The future

of grocery
shopping
Grocery shopping will
change significantly
in the decade ahead –
traditional food retailers
must adapt fast
Contacts
Germany The Netherlands UK
Stefan Eikelmann Marc Hoogenberg Rhian Woods
Senior Partner, Partner, Partner,
PwC Strategy& Germany PwC Strategy& Netherlands PwC Strategy& UK
+49-211-3890-110 +31-6-2395-4065 +44-7890-586 319
stefan.eikelmann marc.hoogenberg rhian.woods
@strategyand.de.pwc.com @strategyand.nl.pwc.com @strategyand.uk.pwc.com

France Turkey
Sabine Durand-Hayes Yusuf Bulut
Partner, Director,
PwC France PwC Strategy& Turkey
+33-1-5657-8529 +90-533-729-1369
[email protected] yusuf.bulut
@strategyand.tr.pwc.com

About the authors

Stefan Eikelmann advises clients globally in the retail and consumer industry. With more than
28 years of experience, he specializes in strategy-based (digital) transformation programs and
global operating model design and implementation. Based in Düsseldorf, he is a Senior Partner
with Strategy& Germany.

Marc Hoogenberg advises companies in food, beverage and other grocery products on business
development, commercial capabilities and operating model design. Based in Amsterdam, he is a
Partner and EMEA Consumer Markets Consulting Leader with Strategy& Netherlands.

Jens Langkammer advises clients globally in the retail and consumer industry. He specializes
in customer centricity and omni-channel strategies. Prior to joining Strategy&, he founded several
companies in the e-commerce sector. Based in Frankfurt, he is a Director with Strategy& Germany.

Felix Starke advises clients globally in the retail and consumer industry. He is passionate about
e-commerce and digital solutions. He works with retailers to formulate winning omni-channel
strategies and design attractive business models. Based in Berlin, he is a Manager with Strategy&
Germany.

Magdalena Worm advises clients globally in the retail and consumer industry. She is working with
retailers on innovative business solutions with focus on e-commerce and digital services. Based in
Munich, she is a Senior Associate with Strategy& Germany.

Jean Pujol advises clients globally in the retail and consumer industry, with an expertise in grocery
and food. He specializes in data marketing and digital transformation, both from business and
technology perspectives. Based in Paris, he is a Director with PwC France.

2 Strategy& | The future of grocery shopping

TABLE OF CONTENTS

Executive summary 04

Section 1 06
What will the future digital grocery shopping journey look like?

Section 2 09
How will grocery shopping in European markets evolve by 2030?

Section 3 16
Picking the most promising eGrocery business models

Section 4 23
Searching for eGrocery profitability

Section 5 26
Time for retailers to act

Strategy& | The future of grocery shopping 3

EXECUTIVE SUMMARY

Two years of pandemic disruption caused a surge in online grocery shopping. However,
there is no sign of a return to pre-Covid shopping habits, even amid weakening
economies, surging inflation and rising interest rates. These challenges may slow
the growth of eGrocery in the short term, but demand for online services from food
retailers and the corresponding digitalization of their operations is not going away.

As a result, grocery shopping will be significantly different in the future and the winning
business model will be omni-channel. Food retailers will need to fully integrate their physical
and digital channels. Consumer expectations and behavior will shift as digital natives become
a leading retail customer segment and all age groups increasingly embrace online shopping.
eGrocery market share will rise significantly: by 2030, Britons are expected to buy up to
26 percent of their food online. In the Netherlands, we expect 25 percent online purchases
by 2030, in France 23 percent, in Germany 11 percent, and in Turkey 10 percent.

Based on a survey carried out by Strategy& in July, grocery industry experts expect the market
share of online grocery shopping to increase to between 35 percent and 50 percent in each
of the five countries by 2050.

Future technologies will increasingly enable the development of different business models
and experiences adapted to the shopping occasion and product category. A range of eGrocery
business models will coexist, each serving the specific needs of different customer groups
and diverse cultural demands, in specific regions. Highly convenient, ultra-fast deliverers
may succeed in metropolitan areas, while highly cost-efficient providers, using a milk-run
or similar model (using a timetable set by the retailer rather than time slots picked by the
customer), or delivery based on autonomous fleets, will also thrive.

Consolidation will undoubtedly occur, especially in the intensely competitive quick commerce
landscape as high rates of cash burn caused by the race for scale drive mergers and
acquisitions. Revenues of in-store retailers will decline and profits could fall by more than
80 percent, survey respondents estimated, if they fail to adapt to the new market.

Technological developments such as automated warehouses will enable a surge in online

grocery offerings and an increase in market share, facilitating profitable operations. Meantime,
customer interactions with grocery retailers will change significantly as automation, digital
loyalty programs and targeted personalized offerings that leverage customer data become
increasingly important. Younger shoppers will expect retailers to be more transparent about
their supply chains and demand more ethical food production.

