An analysis of e grocery

An Analysis of eGrocery Business Models
Ken Leaver
March 2018

Agenda
• What are the models of eGrocery?
• What is the best model?
• Case Studies

A broad spectrum of eGrocery players were analyzed
• Who were the players chosen?
• eGrocery Pureplays: Instacart, Redmart, Utkonos, Zakaz.ua, Shipt, Freshdirect
• Broad eComs with grocery: Amazon Fresh, Alibaba, Google Shopping Express
• Clicks n Mortar Players: Whole Foods, Peapod, Tesco
• Why were these players chosen and not others?
• Generally tried to choose the biggest names out there
• From a variety of regions
• From a variety of operational models
• What are the operational models?
• Did they fulfill from a fulfillment center or from a retail outlet?
• If they fulfilled from a retail outlet, did they have an in-store area dedicated to picking &
packing for online orders?
• Did they deliver using their own fleet, outsourced couriers, or using Uber-style drivers?
• Did they offer pickup from the store?

The players analyzed based on operational model
Operational
models of
fulfillment-
based models
were all the
same
Models varied
a lot on store-
based players
with lots of
new
technologies
and processes
being tested

Next, I tried to evaluate what is the BEST model?
• When I started to think about how to evaluate what is the best model, I concluded
the following things:
• The success criteria of models that fulfill from a fulfillment center are quite different from those
that fulfill from a retail outlet, so I should split the analysis into these two groups
• Success depends on a variety of factors that are related to:
• Brand visibility: do customers see the eGrocer’s brand prominently in-store, etc.
• Breadth of catalog: the more sku’s the better
• Quality of inventory: to ensure items that are ordered are in-stock
• Operational efficiency: picking, packing, checkout, delivery
• I also decided that certain factors were more important than others so it would be necessary to
apply a weighting

The Criteria I used to evaluate the models
• Brand (weight = 2)
• Does the grocer leverage the existing brand of a strong
offline player? Do they have strong visibility in-store from
their pickers?
• Catalog (weight = 2)
• Does the grocer have a large catalog that is not limited to
what is in-store? If limited to in-store how large is the
assortment of the grocer?
• Inventory (weight = 2)
• A fulfillment center model will have near perfect inventory
accuracy to show to the customer online, whereas the in-
store model will have inaccuracies due to relying on the in-
store inventory systems (which cannot account for what
offline shoppers have put in their carts)
• Picking (weight = 2)
• A fulfillment center model will have optimized picking
technologies and processes to create efficiency. For an in-
store model does the picker need to walk the entire shop
floor or just a dedicated area? What technology do they
have to improve efficiency?
• Checkout/Packing (weight = 1)
• A fulfillment center model will have
highly efficient packing stations and
processes. If in-store, is there a
dedicated staging area in the store?
• Delivery efficiency (weight = 3)
• Are routes planned in advance? Can a
truck carry a full day of orders and leave
them on the doorstep if the customer is
not home? (ie. is there cold packing of
the food)
• Distance per drop (weight = 3)
• How far does the driver need to drive to
reach the customer? A retailer will
naturally be much closer than
fulfillment centers, which tend to be
outside of the city.

Store-based winners
Conclusions
• A dedicated system for picking efficiently in the store is key to efficiency
• A dedicated checkout / packing / staging zone is also important
• Delivery efficiency driven by density of stores and density of orders in order to enable drivers to deliver
numerous orders in a small geographic area
Winner

Fulfillment Center-based ranking
Conclusions
• B2B deliveries enable very large order size, which is key to efficiency. In particular if they can be combined with
B2C non-grocery orders sometimes.
• The larger the fulfillment center and more advanced technologically the player, the better they will be at
operating the warehouse efficiently
• The bigger the player, the more sku’s they can hold in their warehouse, the more assortment that can be offered
to customers
Winner

