Market Report: e-Grocery Infrastructure 2021

The pandemic accelerated e grocery growth; lack of previous investments has led to a disparate & nascent vendor landscape

The grocery sector

• Consumers have been able to buy groceries online since the late 1990’s, but traction remained muted compared to general e commerce
• This lack of traction stemmed mainly from the structural heritage in the grocery sector, where the core focus was on stores/property portfolios, partnerships with fmcg/cpg and improving efficiencies in the supply chain
• Adding to the structural inflexibility was low margin goods, three temperature zones, expiry dates, fragile goods, and large baskets (30 60 items)
• As evidence of the inherent structural challenges in the grocery sector, many pureplay e grocers have partnered with legacy grocers to gain access to a supply chain
• Amazon appeared to have acknowledged this with their $13.7bn acquisition of whole foods in 2017

Pandemic for grocers

• Whilst the pandemic poured rocket fuel on online sales, very few legacy grocers actually surpassed 10% online as a share of revenue (only tesco reached above 10% online in fy2020 according to stiqs research)
• Many online pureplay grocers experienced huge growth that, for a few, also exposed supply chain limitations, including access to more delivery vans, employees, etc.
• In north america, instacart turned into an overnight sensation and possibly the top e grocer globally
• Funding inflows increased with larger rounds mainly targeting new e grocery models, such as q commerce

Pandemic for vendors

• In 1h20 most grocers froze, delayed or indefinitely postponed non critical projects; although many projects resumed in 2h20, there was a lack of new projects
• In 1h21 e grocery infrastructure experienced increased m&a activity among software platforms, and acquisitions included locai , freshop and shophero
• Whilst e grocery experienced huge growth, ecommerce also rocketed and mhe vendors serving both sectors reported healthy 2021 order books in h1, mainly from e commerce customers; one likely consequence was expanding lead times across the mhe sector
• Interviews suggested that inquiries had increased and more vendors had decided to join the sector

E grocery infrastructure innovation

• A major side effect of grocer’s lack of investments in e-grocery has been a highly sporadic technology vendor landscape with a majority of vendors also serving non-food retail (among other industry verticals) and there were very few vendors with proven end to end solutions
• Whilst e grocery infrastructure startup activity increased in 2015 & 2016, prior to this, most r&d activity was mainly driven by grocer’s internal teams
• Takeoff technologies first mfc went live in 2018/2019 and fuelled an intense, yet to be resolved, debate of where to fulfil e grocery orders centrally or locally

“potential” a key driver

• Legacy grocers remained the target for larger investments and especially for mfc vendors that often cited large store estates as potential for growth
• Pureplay e grocers were increasingly active buyers of e-grocery infrastructure

Barriers to growth

• Interviews suggested a key barrier to further growth was legacy grocer’s roi expectations
• However, the complexity of grocery retail was also often quoted; adding complex automation equipment to brick & mortar stores brings additional challenges; branding was also an important topic for many grocers, often preventing network effects

The future?

• At the time of writing this report there was increasing interest in ‘amazon go’ technology… Potentially to focus on in store inventory accuracy, a well known problem
• And, whilst many grocers were struggling with multi channel retail, axfood and alibaba freshippo were deploying omni channel capabilities