What are the implications for bricks and

mortar retailers?
Retailers that wish to keep or grow their current market share by becoming leading omni-
channel players need to launch eGrocery offerings early to gain the necessary expertise. They
must prevent competitors from building massive barriers to market entry by consolidating
market share, leading in automation and developing better customer access and reserves
of data.

4 Strategy& | The future of grocery shopping

 Retailers will also need to rethink their logistics and supply chain, IT infrastructure, product
lines, organizational set-up and talent attraction. As they become omni-channel retailers, they
will need to integrate their online and offline supply chains to realize synergies – and become
cost competitive.

Full-range retailers and discounters will each face different challenges and opportunities
arising from the development of online grocery retailing and must develop specific approaches
to remain successful.

Full-range retailers should develop “experience shopping,” combining education and pleasure
into leisure activity – contrasting with the basic-necessities offer of discounters. For their part,
discounters are likely to need a stronger eGrocery offering to maintain or expand their market
share. Given their customers’ focus on shopping for necessities, they risk losing a large part
of their sales to competitively priced online rivals if they don’t. But they are also perfectly
placed to disrupt bricks and mortar businesses through their cost-driven mindset, which
should help them find the recipe for eGrocery profitability.

Suppliers will also need to adapt their products and interactions with retailers to meet the
demands of an omni-channel model (see Exhibit 1).

EXHIBIT 1
eGrocery is bringing new business models and integrating digital channels – with implications for existing players

Evolving customer Intensive eGrocery Store profit Integration of physical

preferences market growth dilution and digital touchpoints

Omni-channel Low profitability and Technological evolution Targeted personalized

Market trends customer journey high burn rates and automation offerings

Business
models Free time slot/Milk run Ultra-fast delivery Click & collect Store

Customer experience Logistics supply Store network Digital capabilities, Organizational set-up
and assortment chain and smart purpose and IT systems and and talent attraction
Areas of composition sourcing omni-channel vision technology
change

Full-range retailers Discounters Suppliers

1 2 3
Opportunity to move physical Discounters face a substantial Consumer goods companies
store network to the next level challenge for disruption as need to adapt their products
by introducing experiential soon as online grocery and go-to-market model.
shopping centers transforming competitors provide grocery Logistics companies see
Implications grocery shopping into leisure at discount prices. Automation opportunities to expand
for market activity with focus on fresh will be essential to achieve their services into third-party
players and premium products. online profitability even on low grocery services, e.g.
margin products. last mile.

Source: Strategy& analysis

Strategy& | The future of grocery shopping 5

SECTION 1

What will the future digital grocery shopping journey

look like?
The Covid-19 pandemic and successive waves of lockdowns spurred accelerated growth
in online grocery retailing as consumers sought to minimize human interaction. This was
accompanied by the emergence of new online business models and market entrants.
That growth has been maintained: everywhere, across all categories, ages and regions,
consumers are increasingly shopping digitally.

The start of the war in Ukraine in February 2022 has coincided with a recovery in consumer
demand even as the supply of many goods and services remains constrained by capacity
cutbacks during the pandemic and supply-chain disruption around the world holds up
deliveries. Combined with the war-related spike in energy prices, this has triggered
uncontrolled inflation worldwide for the first time in decades.

With the combined squeeze on their incomes, consumers are alarmed. In May, a survey by
PwC Deutschland1 found that many German shoppers are scaling back non-food purchases,
turning to cheaper products in stores and making even more use of online retail and price-
comparison sites. The result: retailers in Germany and elsewhere face mounting pressure on
margins, as they work to contain price rises and cut costs.

At the same time, consumers are becoming ever more demanding. PwC’s June 2022 Global
Consumer Insights Pulse Survey, questioning more than 9,000 consumers across 25 territories,
found that after prolonged frustrations, patience is wearing thin and expectations in terms of
quality, choice and service are higher than ever.

It also found that environmental, social and governance (ESG) factors increasingly influence
the choices of younger consumers – a trend where Europe, with its aging population, lags the
rest of the world.

This stormy backdrop, in which powerful new social and technological currents encounter
blustering economic headwinds, will force food retailers to focus squarely on what customers
want, develop new channels and business models, prioritize profits and ensure they have
a clear plan to survive and prosper.

