On-Line Grocery Inflection Point ?!? SCOTT DEGRAEVE CONSULTING, LLC - - PowerPoint PPT Presentation

On-Line Grocery Inflection Point ?!?

SCOTT DEGRAEVE CONSULTING, LLC MARCH 9, 2017

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Interactive Discussion Areas

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• Background perspective
• Why now, when grocery has lagged behind for so long?
• What is the state of affairs?
• What are the different models?
• Fulfillment and Distribution methods
• Who are and who will be the key players?
• Ideas / Questions for CPG companies to probe

School of hard knocks!

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• Webvan – I think we can finally stop talking about this flameout!
• Pure play is where things started, omni-channel is where things are headed
• The issues of on-line grocery over the years:

 “It’s going to be huge!” Heard this year after year not to materialize  “Aren’t we just cannibalizing the stores?”  “Why move profitable store customers to unprofitable on-line customers?”  “Customers will never allow you to pick their produce”  “You are just stealing deal dollars from the fixed bucket of CPG promotion buckets”

• On-line, a small % of total revenue, becomes significant to grocers in terms of $ growth

 The organization gets interested; reshaping thinking

• Fulfillment, distribution models are really all over the place in a forming stage!

Are we really at an inflection point?

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• AT Kearney predicts 2023 on-line grocery sales 12-

16% “On-line Grocery is finally reaching an inflection point” (AT Kearney study)

• Brick Meets Click predicts 2023 on-line grocery sales

11-17%

• IRI predicts 10% on-line grocery sales by 2022

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– Nielsen/FMI study: The ecommerce imperative

20% of grocery could be sold on-line by 2025 40% of center store could be sold on-line by 2025

CPG Growth is Strong

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Amazon Pantry, Boxed, Jet major contributors

Source: 1010Data-Online CPG Industry Report

What’s Driving the Growth?

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• Amazon
• Opportunity / Fear for Retailers
• Technology
• Availability

 Many retailers jump in expanding coverage  3rd party providers enable retailers to quickly have an offering

• Awareness
• Millennials
• Amazon!

The Framework of Selling on-line grocery and related products

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CPG

• Amazon
• Fresh Direct
• Jet
• Boxed
• Thrive
• Door to Door
• Meal Kits
• Kroger
• Peapod
• Shop Rite
• HyVee
• Walmart
• Safeway
• Lowe’s Foods
• Instacart
• Shipt
• Google Express
• Rosie
• Deliv
• Uber
• P&G – Tide Pods
• Unilever (Dollar

Shave Club)

• Mondelez
• General Mills
• Nestle
• Campbells
• Pepsi

Let’s Talk Amazon!

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Grocery Non-Grocery

Why is food so important?

Amazon Prime in nearly half of US Households

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Less than 20% Prime HH in Aug ‘13 to 44% Prime HH in Aug’ 16 Prime skews somewhat younger, but still good representation throughout

Amazon “Prime Now” has high penetration of grocery purchase

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Grocery is highest sales category for Prime Now Prime Now continues to expand coverage

Overall grocery growth curve is steep for Amazon

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Amazon projected to grow from 21st largest grocer to 7th largest grocer in 5 years (22% CAGR vs 2.6% total market) Prime HH are grocery buying HH

Omni- Channel

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Source: Willard Bishop and eMarketer 2015

Source: Intelligrated

On On-line orders are stock up orders

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• Much narrower

distribution of purchase

• Big basket sizes
• ften in the $150

range (45-50 items)

• Private label has

lagged on-line but is growing

On-line In-store

>35K SKUs offered on-line

3rd Party is an “enabler”

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• More than 130 retailers
• More than 1,500 stores

Instacart, Shipt, Rosie and others are enabling retailers who do not have the expertise, tools, or resources to quickly push out an effective on-line offering  There are challenges for retailers to give up the customer experience and data with this model  It is expected the model will evolve to better serve retailers needs in an omni-channel requirement

How are grocery e-commerce orders fulfilled

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In-store pick Wareroom

• This is where most retailers start; fastest, lowest risk, lowest cost
• Challenges as volume grows:
• Productivity
• Out of stocks
• Traffic in store
• Dedicated fulfillment space at the store
• An area segmented off; a mezzanine above receiving
• Still uses fresh departments and some slow movers off of floor
• Improves the in-store challenges listed above
• Relatively low capex, but can run out of capacity fairly quickly

How are grocery e-commerce orders fulfilled

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Dark Store Warehouse

• Dedicated fulfillment center away from the store
• Higher capacity than warerooms
• Typically manual methods, capex still reasonable
• Productivity is good
• Outbound docks can be a challenge
• High levels of capacity
• High productivity, automation employed
• Capex is high
• Fixed costs leverage with high volume
• Getting proper labor force can be a challenge

