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November 2013

NEW REPORT

Focus on drives, click & collect and innovative, collaborative delivery solutions - looking ahead to the next step in the evolution of the sector

Online Grocery Retailing in the EU 2014

Online Grocery Retailing in the EU 2014

If you studied a map chronicling the evolution of online grocery, you’d see the first fledgling beginnings of the sector with some

pioneers on the frontier adopting a pick in store model with catchment areas around single stores in high density conurbations with strong purchasing power and high internet penetration.

Moving onward, slowly but steadily as the territory becomes more open, the business developments become more settled and the model evolves towards semi automated dark stores, dedicated to the sector and new logistics set ups, as explosive growth rates start to put too much strain on the humble structure put in place by the pioneer spirit. It’s at this stage where the first and best players report profitability, as they reach scale effects that make their operations efficient - from picking to truck utilisation to route optimisation

As the broadband revolution gives way to the mobile internet, online grocery enters a third distinct stage in its evolution with the advancement of click & collect, drive solutions and lockers firstly offered by the multi channel players in an elegant way to make their store footprints and property assets count, then in high footfall locations, such as airports and train stations, before an outsider from the West arrives on the scene that transforms the sector yet again…

Going forward online grocery will ask for yet another different logistics set up and we have mapped 4 innovative and collaborative solutions for the sector for multichannel players and pure plays alike to explore.

The future of online grocery innovation

The drive is a specific French innovation to get around the onerous process of obtaining trading

permits in the country. Obstacles in planning and zoning law have been a major reason behind the investment poured into “le drive”, as it is virtually impossible to open new hypermarkets in France (loi Raffarin) and various possible sites are not licensed for grocery trading.

Opening a warehouse in an industrial area, a dark store not classified as a food store and hence easy to register and getting trading permits for, and then to operate it as a click & collect grocery store is an enticing growth lever a retailer can pull in the market, where most other space based expansion is virtually impossible (c-stores and discount being an exception).

The best performing drive in southern France made sales of €44m in 2012, however in France, the birthplace of the concept, the party is now over, as the loi Duflot has put a real dampener on innovation that has spread like wildfire through the country.

Nevertheless Click & collect and stand alone drive stations are an extremely important topic in EU online grocery right now. Retailers innovate in this area, as offering a mix of delivery solutions such as click & collect and drives reduces significant costs of home delivery, raises the overall basket sizes (by up to 75% for Ahold for example), enhances loyalty of core shoppers and of course to gain shoppers from rival retailers that do not offer the service.

From a shopper perspective drives offer a clear convenience benefit of not having to wait at home for a delivery and a cost benefit, as pick up is often free or much cheaper than home delivery. The click & collect and drive stations remove a barrier to online grocery shopping and the pick up option frees up time otherwise spent in the store (in the EU typically around 1 hour for a family sized basket).

This time freed up through a drive or click & collect option suddenly offers new merchandising and marketing opportunities. Now the shopper, after having done the chores, will have enough time to take in many of the promotional materials and offers manufacturers will put into the stores to educate shoppers about the benefits of their products.

Across the EU, basket sizes at drives are much higher than in store, but lower than for home delivery and they are under-indexing on fresh produce (meat, dairy and fruit and veg), but the first retailers are already innovating around this and driving the fresh spend back up. Looking ahead, extrapolating from current rapid growth, the share drives and click & collect takes of the total online grocery spend could reach about 50% in the not too distant future, in France it is already above 80%.

The insights in our latest report are about understanding the opportunities for click & collect and drives and delves deep into questions around the different business models.

What are the models used by the cutting edge online grocers •right now? What is international best practise?

What are the profiles of online customers across the EU? How do •these shoppers perceive fresh produce online and what happens to their baskets when they chose click & collect?

Which online grocer has the best perception of fresh produce and •why - how does this manifest itself in the drive baskets? Which EU retailer has managed to have the same share of fresh produce included in standard, in-store baskets as in drive baskets?

Are there pressures on the basket sizes? How can retailers fix •that? Do promotions work, are the latest drive store innovations of Auchan and E.Leclerc the right way forward?

How will the Loi Duflot change the dynamics of drives in •France?

Will Ahold’s drives propel the Dutch online grocery sector finally •to the levels of Belgium’s? Or will it go much further? How significant will the BOL integration turn out to be?

Which player will revolutionise Germany’s online grocery sector? •Why is it all about DHL and Amazon? Why are Tengelmann and Rewe acting as start up incubators rather than investing into their models directly? Why isn’t the drive option as developed as in France?