Agenda
• Case Studies
• Instacart
• Amazon Whole Foods
• Amazon Fresh
• Redmart
• Peapod
• Utkonos
• Tesco
• Alibaba
• Zakaz.ua
• Shipt
• Google Shopping Express

Information
• Founded in 2012
• Only in the US (in ~190 cities)
• Model: Aggregates numerous
supermarket chains and uses in-store
staff to pick
• Customers mainly shop on a mobile app
• Delivery Pricing:
• Basket <$35 = $10 delivery fee
• Basket >$35 = $6 delivery fee
• Annual subscription of $149= unlimited
deliveries
• Pricing on groceries
• On average a 23% markup was charged
over the in-store price
• Inventory
• Knows real-time what is available in each
store
• Funding:
• Raised $200m in Feb 2018 @ $4.2bn
valuation
• Total funding ~$900m

Shop from multiple stores and choose
how you want to shop
First enter your location and
choose a store
Choose a department and shop

Features
Choose from popular coupons Create lists to make it easy to
shop in the future

Operational model
1. Use in-store staff to receive orders on a
mobile app and pick & pack. They have aisle
mapping to show them where to pick
2. They then typically checkout using a
dedicated Instacart checkout lane
1. Allows the shoppers to go thru quickly
3. Then goes to a staging area where either goes
into a bag (for a vehicle) or a refrigerator or
freezer
4. Driver can pick up back without waiting and
go on delivery run

Score
Criteria Weight (1-3) Score (1-3) Total Comment
Brand 2 2 4 Need to develop own brand
Get good in-store visibility from pickers
Catalog 2 2 4 Access to full catalog of large retailers, but limited to
what is in-store
Inventory 2 1 2 Rely on inventory feed given by store
Picking 2 2 4 Own picking app with aisle mapping
Checkout/Packing 2 3 6 Dedicated checkout lane
Staging areas in-store
Delivery efficiency 3 1 6 Cannot leave groceries on doorstep as no cold packing
Distance per drop 3 3 9 Retailers located close to customer
TOTAL 32
Store-based Model: 5th out of 8

Agenda
• Case Studies
• Instacart
• Amazon Fresh
• Redmart
• Peapod
• Utkonos
• Tesco
• Alibaba
• Zakaz.ua
• Shipt
• Google Shopping Express
• FreshDirect

Information
• Previously Whole Foods only
had home delivery via
Instacart
• Testing free delivery 2-hour
delivery from Whole Foods in
4 US cities
• Interface is via Amazon by
shopping in a ‘store’
• You select 2-hour time slots

Operations (test)
• Catalog of what is in Whole Foods store is created on Amazon as SKU’s
• Real-time inventory of store is maintained
• Picking and Packing of orders is done in-store
• Sometimes it is Whole Foods employee sometimes not
• Only available when Whole Foods store is open
• Delivery is done using Amazon Flex delivery drivers
• These are Uber-like contract drivers who sign on for Amazon delivery shifts using their own
cars but an Amazon routing app
• Deliver items for Amazon, Prime Now, Amazon Fresh, Amazon Restaurants and now Whole
Foods

Features
• Some Whole Foods items now available on
Prime Pantry outside of test markets
• Still selling on Instacart

Whole Foods Score
Brand 2 3 6 Use Whole Foods brand + Amazon online brand
Catalog 2 2 4 Access to full catalog of Whole Foods, but limited to
what is in-store
Inventory 2 3 6 Direct integration into Whole Foods system
Picking 2 1 2 No dedicated picking area, limited experience so far
Checkout/Packing 2 1 2 No dedicated checkout lane or staging areas in-store
Delivery efficiency 3 2 6 Uber-style delivery but drivers take several orders at a
time
Distance per drop 3 3 9 Retailer located close to customer
TOTAL 35

Information
• Launched in 2007 in
Seattle
• Offered in select US
cities
• Amazon Prime
members pay a monthly
membership fee of $15
• Choose 2-hour delivery
slots
• Also has started selling
meal kits