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Peapod Video

A Variety of Receptacles are used for picking and delivery

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Packing and Staging Inconsistent

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Refrigerated totes with dry ice for frozen and ice paks for chilled Orders can be staged in a variety of approaches

Distribution Methods

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Things to think about

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• Millennials
• Automated Replenishment
• Product content and transparency
• Packaging

Proprietary & Confidential

58 percent of Millennials agree that where you buy your groceries reflects your personal values, compared to 28%

• f non-Millennials

Amanda Topper, Mintel

Millennials are frequent on-line shoppers

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24 Amanda Topper, Food Analyst at Mintel

“With growing distrust and a greater desire for transparency from food manufacturers, Millennials want brands to form a genuine, authentic connection with them and brands should recognize the impact Millennials have on their businesses.”

Consumer Values are Evolving

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59 percent of Millennials will stop buying a certain brand’s products if they believe the brand is unethical 43% of US Millennials agree they do not trust large food manufacturers compared to just 18% of non-Millennials

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Automated Replenishment may affect where consumers buy

• Nearly three in five

Millennials (57 percent) say they

• nly shop the fresh

sections of grocery stores (e.g. produce, meat and deli) compared to just 30 percent of non- Millennials

• Automated

replenishment is appealing to them

The Tools for Automated Replenishment have momentum

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Hiku FethchIt Subscription Services

Devices, software, appliances, internet of things

Product Images and Transparency are critical

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• On-line shoppers are much more likely to buy a product if it has images and nutritionals
• The integrity of the data is critical in an age of full transparency and product skepticism
• Having full nutritional and ingredients allow consumers to be able to effectively sort
• Ensure retailers are displaying your latest packaging and labels
• Recognize the need for images in mobile settings

Mobile Images – eCommerce testing shows dedicated mobile images sell 15% more Smart Label – supporting brands with creation, management and serving an industry initiative

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Brand activation ensures that the manufacturer has reviewed and verified the quality and accuracy of the images and data

Work with a focused content provider

Focus on packaging for e-commerce

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“People aren’t buying products anymore, they are buying solutions” Tony Stallone

• Focus on “dedicated fulfillment” as it relates to ecommerce creativity for biggest payback
• Significantly more retailers will be moving e-comm to a dedicated space as volume grows
• Look at your portfolio, which of those products have the most upside for e-commerce
• Make your packaging more efficient for fulfillment centers
• “Shippers” are of no value in a fulfillment center
• Make packages “pick ready” when they come into the facility

 (e.g. serrated smile in front of pack)  (e.g. banana boxes come in with no lid, pick straight from the box  Can case sizes be smaller so they fit better in a primary pick slot?

• Create bar coding so products can be sold as a “unit” or as a “case”
• HBC products, receive a “sleeve” by scanning a bar code, instead of individual items

Focus on packaging for e-commerce

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• Basket builders and customer satisfaction improvement ideas
• Make multi packs to sell in multiples (e.g. HBC products come in sleeves, maybe sell like that)
• Look at your products, can you bundle them together and sell as a “solution”

 Creates efficiency and is a basket builder

• Unique ecommerce sizes – is that possible so their can be unique pricing and better margin opportunity
• Make packaging lighter and safer
• Glass is not good in any of the distribution methods described
• Shipping protection; think about how product is moving and what it is packed with, protective shells

Ecommerce shipping package: the box prevents damage to the fragile product

Summary

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Omni-channel is here to stay. Stores are not going away, but some of them likely will

?

Everyone has a part to play in this “(r)evolution”

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• Think with the new environment

in mind

• Collaborate
• Get into the field, into the

ecommerce fulfillment centers and experience it

• Setup share groups with e-

retailers to help each other

• Become a champion for driving

these important changes!

Questions?

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Bio: Scott DeGraeve is an experienced practitioner in the on-line grocery space. He has 20+ years of hands-on experience, and continues to be one of the thought leaders in the development of this channel. He started his own company in the early evolution

• f on-line ordering, and after several years of rapid growth, sold the company to
• Peapod. He spent 15 years on the executive team there and has been instrumental in

Peapod evolving to it’s leading position in multiple markets. Scott now has his own consulting company and is building on the breadth of his experiences to help retailers and manufacturing companies:

• Evaluate and evolve their current on-line capabilities
• Develop plans and roadmaps to enhance sales and profitability
• Improve their operational execution
• Identify organizational needs to be successful

Contact info: degraeve.scott@gmail.com (847) 309-7142