KEY QUESTIONS ANSWERED

KEY QUESTIONS ANSWERED

Why is pureplay Leshop suddenly investing into physical drives •and click & collect at rail stations? Is it working? Should Ocado do the same?

What issues do Spanish and Italian online grocery players come •up against? Why did Alice.es fail? What about click & collect and drives in these markets? Do they work in the recession plagued periphery?

Will the UK online grocery market move from home delivery to •click & collect?

What is the future for same day delivery in online grocery? Will •Instacart be a success? Or is it all about Amazon Fresh?

What about collaborative delivery? Is this working and who is •actually doing it? Does it need to be shopper and front end led or should it instead be retailer, 3PL and back end led?

What innovative solutions are on the horizon? How can inefficient •load factors be made more efficient? Is there crossover potential with other sectors (foodservice for example) and who should take up this opportunity?

How can Scandinavian innovations around online curation •revolutionise the sector? How big is the potential for the meal solution providers? Is vertical integration and unique product the only effective defence against Amazon - or Amazon Fresh when it finally arrives in the EU?

FEATURES AND BENEFITS

FEATURES

detailed statistics on the online grocery sector in the EU and forecast to 2017 by •market

key insights on the leading players and a deep dive into the business models of the •leading EU online grocery players

data on the various drive and click & collect solutions per retailer, customer numbers, •orders, average basket size, sales per drive etc

analysis of the strategic issues facing the sector going forward•

a complete overview of the EU online grocery market, risers and fallers, innovators and •laggards

key recommendations of what to tackle next•

BENEFITS

benchmark against the best in class operators •

gain access to hard to find data, you cannot get anywhere else•

future proof your business by finding new strategic innovations for home delivery •

access a map on the evolution of the sector and find out now what is just around the •corner

find out which risks and obstacles need to be circumvented going forward•

TABLE OF CONTENTS (1/4)

Executive summary p10

Context – EU Grocery Retailing in 2012/3 p18

Grocery sizes: EU 27, 2009-2013 in €m p19Grocery sizes: shoppers cut back, shop around, trade down and go to hard discounters p20Grocery sizes: EU 27, 2009-2013 growth in %, CAGR p21Grocery growth rates: EU 27 2009-13 in %, growth in the UK, decline in Greece p22Grocery sizes: The leading countries, Top 3 take one of every €2 spent p23Grocery per capita sizes: EU 27 in 2013 in €, from the UK to Bulgaria p24

EU Grocery Retailing in 2013 – Online sizes p25

Online grocery sizes sizes: EU 27, 2009-2013 in €m e p26Online grocery sizes: the transformation of the sector p27Online percentage share of total grocery: EU 27, UK, France, Benelux and Scandinavia p28Online grocery: Scandinavia a hotbed of development, tough German market p29Online grocery: CEE the opportunity, driven by Auchan, Tesco et al p30Online grocery: CEE the opportunity, Carrefour p31

Forecast for EU online grocery p32

Online grocery: EU Growth rates and forecast to 2017, when will AMZN Fresh arrive? p33Forecast 2009-2017: data EU Online grocery in €m, sizes to more than double p34

Online grocery in France: the invention and innovation of le drive p35

Drives in France: more than 2,000 outlets in 2012, drives outnumber hypermarches p36Drives in France: no trading permits needed, boom in the format p37Drives: Outlet numbers per retailer, Q1 2013 France p38France: rather to cannibalise oneself than be eaten by others, questions around profitability p39

Drives in France – the leading players p40

France: H1 2013 sales figures, Leclerc, the market leader p41France: Latest sales figures, Leclerc, testing new models p42France: Latest sales figures, Systeme U, Carrefour lagging behind p43Carrefour: trying to connect online grocery to mobiles p44

Auchan – the innovator p45

Auchan: the innovator, the e-commerce structure, Auchandirect, Auchan.fr, Grossbill p46Auchan: figures, hyper vs. Chronodrive 2012, average sales and growth p47France: The development of the drive solution p48Recent key developments: car sharing, new formats, Simply Market drives, Arcimbo p49Auchan: Chronodrive/AuchanDrive, H1 2013 statistics, sales, customer numbers, baskets p50The Chronodrive model: the innovator p51Chronodrive: arterial roads, pure solution versus add on, cost management p52France: As no trading permits were needed, a boom in the format followed p53