Operations
• Fulfilled from fulfillment centers located on the outskirts of major cities
• The truck operates a run, which can last an entire day or any part thereof
• This makes delivery efficient as a driver can plan delivery for the entire day
• Routes are optimized to be able to fulfill the 2-hour time slots that were chosen
• The time slots shown to customers are adjusted for ‘availability’ real-time
• As a result the frozen and chilled food must be packed to maintain for 4hours or
more, and so they give special packing materials
• As a fulfillment center is used, its also possible to:
• Offer a much larger catalog (then would be possible in retail) of 500,000+ items
• sell sku’s that are not sold in a traditional grocery store, like meal kits
• Announced in Oct 2017 that it was discontinuing Fresh operations in New York,
New Jersey, Pennsylvania, Delaware, Maryland and California
• Likely because they figured out that using retail stores is a more effective model for delivering
to highly dense population areas

AmazonFresh Pickup
• Drive-in type grocery store for
Amazon Prime subscribers
• Not necessary to pay for AmazonFresh
• Users reserve a time to pickup the
groceries and have them loaded in
their store at the car
• Can pick up in as little as 15 minutes

Amazon Fresh score
Brand 2 3 6 Existing Amazon brand leveraged
Catalog 2 3 6 Huge assortment due to fulfillment center model
Inventory 2 3 6 Inventory system in fulfillment center will be almost
perfect
Picking 2 3 6 Amazon FC picking technologies
Checkout / Packing 1 3 3 Amazon FC packing technologies
Delivery efficiency 3 3 9 Entire day’s route planned in advance.
Can leave groceries at doorstep
Distance per drop 3 1 3 Fulfillment centers are outside city center
Total 42
Fulfillment Center Model: 2nd (4-way tie) out of 8

Information
• Launched in 2011
• Only in Singapore
• Employees: 500-1000
• Model: Delivery from fulfillment
center
• Revenue growth:
• 2013: $1.5m
• 2014: $9.6m
• 2015: $27m

Information
• Purchase direct from suppliers (not retailers))
• Assortment is limited by space in warehouse
• Fulfill from a warehouse rather than stores
• Do deliveries in-house after realizing that
outsourcing was not reliable
• Delivery slots are chosen by customers based
on availability and fill out pre-determined
routes
• Incentivized to take slots that are operationally
efficient
• Drivers use an in-house Uber-like delivery app
called “Delivery Buddy” that gives them
updates in real-time as to cancellations, etc.
Delivery slots that are visible to the customer for
selection

Redmart Score
Brand 2 1 3 Need to develop own brand from scratch
Catalog 2 2 4 Larger assortment due to fulfillment center model, but
limited by relatively small FC’s
Inventory 2 3 6 Inventory system in fulfillment center will be almost
perfect
Picking 2 2 4 FC picking technologies
Checkout / Packing 1 2 4 FC packing technologies
Cannot leave groceries at doorstep (no cold packing)
Distance per drop 3 2 6 Fulfillment center not as close as retailer, however
distance short in Singapore
Total 32
Fulfillment Center Model: 8th out of 8

Information
• Founded in 1989 and launched website
in 1996
• Operates in 24 US cities (currently the
largest online grocery delivery store)
• Owned by Ahold Delhaize and delivers
from company’s stores as well as own
warehouses (only Chicago)
• Ahold acquired in 2000-1
• Ahold owns chains: Stop & Shop, Giant
• Delivery cost:
• Order size >$100 = $7
• Order size $60-100 = $10
• Minimum order = $60
• Pickup = $3

Operations
• 2 formats:
• 4 Warehouses
• 21 Warerooms – dedicated
areas attached to a Ahold
store
• Both formats:
• Have shop space designed
to optimize efficiency and
accuracy
• provide next day delivery
• Offer more than 200
pickup sites at Stop &
Shop and Giant stores
• Brought to your car

