Those that survived a year of stress testing supply chains, deliverability, and eCommerce are now cautiously wondering what lies ahead for the remainder of 2021 and beyond. The answer is both: opportunity and uncertainty.
As retailers and consumers begin to open their doors, what will return to normal and what will continue to expand or change? Let’s take a look at some of the changes we’re seeing in the grocery and retail space.
Old Traditions Die Hard
In 2020 the market share of traditional supermarkets’ dropped from 67% to 44%. Much of this shift is due primarily to alternative grocers, like Amazon, positioning themselves to win with home delivery well before the pandemic hit. Now, Amazon, Target, Walmart, and Costco comprise the majority of grocery sales in the United States. In fact, Costco’s net sales increased 21.7 percent to $44 billion in May.
But there might be worse news on the horizon. As grocers attempt to take back their share of the market, they’re making short-term bets with third-party companies like Instacart, which takes around 10% of overall sales. That's a really leaky boat for retailers that could be fulfilling in-store for half the cost - especially when you consider the control and data being forfeited.Instacart has three primary businesses all tied together into one:
- Storefront / Advertising
- Last-Mile Delivery
There needs to be huge operational unlocks for Instacart to work and be profitable, but the "end-to-end" experience (while it's great from a CX perspective) is challenging to make operationally efficient. Instacart's move to selling ads, at first glance, seems like a good start to separating those businesses & gaining operational efficiency for retailers.
Traditional grocers are going to need to cautiously take back this space by bringing fulfillment in-house efficiently with automation tools - like Ox - and solve for a fast, streamlined customer experience with micro fulfillment centers.
Delivery Gets Faster & More Competitive
Delivery - especially for grocery - is getting intense.
Instacart recently announced their intent to get orders to customers in 30 minutes or less, but they’re not the only ones to worry about. Gopuff, which services 650+ cities, distributes a growing number of home categories from their 250 micro fulfillment centers. They’re also promising delivery in 30 minutes or less - for a flat fee of $1.95.
As we watch other companies, like German-based Gorilla, announce even loftier goals of 10-minute grocery delivery for New York City, it won’t be long before items arrive on our doorstep before we even realize we're hungry.
But in all seriousness, as consumers’ expectations continue to rise in regard to speed, it’s more important than ever for retailers to maximize their workforce and fulfillment efficiency with automation tools and technology as well as real estate - like MFCs.
We’ll also continue to see innovation in how retailers handle space. I’ve talked before about how cloud stores are the way of the future, and we’re seeing growth in the space with companies like Fridge No More, which promises delivery within 15 minutes for shoppers within a 1-mile radius of its fulfillment center.
Local Gains the Competitive Edge
Leveraging retail locations and micro distribution centers effectively is no longer optional - it’s giving retailers like Petco a competitive advantage over competitors like Amazon and Chewy.
Petco has been leveraging its retail locations as micro distribution points to fulfill around 83% of online orders in-store (including ship-from-store, in-store/curbside pickup and same-day delivery services). From my experience, the best retailers typically ship between 55-75% of their orders from stores.
Our structural advantage of 1,453 micro distribution points through our Pet Care Centers is a strategic differentiator versus pure-play online competitors... We can get to the customer faster for lower cost than shipping from a DC.”
Ron Coughlin, chairman, and CEO, Petco
This competitive advantage over Amazon and Chewy is huge for Petco, which is not just saving on shipping costs and materials, but is actually able to get the orders to customers much faster.
While Chewy still dominates 50 percent of the pet space, Petco’s digital market share increased more than 50 percent year-over-year and more than doubled on a two-year basis.