Planning for profitable growth in UK grocery ecommerce12th March 2019

Introductions

2

Gael PeignéEdge by AscentialEurope Client Insight DirectorParis

Experience18 years experience in retail analytics & consulting• Global Customer Development Director at Pernod Ricard• Global Category mgmt solutions Director at Nielsen• Senior Consultant at NPD Group

Main categories expertise:FMCG & CPG, eCommerce & Retail

David GordonEdge by AscentialResearch DirectorLondon

ExperienceRetail & retail intelligence• Retail Management Safeway• International Development Poundland• Research Director IGD

Main categories expertise:FMCG, retail channels

A journey begins…

2015 2016 2017 2018

UK e-grocery

UK ecommerce

UK ecommerce gaining share quickly

12% 13% 14% 16% 17% 19% 20% 21% 22% 23% 24%

88% 87% 86% 84% 83% 81% 80% 79% 78% 77% 76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Ecommerce Store Based

Ecommerce+9% CAGR

Store based+3% CAGR

*Compound annual growth 2018 - 2023

3x

…and will continue to lead in grocery ecommerce

6,3

5,1

2,9

1,1

0,5 0,3 0,2

10,4

9,1

6,3

3,3

1,71,2 1,1

0

2

4

6

8

10

12

UK France US Germany Russia Italy Brazil

2018

2023

Online share of food retail sales, selected markets

% o

nlin

e/f

oo

d r

eta

il fo

rma

t

Leading grocers have gained from early adoption..

3,5

2,3

1,8

1,5

0,4

0,1

4,34,1

2,9

2,0

0,7

0,2 2018

2023

Gro

ss

sa

les

GB

P b

n

Increasingly complex landscape…Fragmented chain and alternative paths to purchase

BRAND

Traditional Route to MarketRetailer (1P) fulfilment 1P & 3P marketplaces

Direct to consumer Intermediaries

1 2

3 4

1

2

3

4

…with rising expectations

Consumer requirements …

74% more likely to purchase

again from a company after

receiving same-day delivery

43% expect ‘much faster’

delivery times than the previous

year

78% say they’ve experienced

packages arriving late

Retailer profitability.…

‘…small, loss-making part of the business’

‘…no route to profitability’

The shrinking shelf

Online customers get a much narrower selection at first glance

Product search through the search engine is increasingly the common way to search online

Search engine

Menu/Taxonomy

Browsing habits online are way faster than offline

64% of clicks are on top 3 items(range 39 - 81%)

Only 19% of clicks are past the first page of results

Top 3 Items

Remainder of first page

An additional 17% of clicks stay on the first page

90%of purchases

begin with search

80%of clicks

remain on the first page

Ove

r

*Data is based on a weighted average of top 10 to 25 search terms for 22 CPG categories

In Amazon.co.uk, some categories are already very concentrated

Instant coffee

33%

42%

Toothbrush

38%

67%

Batteries

31%

58%

Toilet tissue

62%

78%

Top 3 weight

Top 10 weight

Amazon.co.uk 1P/2P revenue weight

Mobile 1st page gets smaller

…Even smaller…

The rise of ecommerce, then m-commerce and then v-commerce shrinks the number of products browsed by shoppers

18

Planning for profitable growth in ecommerce….Areas to manage

1. Range

3. Pay to play

2. Private labels

4. Supply chain

Range

1) Identify most segmenting characteristics (dimensions)2) Define a primary one (It could often be brands)

Total careAnti-

cavities

Sensitive Fresh

Whitening Kids

TubeHead

down tube

PumpTravel pack

Premium tier

Mainstream tier

Value tier

Benefits Formats Price tiers

3) Define the size of each box

Size of each box is defined according to:

1. Revenue/Margin (Fair share)

2. Growth (Potential)

3. Saturation

Nb of SKUS

Sa

les

4) Select products in each box

Range selection KPI= Velocity X Price X %Retailer unit margin

Total care

Adjust with additional metrics: Exclusive penetration, Basket size, purchaser demographic

Add innovations

Traffic X conversion

Private labels

Amazon continues to grow its private label offering

Batteries example: Increased visibility for Amazon’s PL

Batteries example: Increased share for Amazon’s PL

Extra visibility on private labels on Amazon

In Tesco, high visibility also of private labels in several categories

29

Search ranking Cat foodSearch ranking Biscuits Search ranking Cereals

Pay to play

Paid search is getting the lion’s share at the top of the page on Amazon

…Also on Ocado

Case Study: Incrementality of #1 Organic

ASIN

• Pre/Post: Amazon Sales Increased $39k

• Amazon Marketing Services spend was $16k

• Average Selling Price was flat

• 2.4x ROI

Paid search boost sales even on #1 organic search product

Supply chain

The new supply chain requirements

Automated

Agile

Real-Time

Promiseable

Routes to end-consumer

Ways to deliverWays to receive

Ways to pick & pack

Ways to order

3,240

5 9 98

ORDER PICK & PACK DELIVER RECEIVE

What is required?

DriveC&C – curbside pick-upClick-and-collect(in-store) Home delivery

Packaging optimisation

Weight and durability: Changed from glass to PET Transit performance: Redesigned packaging to avoid leaking

Product optimisation

Ecommerce pack types: Online only (large) pack variants

Ecommerce design: New product development

Search ranking Cat food Amazon

Borderless commerceCPG strategies to manage

cross-border sourcing

3P

Harmonisation

Third-party business model

Organisational structure

Dedicated channel strategies

Borderless commerce - channel approach

Pack: Single bar

Convenience and Discount

Pack: 12 bars

Grocery

Pack: 24 bars

HypermarketPack: 60 bars

Amazon Item

Nature Valley’s Oats ‘n Honey Crunchy Granola Bar has an Amazon-specific pack size

Huggies sells an Amazon-exclusive ‘monthly pack’ SKU(Germany, Spain, France)

What is the right eCommerce

strategy?

Adapt trade strategy to ecommerce

Range Perfect page Search

Range Search Perfect page

Search Range Perfect page

1) Select where you want to playToothpasteCharcoal toothpasteWhitening toothpasteCharcoal whitening toothpaste

Natural toothpasteTravel toothpasteOrganic toothpasteBaby toothpasteToothpaste pumpRegenerate toothpaste

Look for emerging search terms in reviews

2) Select priority items

Select the range of products that stands a chance for each search term

Ensure these terms have a full presence across the retailers distribution network

3) Optimize their content to maximize SEO (Traffic) and conversion

44

3P can be a very viable option for secondary items

• Higher Volume• Content Control• More Promo / Program Options• Lower Fees

• Control Over Price / In-Stock• Capture Manufacturer & Retail Margin• Added Access (Seller Central)

Concentrate forces on key items

Priority SKUS

Concentrate forces

1. Identify most important Search terms

2. Evaluate saturation and your competitive position on main Search terms & Menu locations

3. Select items with high velocity rate

4. Ensure a Max distribution across retailers network

5. Set a Search optimized content adapt to Search algorithms

6. Invest in high quality content: Videos, A+

7. Focus activation & Paid search investments on these terms

Secondary SKUS

Apply a bypass strategy

1. Aim “Niche” search terms & Menu locations

2. Evaluate distribution through 3P

3. Evaluate a seasonal strategy (when relevant)

4. Optimize basic content

5. In & Out strategy on key search terms?

Adapt packaging to ecommerceEnsure price consistency on each channel across markets

Thank you