The outlook for drives in France, loi Duflot p54

France: combining the opportunities of the drive with the store, innovation p55Drives: is the party over? The pessimist’s view, saturation and regulation p56Drives: the implications of the Loi Duflot, regulation but no tax increase for now p57Drives: stand alones curtailed, shift from expansion driven growth to lfl, pureplays benefit p58Drives: shift back to home delivery for online grocery in France? p59

TABLE OF CONTENTS (2/4)

Benelux – Ahold, from Peapod to Albert via Bol.com to Albert Heijn to go, Delhaize and Colruyt p60

Albert Heijn: the online grocery opportunity, from BOL.com to PUPs p61Albert Heijn: click & collect and drive, % uplifts from comprehensive multi channel strategy p62Albert Heijn: from 2% customer crossover to double digit % of channel agnostic shopper p63Albert Heijn: 3 drive formats, Capex and sales potential, EBIT and forecast p64Albert Heijn: reorganising the supply chain p65Ahold: the BOL.com acquisition and a 3P marketplace p66Albert Heijn: Bol.com and Plaza integration, PUPs in all Ahold stores by 2014? p67Recent key developments: July, August 2013, PUPs at work and at the airport p68Recent key developments: January 2013, the big push, widening the ranges and new DC p69Recent key developments: December 2012, the first PUPs, big push into m-commerce p70Recent key developments: November 2012 integrating BOL through click & collect p71

Belgium – Carrefour, Delhaize and Colruyt, the first hard discounter with an online grocery proposition p72

Delhaize: from caddyhome to collection points p73Colruyt: Collect & GO, Collishop and Collivery, 5k new customers per collection point p74Colruyt: the back end organisation p75Colruyt: France collect & go, drives at the hard discounter, a model for Aldi and Lidl? p76

Drives – a struggling concept in Germany, just as online grocery in general p77

Germany: Online grocery going head to head with Lidl and Aldi, Amazon.de p78Germany: Amazon 1P and 3P delivery issues p79Recent developments: Migros private label on Amazon.de p80Germany: Lidl’s non food online store and the demise of Schlecker p82Germany: Real’s online grocery sales – strong growth from tiny base p83Drives: Globus, Edeka and Rewe trialing drives p84Germany: Rewe’s start up incubator, looking for acquisitions, Tengelmann’s Bringmeister p85Amazon: Germany Packstationen prevent need for proprietary Amazon lockers p86Recent developments: DHL trials parcel boxes in Bonn and sets up its own marketplace p87German post invest big into working underutilisied capacity harder p88Mytime: Buenting pioneering national coverage p89Mytime: Buenting piloting same day delivery with DHL in Köln p90Allyouneed: DHL backed start up p91

LeShop – a model for multichannel integration at Migros. Applicable to the German market or a real exception? p92

LeShop: a model for other markets? p93LeShop: rebounding and rebuilding profitability, as Swiss shop abroad and Coop competes p94LeShop: link up with Swiss Post, home deliveries only pm or evenings p95LeShop: Chilled storage box solution – no need for cool chain p96LeShop: the data, 55k regular annual customers, average basket 2x as big as EU sector p97LeShop: M-commerce and the Migros advantage p98Recent developments: LeShop CHF1.9m in drive sales in 6 months, C&C at Swiss Rail p99LeShop: Drive, new customer acquisition, basket size half of delivery, 3x bigger than in-store p100

TABLE OF CONTENTS (3/4)

Italy – the EU’s periphery is lagging behind, macroeconomic headwinds and retailer inertia p101

Italy: little movement, all concentrated on the North of the country, one Auchan drive p102Italy: Esselunga, e-coop, prontospesa, basko and organic box schemes, Italian obstacles p103Esselunga: Delivery charges waived for old age pensioners p104Coop: online grocery Roma only, push into non food in 2013 p105

Spain p106

Spain: Online grocery curtailed by tough macro economic headwinds p107Spain: Eroski, Mercadona, El Corte Ingles, Alcampo – much activity p108Spain online grocery sales: in €m per retailer in 2012, Top 10, % of total, coverage p109Spain: delivery charges, online grocery shopper profile p110Spain: the demise of Alice.es p111Spain: organic box schemes, pureplayers and an outlook p112

