The search for the right online grocery business model

Online grocery shopping. Illustration
So far, no one has managed to turn online grocery shopping into a profitable business. But it's not for lack of trying.
By Reidar Molthe

8 December 2017 06:41

The search for the right online grocery business model

Online grocery business is bad right now, with negative margins, but “everybody” is testing one or more models.

Idaho-based Albertsons Cos. is expanding its delivery footprint by teaming with Instacart to offer same-day delivery to customers at about 1,800 locations.

Albertsons is not alone.  Instacart’s third-party delivery service will enable Albertsons’ customers to receive grocery orders in as little as an hour and is slated to be available at all participating stores by mid-2018, according to Supermarket News.

Albertsons will continue to offer its current, in-house delivery programs as well, which also includes same-day service. Store pickup is also an option for Albertsons shoppers.

Instacart is based in San Francisco and deploys personal shoppers who fill digital orders at grocery locations and deliver them to customers. Clients can pay $5.99 per order or they can subscribe to the service with a $14.99 fee that covers 30 days of unlimited delivery.

“Families across the nation trust and rely on Albertsons Companies’ stores for their fresh groceries and everyday essentials,” Apoorva Mehta, founder and CEO of Instacart, said in a statement discussing the partnership.

35 million customers on a platter

Albertsons made multiple digital-minded moves in 2017, including the acquisition of the meal kit Plated in September. 

“We’re getting a tremendous amount of scale,” said Plated CEO Joshua Hix in a September interview with Supermarket News. “Thirty-five million customers.”

Hix pointed out that the entire meal kit category at that time only served about one million customers.

“That’s an enormous number of customers who already know and trust Albertson’s brands,” he said. 

Hix added that Albertsons recognizes the need to grow its technological and online footprint in the modern retail landscape.

Instacart has been busy as well. Earlier this month, it was announced that Loblaw Cos. would serve as the “anchor” supermarket banner for Instacart as it begins its expansion into Canada.

On 6 December, the digital service will launch in Toronto. It will open in the Brampton, Ontario-based retailer’s Vancouver market in January.

Aldi signed on with Instacart already in August. This is the first time the German discount retailer offered online sales in American stores.

Ocado eyes expansion in France

British online grocer, Ocado, is expanding to France via a partnership with supermarket giant Casino, marking Ocado’s first major international expansion.

Groupe Casino, which is one of the largest retailers in France, will have exclusive rights to use Ocado’s technologies, including robotics and delivery software, according to reports from Reuters. 

Casino plans to build a huge online warehouse near Paris to serve Casino’s Monoprix banner in Paris, Normandy and the Haute de France region.

The move comes amid Amazon’s increasing presence in grocery e-commerce in both the U.S. and Europe.

Online in focus for Swedish Axfood

The online development and omnichannel strategy was in focus when Axfood organized the Capital Markets Day for the first time in ten years 28 November.

In front of press, investors and analysts, CEO in Axfood, Klas Balkow, explained his view on online, grocery shopping. He stressed that even good digital consumers only manage 35 percent of their grocery purchases online.

More interesting, perhaps, is that e-commerce customers do not reduce their shop purchases as much as they shop online. Total purchases (online + in store) are significantly larger than for customers that only shop in traditional stores. That’s great news both for stores and for e-commerce.

Klas Balkow emphasizes that there is still a great need for physical stores. Hence, in 2018 Axfood, which is number two in the Swedish market, plans to build 10-15 new stores.