Score (for Peapod Warerooms model)
Brand 2 3 6 Use Stop & Shop brand
Catalog 2 2 4 Limited to Stop & Shop in-store catalog, which is large
Inventory 2 2 4 Direct integration to in-store inventory
Picking 2 3 6 Dedicated pick area
Checkout / Packing 1 3 3 Dedicated pack area
Pickup area in store
Distance per drop 3 3 9 Retailers are close to customer
Total 41
Store-based Model: 1st out of 8

Score (for Peapod Warehouse model)
Brand 2 3 6 Use Stop & Shop brand
Catalog 2 3 6 Not limited to what is in-store
Inventory 2 3 6 FC inventory system
Picking 2 3 6 FC picking
Checkout / Packing 1 3 3 FC Packing
Dropoff at doorstep capability
Distance per drop 3 1 3 FC’s fairly far from customer
Total 42

Information
• Founded in 2000
• Revenue: ~$150m
• Funded by oligarch, Mordashev
• Operations only in Moscow
• Operated many small stores throughout
Moscow where customers could pick up
• In 2011 80%+ of delivers were to house
and Utkonos began closing stores
• Delivery costs:
• Order size 1500-2000 Rubles = 200 R
• Order size 2000 – 3000 Rubles = 250 R
• Order size 3000- 7000 Rubles = 50 R

Information
• Purchase direct from suppliers
• Use 2 large fulfillment center
outside of Moscow
• 70,000 m2
• Product range >33,000 items
• Trucks run full day routes
• Traffic very intense during peak
times so wide range of time slots
need to be used

Utkonos Score
Brand 2 1 2 Needed to develop brand from scratch
Catalog 2 2 4 Larger due to fulfillment center model.
But limited scope of Moscow means less supplier
relationships.
Inventory 2 3 6 FC will have near perfect inventory
Picking 2 3 6 FC picking
Checkout / Packing 1 3 3 FC packing
Delivery efficiency 3 2 6 Entire day’s route planned in advance, but Moscow
traffic is horrible.
No pickup stores anymore.
Distance per drop 3 1 3 A single FC to service all of Moscow
Total 33

Information
• Undisputed king of online grocery in the
UK (~43% market share)
• Began going head-to-head with Amazon
on same day online grocery delivery
• Costs 3-7 GBP
• Model:
• Home delivery – typically via fulfillment
centers
• Click and Collect – through picking in-stores

Click and Collect at Tesco
• Order online and collect the next day
• Offered at almost all Tesco stores
• Orders stored for max 14 days
• Orders picked from the shop floor
• Need to handle sudden spikes in orders (cross-train
cashiers)
• Special carts to handle multiple orders simultaneously

Operations
• In 2006 began building warehouses for
online fulfillment
• Used state of the art picking and packing
technology
• Delivery
• Over 2,200 vans and 7000+ drivers
• Delivery network includes 99% of the UK

Tesco Score (click and collect model)
Brand 2 3 6 Leveraged the strong Tesco brand
Catalog 2 2 4 Limited to what is available in-store
Inventory 2 2 4 Strong integration with instore inventory
Picking 2 2 4 Uses shop floor, but multi-order picking technologies
used
Checkout / Packing 1 2 2 Dedicated pack / checkout areas in most stores
Delivery efficiency 3 2 6 Routes optimized quite well for multi-orders
Pickup zones in stores
Distance per drop 3 3 9 Stores have very strong density meaning distance to
delivery will always be quite small
Total 37
Store-based Model: 3rd out of 8

Tesco Score (warehouse model)
Brand 2 3 6 Leveraged the strong Tesco brand
Catalog 2 3 6 Wider selection of the FC
Picking 2 3 6 FC picking system
Checkout / Packing 1 3 3 FC packing system
Distance per drop 3 1 3 FC centers on outskirts of city
Total 42