Click & collect in the UK: the footfall driver p113

Click & collect: The UK starts to follow the French example, fulfillment revolution p114Click & collect: Waitrose’s locker system plans, 24hr access p115Click & collect: Waitrose splitting the mundane from the aspirational shop p116Drive thrus: Asda trialing drives and rolling them out to every store p117Tesco: Grocery click & collect and drives, potential to use c-stores for click & collect p119Click & collect: Tesco opens click & collect to its marketplace sellers in 2013 p120The laggards are coming online: Iceland, Morrisons and Ocado p121The laggards are coming online: Coop, the latest entrant p122Click & collect UK: future outlook, innovative supply chain solutions, collaboration p123

Same day delivery – is this the future for home delivery? From Amazon to Instacart p124

Same day delivery: the new frontier, Instacart letting shoppers help each other p125Instacart: expansion to Chicago, other major US conurbations to follow p126Amazon: same day delivery, Amazon Fresh and Prime, Wal-Mart p127

Strategic recommendations: Tackling delivery costs through collaboration, 4 innovative solutions p128

Margins: all about route optimisations and efficiency, the rise of click & collect and lockers p129Solution 1: hubs on the outskirts, bundling trips from all retailers, milk round deliveries p130Solution 2: combining online grocery with food service, comprehensive solution p131Solution 3: the potential of the return trip, looking at lessons from in bounding p132New concepts: making online grocery deliveries efficient p133Solution 3: Reducing the empty runs, interleaving p134Solution 3: Partnerships will become a necessity as online shopping continues to expand p135Solution 4: Hubbub, let the 3PL sort out efficient home delivery by grouping trips p136

TABLE OF CONTENTS (4/4)

Linas Matkasse and the copycats – tackling delivery costs differently – the subscriptionsolution and unique product p137

Linas Matkasse: Swedish innovation p138Linas Matkasse: curated shopping in online grocery, skills enhancer p139Linas Matkasse: innovative loyalty generation, the data p140Linas Matkasse: foreign expansion p141Aarstiderne: The Danish market leader, nemlig, Superbest p142

Sources p143

Table 1: Grocery sizes: EU 27, 2009-2013 in €m p19Table 2: Grocery sizes: EU 27, 2009-2013 growth in %, CAGR p21Table 3: Online grocery sizes sizes: EU 27, 2009-2013 in €m e p26Table 4: Online percentage share of total grocery: EU 27, UK, France, Benelux, Scandinavia p28Table 5: Spain online grocery sales: in €m per retailer in 2012, Top 10, % of total, coverage p109

Chart 1: Grocery growth rates: EU 27 2009-13 in %, (1) p22Chart 2: Grocery growth rates: EU 27 2009-13 in %, (2) p22Chart 3: Grocery sizes: The leading countries 2013 p23Chart 4: Grocery per capita sizes: EU 27 in 2013 in € (1) p24Chart 5: Grocery per capita sizes: EU 27 in 2013 in € (2) p24Chart 6: Forecast 2009-2017: data EU Online grocery in €m p34Chart 7: Drives, Outlet numbers per retailer, Q1 2013 France p38Chart 8: Auchan: figures, hyper vs. Chronodrive 2012, average sales and growth p47Chart 9: LeShop: the data p97Chart 10: New concepts: making online grocery deliveries efficient p133

SAMPLE PAGES

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Grocery sizes: EU 27, 2009-2013 growth in %, CAGR

Table 2

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In August 2013 Auchan introduced a car sharing service for its Drive in Nantes. Shoppers can link their orders to another customer’s when ordering online and cut out unnecessary car trips. The driver is rewarded with a €3 voucher on the next order. Wal-Mart was pondering offering a similar service in the US in 2012 but dropped the idea because of legal issues, especially around missed deliveries and liability.

In April 2013 Auchan launched the Drive format for its Simply Market discount fascia at the stores in Noyelles les Vermelles and Meulan Tessancourt. Since 2009, Simply Market has operated a click & collect service in 37 stores in the Ile de France region, but not a dedicated drive option. The drives will be served through in store picking and the prices charged are the same as in the store. The product range includes over 9,000 items.

Recent key developments: car sharing, new formats, Simply Market drives, Arcimbo

In March 2013 Auchan opened a hybrid drive trial store called Arcimbo in Paris. Close to a Drive branch on one of the city’s motorways, the 1,330 sq m outlet focuses on fresh produce and frozen food. As fresh produce accounts for a low percentage of a typical drive customer’s virtual cart, the retailer tries to capture this spend with the dedicated Arcimbo fascia, capitalising on the footfall generated by the online order. Auchan also tries to gain share from a nearby E.Leclerc by opening this outlet where it does not operate a full scale hypermarket.

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