Several grocery retailers are tapping technology giants to attract customers for their new and less profit making e-commerce business, Emma Thomasson of Reuters reported.
France’s Carrefour announced a deal with Google to boost its online shopping business. There are several reasons for the tie up with technology majors.
First, grocer retailers need help with automatically replenishing products in stores, shopper subscription, artificial intelligence, voice technology and digital assistants, said UBS analyst Daniel Ekstein.
Second, retailers may possess data on shopping habits, particularly through their loyalty schemes. But they are not good at using it to make personalized offers to customers, said Planet Retail director Boris Planer.
Third, they need help in setting up automated warehouses to enable fast picking of online orders, an area where Britain’s Ocado has taken the lead.
Fourth, storing and delivering food, especially fresh and frozen products, is a major headache. Many British retailers have struggled to turn a profit even after two decades of experimenting with different ways to handle online grocery.
Fifth, retail giants need to reduce cost of operations to sustain in the retail business. The Reuters report said grocery margins are razor thin and e-commerce is expected to erode those further due to the high costs of delivery and the need to invest in technology and logistics.
Deals for digital capabilities
– Kroger seals warehouse deal with Ocado
– Walmart pays $16 bn for 77% stake in Indian ecommerce firm Flipkart
– France’s upmarket Monoprix chain, owned by Casino, agrees deal to sell groceries via Amazon
– Carrefour announces deal with Internet giant Tencent
– Amazon buys Whole Foods for $13.7 bn
– Walmart and JD.com expand cooperation
– Walmart buys ecommerce start-up Jet.com for $3 bn
Costs are high
McKinsey estimates that the additional expense of selling groceries online amounts to between 4 and 7 euros per transaction, largely due to delivery costs.
“Bricks-and-mortar grocers will feel a significant financial impact, as their slender margins make them sensitive to even a small loss in market share,” according to a recent report by management consultants Oliver Wyman.
Up to 30 percent of store space could close in most of the countries if online grocery reaches about 8 percent market share, Oliver Wyman predicts.
Chinese internet giant Alibaba will have overtaken Walmart to become the world’s biggest retailer by 2022. Amazon will be third with China’s JD.com in fourth place and Carrefour in fifth, Planet Retail predicts.