Alibaba’s approach to grocery
• Multi-pronged approach:
1. Online delivery
• Via Tmall Supermarket
2. Digitized brick and mortar
• The Hema Supermarket concept
• Acquistion of 18% stake in Lianhua Supermarket (2nd leading supermarket chain in China with 3618
outlets)
• Invested $2,9bn into Sun Art Retail (Chinese hypermarket chain of 450 supermarkets owned by Auchon)
3. Convenience Stores
• Provide the supply chain to convenience stores

1. Online Delivery (via Tmall Supermarket)
• Launched in 2012 and spreading
across China in phases
• First Beijing
• Next Shanghai and other major cities
• Uses the same day delivery network
of Cainiao
• Cainiao network includes cold/frozen
storage facilities and trucks

Score (Tmall Supermarket model)
Brand 2 3 6 Leveraged existing Tmall online brand / customers
Catalog 2 3 6 Have huge assortment from large fulfillment centers
Inventory 2 3 6 FC inventory of Alibaba
Picking 2 3 6 FC picking of Alibaba
Checkout / Packing 1 3 3 FC packing of Alibaba
Delivery efficiency 3 3 9 Full day routes planned in advance
Have cold pack capability so it can be left at door
Distance per drop 3 1 3 Alibaba FC’s tend to be outside of the city
Total 42

2. Digitized Brick and Mortar: The Hema
• The Hema supermarket concept was started in 2016 and will
be 30 stores by end of 2018
• Everything powered by the Hema mobile app, which is used to
shop
• Scan barcode on the product and get lots of info about product
• Even get recommendations on similar products
• Stores also serve as fulfillment centers for orders that are
placed online
• Pickers in the store pick using an app
• The operational genius part is that pickers focus on a given area of
the store, similar to what is done in a warehouse
• So an order gets split out to several different pickers in different
sections of the store, and each picker puts the items in a tote that
is marked with the order and travels to a packing station via
conveyer
• Several different totes for an order then get combined at the
packing station

Score (Hema model)
Brand 2 2 4 Leverage Alibaba brand, but Hema brand is new to
grocery
Catalog 2 2 4 Limited to what is available in-store
Inventory 2 2 4 Strong integration with instore inventory
Picking 2 3 6 Pickers work specific zones and have conveyers to move
totes to packing zone
Checkout / Packing 1 3 3 Dedicated pack / checkout areas
Pickup zones in stores
Distance per drop 3 3 9 Stores delivery only to customers in the area
Total 39
Store-based Model: 2nd out of 8

3. Convenience Stores (Tmall Corner Store)
• There are 6m+ mom and pop convenience
stores in China
• Alibaba rolled out ‘Ling Shou Tong’, which:
• Analyzes purchase patterns online in the area
and recommends what to stock in store
• Provides product display materials, a POS
system, integrated inventory tracking
• Provides access to a huge catalog at low prices
(cutting out small distributors)
• Restocking the next day from warehouses
• Can offer other digital services (eg. Mobile top
ups)

Score (B2B Convenience store model)
Brand 2 3 6 Local convenience store brand & customers leveraged
Catalog 2 3 6 Access to full Alibaba catalog with recommendations on
what to stock
Inventory 2 3 6 In-store inventory is integrated with Alibaba
Picking 2 3 6 Leverage Alibaba FC picking
Checkout / Packing 1 3 3 Leverage Alibaba FC packing
Delivery efficiency 3 3 9 Deliveries are to convenience stores rather than
customers, so large order size and optimized route
Distance per drop 3 2 6 Delivery from Alibaba FC which is outside city usually.
However logistics can be mixed with other Alibaba B2C
deliveries.
Total 43
Fulfillment Center Model: 1st out of 8

Information
• Ukrainian grocery delivery service started in
2010
• Signed up most of the key grocery retail brands in
Ukraine such as Auchan, Metro, and Novus
• Operate in specific cities (Kiev & Dnipropetrovsk)
• Received a total of ~$3m in funding
• Turnover in 2014 was ~$3.5m
• Employees: ~150
• Charge same as store prices (no markup) and
offer fresh produce
• Delivery costs 40 hryvna

