fulfillment system developed by Ocado has amazed many experts. Ocado started as an e-commerce pure player 18 years ago and has been automating its warehouses for 15 years. Ocado now also sees itself as a technology provider for other food retailers (e.g. Kroger in the USA).

At the Groceryshop Luke Jensen gave some insights into the work of his company. Jensen first cleaned up three myths about the online grocery business based on Ocado’s experience:

Myth 1: You can’t make money with online grocery.
If you only have a few percent margin and then have to produce additional costs for online grocery, you logically do not earn any money. That’s why you have to completely rethink your business model.

Myth 2: Nobody buys fresh food online.
In the orders placed with Ocado UK, the proportion of fresh produce is 48% – above the average for all food retailers in the UK.

Myth 3: Online grocery is not a mass market, but a niche for millennials.
More than 50 % of all British households at least occasionally use online grocery. Families in particular are open-minded.

The challenge is to make online grocery both attractive for the customer and profitable for the company. Ocado has proven in the UK that online grocery can be profitable.

Ocado’s success is based on three pillars: customer experience, fulfillment, last mile.
Pillar 1: Customer experience in the webshop
Ocado is constantly trying out new features, including AI and Machine Learning.
Example: Intelligent search – Products are not only displayed alphabetically during the search input, but also according to season and availability. This reduces customer frustration.
Example: Checkout – customers are offered low-calorie alternatives. Four times as many customers decide to save calories instead of money.

Pillar 2: Rethinking fulfillment
Ocado uses picking robots that the company had to completely redevelop.
They didn’t do this because robots are sexy or interesting, but because this automation saves money. The robots take one hour less time to assemble an order of 50 items than human pick-up-in-store workers.

Pillar 3: Optimizing the last mile
The “Doorstep Experience” is most important for the customer. Ocado does not want to leave this to any delivery services. Therefore, Ocado developed a spoke-hub distribution for its logistics and redesigned the route planning. This enables them to supply 75 % of the British population from four hubs.

Features of the Instacart Business Model by Apoorva Mehta – Founder & CEO, Instacart

Instacart also sees itself as a digital enabler for other food retailers. Using a web application, customers can select products from different retailers and have them delivered to their homes on the same day. Company founder and CEO Apoorva Mehta reported on the special features of this business model.

Instacart’s business model is based on insights into customer behavior

Customers are very loyal to the dealers, some of whom they have been buying from for generations. “(“Retail brands matter.”)
But customers don’t just buy from one retailer. Their preferences are based on the occasion.

That’s why Instacart has set itself the goal of bringing many different dealers to one marketplace.
Currently, more than 300 trading partners in the USA and Canada are available through Instacart. Instacart offers customers the usual marketplace advantages, but also supports retailers in their digital transformation by providing them with state-of-the-art technology.

The good news is that there will continue to be brick-and-mortar retail because it offers customers considerable added value. The bad news is customer preferences are fraying.
There will be different ways in which customers want to receive their food – from classic store visits to Click & Collect to home delivery.
Technology will play an increasingly important role in all these variants. This is where Instacart wants to position itself.

From Mehta’s perspective, the market is huge: he predicts that 20% of American households will order their food online in five years’ time.

Online organic food retail by Nick Green – Co-Founder & CEO, Thrive Market

In contrast to Ocado and Instacart, Thrive Market is probably not yet as well known in Germany. Thrive Market is an online retailer specialising in organic food. During the Groceryshop Nick Green gave some exciting insights into the business model.

For example, Thrive Market’s typical client budget has an annual income of $75,000. 50% of customers live in the Midwest or Southeast of the United States. Conscious consumption is therefore no longer limited to urban areas.

The Barriers to Conscious Food Consumption in the USA: Price, Local Availability and Confidence

Conscious consumption is a big trend in the food sector from Green’s point of view. However, three barriers prevent that all people can participate in this trend.

Barrier 1: The price of organic food
Thrive Market wants to make organic food affordable for its customers.
Therefore, a membership model was developed: For $60 a year, customers get access to the entire product catalogue. In this catalogue, the products are offered at wholesale prices (i.e. 25 to 50 % cheaper than in conventional organic shops). In this way, prices move in similar spheres as conventionally manufactured products.

Barrier 2: Distance to local organic shops and organic products
For 60% of Americans, even by car it is difficult to reach organic stores. Thrive Market supplies all households.

Barrier 3: Confidence in organic food certifications
The variety of labels and certifications overwhelms many customers. Thrive Market provides a curated product catalogue that customers can rely on. Product content and the community are also integrated.

Once these barriers have fallen, almost anyone can become a conscious consumer.

Importance of own brands in online trade with organic foods
One challenge was that the best products were not always available at the price Thrive Market needed for its business model. Therefore own brands were and are developed. But this is not about copying good products at a cheaper price as usual. Instead, innovation in the food sector is actively promoted in order to produce better products than competition at a better price.

A traditional food retailer becomes digital by Yael Cosset – CDO, Kroger

But not only comparatively young competitors such as Ocado, Instacart and Thrive Market were present at the Groceryshop. Yael Cosset, for example, represented Kroger, a grocer who has been on the market since 1883. In his interview with Wall Street Journal reporter Heather Haddon, Cosset reported on how a long-established company is adapting to the digitalization of food retailing.

You need a solid strategy to get started, and you need to keep that strategy in focus at all times. Otherwise, given the possibilities offered by the online grocery sector, there is a great danger that people will be distracted and get bogged down.

Kroger’s digital strategy: Being available. Being accessable. Being relevant. There are two ways to make online grocery profitable.

Path 1: Improving process efficiency
How can one use the existing assets such as the branches in this context? Are there meaningful partnerships that can be entered into?

