Why Are Grocery Retailers Teaming Up with Tech Giants?

Why Are Grocery Retailers Teaming Up with Tech Giants?

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The logo of Carrefour is seen on shopping trolleys at the Carrefour Lingostiere in Nice
The logo of Carrefour is seen on shopping trolleys at the Carrefour Lingostiere in Nice, France, March 31, 2018. REUTERS/Eric Gaillard

By Emma Thomasson
BERLIN (Reuters)

France’s Carrefour announced a deal this week with Google to boost its online shopping business. It is the latest in a string of partnerships between traditional food retailers and tech companies as grocery ecommerce takes off

 

HOW BIG IS GROCERY ECOMMERCE?

Global grocery retailing is worth $5.9 trillion, according to figures from market research provider Euromonitor. Online sales of food and drink only accounted for about 1.5 percent of that in 2017, but are growing fast in some key markets.

The figure is much higher in countries where retailers have quickly embraced ecommerce. The online share of food retail in Britain is 5.5 percent and 4.5 percent in France, according to business intelligence firm Planet Retail RNG.

China’s online grocery market is expected to almost triple by 2022 to account for 11 percent of spending, according to grocery industry research group IGD. The United States is a laggard on just 1 percent but is expected to more than double by 2022, according to IGD.

 

 

WHY DO RETAIL GIANTS NEED TECH PLAYERS?

Many traditional grocers need help with automatically replenishing products in stores, shopper subscription, artificial intelligence, voice technology and digital assistants, according to UBS analyst Daniel Ekstein.

“This is bringing together previously unlikely bedfellows,” he said. “Google has positioned itself an ally in the tech arms-race and so partnership seems a pragmatic, capital light solution to build skill and scale.”

By 2022, Chinese internet giant Alibaba will have overtaken Walmart to become the world’s biggest retailer. Amazon will be third with China’s JD.com in fourth place and Carrefour in fifth, Planet Retail predicts.

While retailers possess a huge amount of data on shopping habits, particularly through their loyalty schemes, they are not as good as big tech companies at using it to make personalized offers to customers, said Planet Retail director Boris Planer.

“The online and offline worlds are coming together. This ability to connect with the customer and mine data is going to be one of the main capabilities for the future,” he said.

“Retailers are beginning to understand that it would be a big mistake to think they can do it on their own.”

They also need help in setting up automated warehouses to enable fast picking of online orders, an area where Britain’s Ocado has taken the lead.

 

WHAT IS IN IT FOR THE TECH TITANS?

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.

However, bricks-and-mortar retailers have major advantages over pure online players: they have long established relationships with suppliers, trusted own brands, logistics expertise and stores that can be used as a distribution network.

In Britain and France, online grocery was first offered by incumbents such as Tesco and Carrefour, while in China, the development has been led by Alibaba and JD.com partnering with traditional supermarkets.

 

 

Consumers shop for food on a more regular basis than most other categories – it accounts for third to a half of all spending in many developed countries.

That is the main reason why Amazon has persisted with its Fresh grocery service, launched in 2007, despite its logistical challenges and slow progress in winning customers.

Bernstein analysts say: “Once a retailer cracks the logistics path for grocery ecommerce, it provides a high frequency platform from which other categories can be approached. Grocery retail can therefore not be ignored.”

 

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