Information
• Similar to Instacart shopping experience where
you are shopping within a specific branded store
(eg. Metro)
• Place a team in the store who pick and pack the
items
• Checkout is at the normal checkout cashier

Zakaz.ua Score
Brand 2 2 4 Use own consumer brand, but have brand visibility from
in-store pickers
Catalog 2 2 4 Limited to what is in-store, but access to wide breadth of
players like Metro/Auchan.
Inventory 2 1 2 3rd party integration to instore inventory systems
Picking 2 1 2 No dedicated pick zones
Checkout / Packing 1 2 1 Sometimes dedicated pack zones
Delivery efficiency 3 1 3 Insufficient order density to have highly optimized
routes.
Cannot leave on doorstep
Distance per drop 3 3 9 Delivery from retailers to customers in the area
Total 28

Information
• Partnered with big grocery chains like Miejer, Costco, Whole Foods
• Annual membership fee of $99 per year with unlimited free deliveries
• Available in ~100 US cities
• Funding: Raised $40m in 2017

Operations
• Do picking from shop stores in a
similar way to Instacart but
shopper also does delivery with his
own car
• Shoppers can work flexible hours
(Uber style)
• No special checkouts and no aisle
mapping
• Shoppers are encouraged to ‘learn’
their store very well to save time

Shipt Score
Brand 2 2 4 Use own consumer brand, but have brand visibility from
in-store pickers
players like Whole Foods and Costco
Picking 2 1 2 No dedicated pick zones, no special technology to assist
Checkout / Packing 1 1 1 No dedicated pack zones
routes.
Total 26

Agenda
• Case Studies
• Instacart
• Amazon Fresh
• Redmart
• Peapod
• Utkonos
• Tesco
• Alibaba
• Zakaz.ua
• Shipt
• Google Express
• FreshDirect

Information
• Shopping service launched in 2013
and now available in some US cities
(NY, Boston, Chicago)
• Prices are set by the store but can be
different from the in-store price
• Aggregates 50+ stores such as
Walmart, Target, Costco, etc.
• Not just grocery
• Focused only on dry foods
• Shipping is free above a certain order
minimum ($25-35) or $5 if below that
minimum

Operations
• Picking and packing:
• Either done by a Google employee or a retailer’s
employee who then hands off to the courier
• 2 models of delivery:
• Stores where Google Express arranges for packing
and delivery
• Stores where the store does its own packing and
delivery
• Deliveries made by a fleet that is subcontracted
to a courier service (OnTrac)

Google Express Score
Brand 2 1 2 Use own consumer brand, little in-store brand visibility
as its outsourced
players
Picking 2 1 2 No dedicated pick zones, no special technology to assist
Checkout / Packing 1 1 1 No dedicated pack zones
routes.
Total 24

Information
• Online grocery founded in 1999 by
former Fairway Market CEO
• Over 250,000 customers and $600m in
sales
• Claim to be profitable
• Limited to the New York City area and
Philadelphia
• Model: Fulfillment centers
• Raised $90m initially and then $189m in
2016
• Introduced ‘Foodkick’ for 1-hour
delivery service to select locations
• Fee of $6

Information
• Maintains strong ties with suppliers and local producers
• Everything comes from their fulfillment centers:
• 28,000m2 center in Long Island City
• 36,000m2 distribution hub in the Bronx
• Known for freshness…
• Purchase fish in bulk each day from NYC fish market
• Can even make prepared foods as they have the ability to
cook in their facility

FreshDirect Score
Brand 2 1 2 Use own consumer brand
Catalog 2 2 4 Selection from fulfillment center, but limited due to
limited geography
Picking 2 3 6 FC picking system
Checkout / Packing 1 3 3 FC packing system
Delivery efficiency 3 3 9 High order density due to focus on limited geography
and full day routes scheduled
Distance per drop 3 2 6 Relatively limited geographical scope around the FC
Total 39

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