For example, Kroger has recognized that it is difficult to catch up with Ocado’s lead in the development of fulfillment. The company has therefore entered into a partnership with Ocado and is now using their robotic systems.

Path 2: Increasing relevance for the customer
More relevance leads to a higher purchase frequency. After all, it is not a question of shifting the business of one’s own stores into one’s own digital channel, but rather that of the competition.

Kroger pursues both paths – both through its own innovation in processes and in the area of customer experience and through the search for meaningful partners.

Cosset’s Forecasts for the Future of Grocery
1. The brick-and-mortar shops will continue to play a role, but will change – towards more show and inspiration. In addition, there will be more room in the stores for fulfillment, so that the goods can be delivered directly to the customer’s home.

2. Data will play an important role in making the customer experience more accurate and more relevant as a company. Personalization based solely on basic demographic data will soon no longer work.

The Albertsons Digital Strategy by Narayan Iyengar – SVP Digital & eCommerce, Albertsons

Another approach of a traditional food chain was presented by Narayan Iyengar. In his lecture he presented the digital strategy of his employer Albertsons, who has been on the market since 1939.

How does online grocery differ from traditional e-commerce?

Although online grocery looks deceptively similar to classic e-commerce, it is clearly different. (“It’s like crossing a street in London.”)

The frequency of purchases of food is significantly higher
This has a significant impact on logistics and technology. In addition, there is virtually no Consideration Cycle. The customers think relatively little about which products they should buy. Therefore, there is hardly any research and weighing. When buying groceries online, the main thing is to be able to put together shopping baskets quickly.

The number of items in the shopping cart is significantly higher than in the classic online trade. This has an impact on logistics, but also on digital design.

The cost structure differs considerably
While in traditional e-commerce costs are incurred primarily through delivery, the costs for picking & packing in the online grocery sector are at a similar level to delivery costs.

In online grocery, attention must be paid to the cold chain. In addition, there are further legal requirements.

Determination of the delivery time
In classic e-commerce, the customer selects his products and then decides when they are to be delivered. In online grocery, the delivery time is determined first – and only on this basis does the customer decide which items are added to the shopping basket.

Digital technologies will play a role in the entire customer lifecycle. In addition, Albertsons observes that customers often change channels in their customer journey. Therefore, the company tries to link the offline and the online world as much as possible.

Albertson’s digitisation is based on five principles

Principle 1: Third-party platforms can help to make better use of existing assets.
The existing stores are Albertsons’ largest asset. By cooperating with vertical providers such as Instacart or Uber Eats, the possibilities of digitisation can be better exploited.

Principle 2: The cost structure plays a role.
In order to reduce costs, there are two adjusting screws: the delivery costs and the costs for picking & packing. Optimisation must be carried out at both points. Therefore, Albertsons will now work with Takeoff to benefit from their experience with picking robots.

Principle 3: Food trends are changing at breathtaking speed – digital opportunities can help traditional retailers to keep pace.
Albertsons has opened a marketplace. This will also be used, among other things, for market observation with regard to food trends.

Principle 4: Linking offline transactions with online media can be very valuable for manufacturers.
Albertsons uses the data from its own loyalty program to provide CPG industry partners with more information about the effectiveness of their online advertising.

Principle 5: We are only at the beginning of a fundamental transformation of the food sector.
The music industry has experienced numerous disruptions in recent decades. The food industry, on the other hand, is only just beginning to discover the possibilities of digitisation. Therefore, there will probably be more disruptions in the food sector in the next 5 to 10 years than in the last 20 to 30 years.

Digital initiatives from a manufacturer perspective by Nina Barton – President Global Growth, KraftHeinz

Representatives of the manufacturers also had their say at the Groceryshop. Among others  Nina Barton presented the digital initiatives of her company KraftHeinz.

Customer Journey at the grocery store: Discover > Inspire > Plan > Shop > Cook/Eat > Share

The process of the classic customer journey of the food trade (Discover > Inspire > Plan > Shop > Cook/Eat > Share) has hardly changed in the past 70 years. This process is likely to remain current, but digital technology allows significant changes in all six steps.

Example: Inspiration
50 years ago, customers drew their inspiration mainly from recipe books, manufacturer recommendations or tips from friends and relatives. Today you are already bombarded with hundreds of recipes, comments and photos with a simple search query on the net. Thanks to digital technology, the customer has more options, more choice and access to better information at every step. At the same time many people feel stressed by the abundance of possibilities.

The four mantras KraftHeinz uses to be valuable to its customers
There is a lack of a one-step solution that meets the everyday challenges of a typical family. KraftHeinz wants to create this. Therefore, the company relies on the following four mantras.

Mantra 1: Create a culture that advocates error – speed beats perfection. The credo to achieve better results for the customer is: fail fast, fail cheap and fail often. It is extremely difficult to integrate such a culture of error into a large corporation like KraftHeinz. As a company, you have to start rewarding people for taking risks.

Mantra 2: Data is only as good as the insights it reveals. Collected data only makes sense if it creates understanding for the customer. KraftHeinz therefore concentrates on data on customer problems. Three Painpoints in particular were uncovered in relation to families: the amount of time needed for inspiration and planning; the considerable interest in the ingredients of the products; the importance of convenience.

Mantra 3: Create a process around innovation. KraftHeinz has created a new business unit (The Evolv Group), which should think and act like a start-up and whose task it is to think through and initiate innovations. In addition, a venture capital fund in the amount of 100 million US dollars was set up.

Mantra 4: Don’t build a team, build a movement. The entire Group must understand that it is not a question of building the digital, innovative path as an experiment or new business. It’s the business. To achieve this, the existing entrepreneurial spirit at KraftHeinz must be combined with new ideas from a wide variety of minds and unusual CVs.

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