Red Hot Revolution in the World of Food Retail and Food Service

Twenty years ago, the share price of fledgling Amazon.Com was $1.49 and over the next 10 years the company burned money ferociously, made no profits and the share price moved slowly up to $68. Clearly, some investors believed in the Bezos vision for the company, but many pundits thought it a folly. The current share price? – a modest $1,011(June 6th)! To this day, the prevailing punditry wisdom is that there’s no money to be made in on-line grocery delivery. Peculiarly enough, in the early days (and particularly in the USA), the view was that shoppers wouldn’t pay a delivery charge for groceries – “$5? Hmm, that’s excessive. I’d rather face in-store trolley rage and supermarket parking lot driver fury”! Really, so how little do you value your time? Now, in London Amazon Prime customers who pay a £79 ($100) annual fee (which, by the by, is about what it costs to be a Costco member) can have Amazon Fresh food at their doorstep for a top up fee of £7 ($10) per month on as many deliveries over £40 as they want! Spoilt for choice?: if you have the time to browse, there are 130,000 skus ranging from toilet paper to artisanal goodies from Borough Market on Amazon’s electronic shelves.

IMG_4496.JPG

Busy but you want to get all the goodies from a market? This hotel is doing the job for you, but surely soon you can get this delivered to your house!

But the hot news on delivering food to home or office is about McDonald’s. In the USA, Australia and shortly across Europe, including  the UK, McD’s is rolling out a partnership with Uber Eats. In the US, 75% of the population are within 3 miles of a Golden Arches restaurant which brings ordering to home delivery time down to less than 30 minutes. It’s millennials who are most enthusiastic and, at a push, they’ll hang on for half an hour without squealing. The most popular delivery time window is later in the evening – handy as it happens to coincide with a slow period in the restaurants. Home delivered Big Macs will best suit a group of mates as there is a $5 delivery charge. This is big food news because McD’s is so big – 14,000 outlets in the US (1,250 in UK) with close to a 50% market share of the large burger chain market. A leap of faith? Hardly, McD’s have a $1+ billion home delivery business in Asia and the Middle East already. What do the analysts think? Well, McDonald’s stock price has increased by 39% since November 2016 (the All-Day-Breakfast in the US was a contributing factor, too). McD’s CEO, Limey Steve Easterbrook and his team must be cock-a-hoop.

McDelivery UberEats DBf4-tEVYAAGb0k.jpg

Returning to on-line grocery home delivery, the UK is a rara avis with 7% of groceries already being delivered via the online channel. Only Asia (Japan, South Korea and accelerating massively China) has a greater share. Tesco has more experience in online than any other grocer – its 20th online anniversary is coming up soon. Early into click & collect, speeding up delivery, adding other services, Tesco has been consistently innovative driven on by competition from Amazon, other supermarket chains, and the pure play online Ocado. The principal focus has been on capturing the “Big Shop” – removing the drudge of restocking the fridge and larder in a Godforsaken “superstore”! Success in this area has been a double-edged sword – “Every little helps” core customers but, concomitantly, it reduces volume through those big barns which has led Tesco and others to downsize their grocery and other ranges and seek complementary businesses to sub-lease underutilised space.

Tesco Extra Woolwich.jpg

Shopping habits are changing – that main grocery procurement outing is getting smaller and less frequent. Shoppers are more likely to pop into a store to shop for tonight, grab a luncheon meal deal, or do the “Big Shop” online – IGD estimate that of the £28 billion of increased grocery sales we shall make in the UK in 2022 relative to 2017, 80% of the sales gains will be in convenience stores, the hard discounters (post-Brexit household income squeeze?) and online. The supermarket chains are particularly focussing on the convenience-driven purchase: Tesco have Amazon Fresh in its sights with a 1 hour delivery promise using courier Quiqup; Sainsbury, too, is trialling 1 hour delivery with a “boy on a bike” reminding one of the circularity of trends – Sainsbury were doing this in the 1920’s, and so was Mr. Barnes The Grocer employing a fresh-faced cyclist in the early-1950’s to deliver groceries for the week to David Hughes’s Mum; Morrisons has launched its online grocery presence with Amazon and Amazon Prime customers can have their Morrisons groceries within the hour … for a price; and M&S and Majestic Wine both use Deliveroo for “want it/need it now” alcohol purchases.

sainsbury-bike.jpg

Mind you, pizza and ethnic restaurants have been in the meal delivery business for years! Only recently have web-based companies such as Deliveroo and Uber Eats arrived to compete with the more established Just Eat (“order takeaway online from 20,000+ restaurants”) to link hungry consumers with trusted restaurants. These companies have exploded with success, none more than Deliveroo building “Dark Kitchens” aka “Roo Boxes” to provide independent restaurateurs who have run out of space in their sit- down restaurant and , now, can replicate their kitchen in a Deliveroo warehouse to service online clientele.

Deliveroo-Editions-to-open-in-10-UK-cities-this-year_strict_xxl.jpg

deliveroo editions: kitchens in containers ready to use by any restaurant partnering with deliveroo!

Then, of course, there are the rush of fresh ingredient recipe boxes that are directed at those who love food, love to cook but don’t have time to prepare – Hello Fresh and Gousto lead the pack. Supermarkets are responding: Waitrose, having trialled but withdrawn a “Dinner for Tonight” recipe box sold from stores, are trying a home delivery option “Cook Well from Waitrose”; Tesco has had more success with its store-sold “Recipe Box” and is expanding the meal ingredient range to include more Asian fresh items and sauces.

What’s next to grab the headlines? Tesco emulating McDonald’s and forging a partnership with Uber Eats to handle the last couple of miles delivery for its mainstream online orders? After all, like McD’s, most households in London are no more than 5 minutes away from a Tesco store of some sort. Probably not just yet. Tesco has done an excellent job with its online offer and the friendly person in Tesco livery delivering your groceries puts us in mind of the milk man of yore – he’s one of VERY few delivery people who crosses the threshold of a home and gets as far as the kitchen (no further one hopes and we’ll park the “looks like the milkman” jokes). As such, the Tesco delivery person is a Brand Ambassador for the company and is key in building and maintaining the bond of trust between retailer and customer.

What won’t grab the headlines is the number of grocery and meal delivery start-up companies that will get swallowed by competitors or go bust over the next 12 months. In 2016, $1.4 billion of venture capital monies was invested in such companies and about the same amount will be added in 2017. Is there that much spare margin going begging in the food service business? We are sceptical but, then, neither David or Miguel invested in Amazon when the entry price was $1 per share. Ho hum and it’s back to the grindstone for us two humble bloggers!

 

Advertisements
Tagged with: , , ,
Posted in Convenience, Foodservice, Online

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 1,998 other followers

About the authors
Prof David Hughes: Around the world, David speaks to senior agribusiness and food industry managers about global food industry developments that are and will affect their businesses and industry. Energetic, engaging, humorous and insightful, David gains the very highest evaluations at seminars, conferences and Board level discussions in every continent he visits. Miguel Flavián: works for several Spanish organisations and companies to help them to learn from the developments of the British grocery market and improve their business back home.
%d bloggers like this: