Retail in Motion What U.S. retailers can learn from France
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Retail in Motion What U.S. retailers can learn from France
With online grocery in the U.S. on pace to post $55 billion in sales by 2021, the grocery industry must accept that it is time to commit to strategies for eCommerce. To succeed, retailers need to approach their online grocery businesses in ways that are innovative, yet complementary to their existing strategies and shopper focus. At this moment of reckoning, retailers must build on their existing competitive advantages and evolve to meet shoppers’ changing needs. And the pace of change is astounding. We have seen more retail innovation in the last decade than in the last 50 years, which include Walmart’s coming-of-age. However, amid all these changes and disruption, the U.S. grocery industry has a huge advantage. For guidance and direction on how to build its path forward, it can look to France, where highly successful online grocery models have evolved over the last 15 years. Our forecasts indicate that the size of the online grocery prize will grow rapidly. The decision time for retailers and manufacturers is now. Those that do not strategically embrace eCommerce may miss out on one of the most transformational opportunities in U.S. retail.
Lessons From France The model is quite simple. Order your groceries online. Set your pickup window. Then drive to the store or a dark site to have your groceries loaded into your car. After a slow start, the model gained significant traction over the last few years.
2000
• 1st Opening
(Auchan Drive)
2004
• Store picking started at Intermarché
• Chronodrive (Groupe Auchan) opened
its 1st pick-up point
2005
• Store picking started at U
2007
• 1st E.Leclerc Drive
2009
• Carrefour launched 1st Drive experiment
• 1st Casino Drive
2010
• 1st Cora Drive
2011/12
• More than 120 E.Leclerc Drive pick-up points
• Carrefour Drive deployment
• More than 400 U stores offer DRIVE service
• 1st Drive Discounter Leader Price
2014/13
• Race opening
• First closing
2015
• Drive sales hit more
than EUR4 billion
Auchan pioneered the
Drive model in France
more than 15 years ago.
Source: Kantar Retail, Kantar Worldpanel
The model should sound familiar. It appears to Top Reasons Shoppers Use Drive
have inspired Harris Teeter’s click-and-collect
model and is similar to the model driving growth
at Walmart and Kroger now. After its humble Time Savings
beginnings, 7 million French households use Control
Drive to buy the FMCG/CPG that dominate
Flexible,
eCommerce. In 2015, Drive contributed 45% to
FMCG/CPG market growth in France. Growth Delivery Time
is so strong, in fact, that Kantar Worldpanel Handy
anticipates that Drive is on track to reach 6.5%
market share by 2018. With an expected average Pick-up
annual growth rate of 12%, the Drive model is points
forecasted to reach 10% market share within 10 3,863
years.
Average
At a glance, our data shows that shoppers in
10.3 trips
France use Drive for the most basic reasons —
per year
convenience and control. By meeting shoppers’
most fundamental needs, retailers have
successfully opened more than 3,800 pickup Penetration:
points, achieving a household penetration rate of 23.4% of Households
23.4% in France. Data also shows that satisfied
Drive users are loyal, frequent shoppers with large
average basket sizes. Market Share:
5.2%
Average Basket
Size: 61.4€
Source: Kantar Worldpanel Annual 2016Leclerc capitalized on As eCommerce gained significant traction with
French shoppers, the next question in the growing
its core strengths to channel became which retailer would win the
battle for market share. A retailer’s core offer
quickly expand and is its key differentiator, and as competition got
stronger, the Drive model seemed to reinforce
gain online credibility. E. Leclerc’s shopper value proposition.
Leclerc paired its strong and well-appreciated
private label range with other unique offers,
including on-site sushi and pizza. Leclerc’s Drive
format in France features 10% more private label
SKUs than its next-closest competitor.The unique
assortment, including food service, separated
Leclerc from the competition.
Leclerc’s Private Label Penetration:
Drive vs. Brick-and-Mortar 47%
Brick-and-Mortar
Drive
Cora Systéme U Carrefour Auchan Intermarché Casino Leclerc
Source: Kantar Worldpanel Annual 2016Leclerc’s Drive
expansion in
France
The retailer also improved its
service, focusing on optimizing
fulfillment speed for shoppers.
2010
With an established price
leadership perception in the
market, Leclerc was well-
positioned to capitalize on the
growing online grocery channel,
specifically Drive.
40 locations
2015 Constant evolution and
innovation served as the critical
differentiator for Leclerc. With
strong logistics structured
around its stand-alone Drive
locations, the retailer expanded
to new regions throughout
France, increasing reach and
improving operational efficiency.
598 locations
Source: Challenges.frToday, half of Leclerc’s Drive locations operate Drive Market Share
well above the market average of EUR3 million
to EUR4 million in annual sales per unit; in fact, in France
10 locations generate at least EUR10 million in
annual sales. The Drive model accounts for the
bulk of Leclerc’s eCommerce sales and 6.7% of its
total sales (excluding petrol) in France.
Although Auchan introduced French shoppers to
online grocery and Drive, Leclerc has taken over
as the clear market leader, capturing 46% of total
Drive market share, almost three times more than
Auchan and far more than other competitors
46% E.Leclerc Drive
17% Auchan Drive
9% Carrefour Drive
8% Courses U
8% Chrono Drive
7% leDrive Intermarché
Source: Kantar Worldpanel Annual 2016 3% Cora Drive
2% Casino DriveAs the fight for new market share increases, so does the need for productivity. In France, after extensive investment in deploying Drive locations over the last few years, retailers have hit a critical point in operational efficiency. With traditional pickup points having lost some of their “newness,” retailers are shifting toward improving productivity and profitability rather than reach and penetration. Indeed, Drive locations in France have contracted rather than expanded, with retailers closing underperforming Drive units. While Drive works in rural and suburban areas, retailers have started to recognize the challenge of catering to shoppers in urban areas such as Paris. As shoppers move online, click-and- collect and lockers in urban areas are more suitable to solving the accessibility issue for large metropolitan areas where separate Drive locations may not work well.
The State of Online Grocery in the U.S.
In the U.S., eCommerce
continues to drive retail
growth.
Many categories have made a smooth transition By 2022, sales of grocery consumables are set
to strong sales online. Books, magazines, and to reach approximately $55 billion, so retailers
consumer electronics have reached over 30% of and manufacturers need to begin planning
sales online. However, online grocery sales were accordingly. Based on the growth curve in
slow to take off until recently. In the next five Europe — particularly in France, which has similar
years, the share of food and alcohol sales is set to demographics and geography as the U.S. — the
triple online. next few years are expected to be when online
grocery models evolve and retailers innovate.
Online Share of Sales by Category, 2011-2021F
Electronics &
Books &
Drugs, Health Furniture Toys & Appliances,
Food & & Beauty & Home Apparel & Sporting Magazines, Computer
Alcohol Care Furnishings Footwear Goods Music & & Office
Videos Products
33%
32%
28%
28%
24%
21%
19%
19% 18%
17%
15%
13%
12%
10%
9%
6% 6% 5%
3%
2%
0.6%
2011 2016 2021
Note: In 2021, 5% of food and alcohol spending will be online and,
conversely, 95% of food and alcohol spending will remain in stores.
Source: Kantar RetailOnline grocery sales 5.2%
are expected to $55
nearly triple in the
next four years.
One of the key questions for retailers and 4.4%
manufacturers is why we are finally seeing
movement in online grocery now. Much can be $44
said for familiarity. Shoppers have already moved
online for nonconsumables, so moving online for
consumables is a natural next step.
3.6%
$35
2.8%
$27
Food and Alcohol: Annual Spending Online
(USD billions and share)
2.2%
$20
1.4%
$14
1.1%
.8% $10
.7%
.7%
.6% $7
.5% $6
.4% $6
$5
$3 $4
2009 2011 2013 2015 2017 2019 2021
Source: Kantar RetailOnline grocery aligns
with shoppers’ growing
expectations.
However, some of the willingness to buy groceries
online is simple. As shoppers look to decrease
stressful shopping experiences and get the basics
inexpensively and conveniently, the online grocery
model aligns with shopper needs.
Most Important Factors
When Shopping
% ranking factor among top 4 most
important when shopping in general
Minimizing spending 65%
Feeling like I got a “good deal” 64%
Stress-free shopping 60%
Shopping in one place 48%
Completing shopping quickly 44%
Purchasing high-quality goods 37%
Having fun/enjoying myself 27%
Employee interaction 19%
Discovering new products/ brands 16%
Having access to info 11%
Shopping to reflect my values 11%
Source: Kantar Retail ShopperScape®, April 2016- March 2017Shoppers are just
discovering their online
grocery options.
Since retailers have been slow to adopt
a model, accessibility has been limited.
Today, shoppers indicate more interest in
models that connect them to retailers as
opposed to new parties or services.
Interest in Grocery
Delivery Models
Share of primary household shoppers who
have not used service who indicate they
are very/somewhat interested
36%
34% 34% Delivered to
Pickup Pickup Home by
Inside Outside Reseller
Store Store
Source: Kantar Retail ShopperScape®, August 2016Could a U.S. iteration of France’s Drive model be the model of the future? Four key online grocery fulfillment models emerged in the U.S. The first is home delivery directly from retailers. Peapod and FreshDirect were the initial entrants in this space, with Amazon jumping in more recently. Then a few retailers, most notably Harris Teeter, began to explore a click-and-collect model where shoppers order their groceries online, but pick them up at a store location. This model is very similar to Auchan’s original Drive concept. With Kroger’s acquisition of Harris Teeter and its expansion of ClickList, along with Walmart’s successful Click & Collect pilot, this model appears to have strong momentum. We also see subscription models, such as Amazon’s Subscribe & Save, and third-party home-delivery players, such as Instacart and Shipt, gaining ground in the U.S. These models seem to serve very specific trip types.
Online Grocery Penetration
2014 Regardless of model, retailers
have rapidly embraced this
space. In 2014, online grocery
options were concentrated
and accessibility was restricted
to major metropolitan areas.
However, in the last three years,
online grocery penetration
has increased dramatically as
Walmart, Kroger, and strong
regional players have expanded
into hundreds of markets.
Today
Source: Kantar RetailClick-and-Collect Expansion at
Walmart and Kroger
2015 Established brick-and-mortar
U.S. grocery retailers have a
competitive advantage here
because they can leverage their
nationwide store footprint to
expand click-and-collect. With
tens of thousands of stores in
the U.S. — fewer than 10% of
which currently support online
grocery — growth is expected to
come fast. Currently, Walmart
and Kroger are racing to
dominate click-and-collect.
2017
Source: Kantar RetailOnline Grocery and Drive: Lessons and Considerations for the U.S. As online grocery expands in the U.S., we can take considerable learnings from the evolution and maturation of online grocery and the Drive model in France: Competition drives innovation. New eCommerce models take off when two top retailers battle it out. Differentiate between urban and nonurban. Segmenting urban and nonurban shoppers is important. Drive is not winning in big cities. It is winning in the more nonurban parts of France, where cars play a big role in people’s lives. Shoppers demand choice. Convenient time slots and locations are key to the Drive model’s success. When done correctly, Drive provides the ultimate customer experience. Supply-chain management is critical. Picking from the store is easiest, but it is a short-term solution and disruptive to inventory forecasting. Instead, Drive requires a dedicated supply chain. While capital intensive, a stand-alone supply chain is a more scalable solution. Explore new performance metrics. Since gross margin can be confusing when applied to eCommerce, retailers must use different metrics than the ones they use in store. Items with similar gross margins can have widely different picking/distribution costs.
Before proceeding with
Drive, U.S. retailers
should first weigh the
model’s pros and cons for
themselves, their shoppers,
and their suppliers.
Pros Cons
Shoppers • Offers convenience • Limits choice of fresh products
• Saves time • Leads to shortage of key items,
• Allows for budget management — leading to substitutions
less tempting to buy unnecessary items • Requires additional fees or upfront costs
• Provides flexible delivery windows
Retailers • Grows sales (marginally) • Hurts store traffic
• Expands footprint • Requires high investment to scale up
• Consolidates loyalty • Stresses logistics and supply chain
• Helps refine shopper profile • Creates high operational costs
• Generates data to segment • Challenges ability to build basket
shoppers and tailor promotions
Suppliers • Supports brand visibility • Becomes tough to leverage impulse buys
• Reinforces brand loyalty • Results in execution not always up to standards
• Allows for better shopper targeting (if • Means loss of power to influence how retailers
retailer shares data) show items
• Serves as the perfect channel for
bulky itemsActionable Insights
for U.S. Retailers
Considering Drive
The Drive model can increase incremental
sales if segmentation and targeting are done
correctly. When it is built considering the
efficiencies, synergies, and long-term wins it
can generate, Drive can help retailers boost
their eCommerce sales while minimizing the
costs associated with fulfilling online orders.
If they decide to implement a Drive model,
retailers should take these actionable insights
into account:
Think about how to start Invest in staff training
Stand-alone pickup locations require scale. Without managing staff, stores, and inventory
Attached pickup locations are cheaper and efficiently, retailers risk damaging customer
easier to set up, but can be hugely disruptive. relationships. Train staff to provide a quick,
hassle-free process.
Optimize your supply chain
Know your shopper
Minimize out-of-stocks and double stock some
SKUs to prevent in-stock issues. Provide an Consider the shopper demographics and traffic
efficient picking team that can assemble the flow of the area, accessibility, and store footprint.
orders and meet strict one- and two-hour delivery
windows. Wait to add fresh and frozen items to
the final order until the pickup window is near. Meet shopper expectations
Establish operational benchmarks. Being able to offer predictable delivery slots, free
next-day delivery, and an accessibly priced same-
day service is becoming the norm.
Explore how you can meet these changing
expectations while making the economics work
for your business.Conclusion While the evolution of online grocery is driving significant change in the U.S. today, retailers and manufacturers have a unique opportunity to learn from the growth trajectory of online grocery in other markets. France serves as the perfect case study for the U.S. grocery industry because its geographic makeup and historic grocery model are both similar to the U.S. Kantar Retail believes that online grocery evolution in the U.S. will take a similar path to the one seen in France over the last decade with the Drive grocery fulfillment model, which is a more sophisticated version of the click-and-collect grocery fulfillment model in the U.S. Retailers can learn from both the successes and challenges observed in France as retailers, including Auchan, Leclerc, and Carrefour, explored the online grocery models that worked best for their shoppers. Authors Diana Sheehan, Director, Kantar Retail Eric N. Batty, Global eCommerce Business Development Director, Kantar Worldpanel Alvaro Morilla, Associate Analyst, Kantar Retail
About Kantar Kantar is one of the world’s leading data, insight and consultancy companies. Working together across the whole spectrum of research and consulting disciplines, its specialist brands, employing 30,000 people, provide inspirational insights and business strategies for clients in 100 countries. Kantar is part of WPP and its services are employed by over half of the Fortune Top 500 companies. For more information visit www.kantar.com ©2017 Kantar. No part of these materials may be used, reproduced or adapted without the prior written consent of the copyright owner. All rights reserved.
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