1 https://www.pwc.de/de/pressemitteilungen/2022/konsumentenbefragung-krisenzeiten-bremsen-kauflust-in-der-non-food-branche.html

6 Strategy& | The future of grocery shopping

So how is the • eGrocery start-ups are entering the market and some are growing
grocery market rapidly. They range from instant delivery/quick commerce (Gorillas,
changing? Flink, Zapp, Gopuff/Fancy, Getir, Yemeksepeti) to fast delivery
(Knuspr, Flaschenpost, Istegelsin) to milk-run deliveries on a
regular round (Picnic)

• Some bricks and mortar retailers are increasingly moving online

(REWE, Tesco, Sainsbury’s, Auchan, Carrefour, Albert Heijn,
Migros)

• Platform aggregators (Bringoo, Instacart, deliveroo, UberEats,

Hepsiburada Market) are trying to conquer the eGrocery market
and rapidly gain share – a model that worked well for e-commerce
platforms such as Amazon and Airbnb in other consumer sectors

• Tech players are encroaching: witness Amazon’s move into the

grocery market (via its own services with Amazon Fresh and in co-
operation with retailers including Morrisons in the UK and Tegut in
Germany)

• Specialized providers of specific product assortments are also

going online (Flaschenpost, zooplus, mymuesli)

New business • New ways of cooking using meal kits (HelloFresh, Blue Apron)
models are allow consumers to save time and cook as an experience. In-store
reinventing grocery ghost kitchens (Kroger) allow consumers to order cooked meals
shopping and meal online and collect them at their local grocer
preparation
• Direct-to-consumer (D2C) distribution models (Hipp, Nespresso)
excel on pricing by sourcing directly from farmers and controlling
the entire supply chain

• Subscription-based delivery (Gousto, Abel & Cole) have efficient,

regular relationships with consumers and enhanced operational
profitability

Sustainability is • Farm-to-fork thinking stretches from sustainable production,

becoming more processing and distribution to consumption, as firms strive to
important than tackle climate change
ever
• eGrocery can be a catalyst for sustainability, for example by
optimizing packaging to minimize waste

Rethinking point- • Smaller, local retail chain grocery shopping options are expanding
of-sale practices (REWE to go, Tesco Express, Albert Heijn To Go, Migros Jet,
increases customer Carrefour Express)
value and business
efficiency • Non-food “special buy” products in stores are being scaled back
and moved online to make room for high-end food and snacks
with high margins

• Automation is being extended at the point of sale (PoS) to pare

staff numbers (self-checkout terminals, shelf-scanning robots,
automated micro stores)

Strategy& | The future of grocery shopping 7

The speed of change varies across Europe
Traditional grocers in the UK, the Netherlands and France have been shaping the future of
the eGrocery market, but most German traditional grocers have been slow and cautious. In
Turkey, both traditional retailers and new online-only platforms are pushing the expansion of
the market.

UK
The UK online grocery market is well developed and bricks and mortar players such as
Sainsbury’s, Tesco and Waitrose offer full product selections online. Ocado is the dominant
online pure player with a significant share of the total grocery market2. Both Tesco and Ocado
claim their online operations are profitable, although definitions of profitability vary. Customer
acceptance is high3: more than 30 percent of the population have ordered groceries online
and the number regularly buying groceries that way has doubled in the past decade.

Netherlands
Retailers in the Netherlands have also adapted. Albert Heijn is the leader, but gradually losing
market share to pure players Picnic and Jumbo, while being challenged by PLUS and Coop4.
Many consumers prefer home delivery (51 percent) to click & collect (12 percent)5.

France
The French6 market is also far ahead, with many offerings from retailers including E.Leclerc,
Carrefour, Auchan and Intermarché France. French consumers seem to favor click & collect
more than shoppers elsewhere: Auchan introduced grocery drive-through in France back in
2000 and by some estimates, click & collect accounts for 90 percent of online grocery sales
in the country. Today, 9 percent7 of French groceries are bought online.

Germany
Germany has a mature non-food e-commerce market, with close to 50 percent of both
electronics and fashion sales happening online. Until the pandemic, eGrocery was a very
modest market. However that has changed, with new ultra-fast delivery services such as
Gorillas and Flink entering the market in 2020 and shaking things up. REWE remains the
market leader in online groceries, offering home deliveries at set time slots, but international
players are also pushing into the relatively undeveloped market, including Picnic of the
Netherlands, which offers a milk-run service, and fast commerce companies Knuspr of the
Czech Republic and Norway’s Oda. Amazon Fresh is limited to the largest cities, including
Berlin, Hamburg and Munich. Long-established retailers including Lidl and Aldi have no
online fresh food grocery offering yet.

Turkey
Since the pandemic, 60 percent of people in Turkey have shopped for grocery items online
through a supermarket platform. Relatively low wages help make eGrocery more financially
viable than in some other countries and both supermarkets and discounters have launched
online sales channels. Migros, one of the pioneers in Turkey, has been selling groceries
online for more than 20 years and recently expanded into fast delivery with its Migros Hemen
service. Getir is also a strong performer. Discounters such as Şok and A101 offer scheduled
delivery of grocery items, whereas BİM provides a limited assortment online and focuses
instead on using its online channels to announce special sales in stores.

2 https://www.statista.com/statistics/280208/grocery-market-share-in-the-united-kingdom-uk/
3 https://www.statista.com/topics/3144/online-grocery-shopping-in-the-united-kingdom/#dossierKeyfigures
4 https://www.statista.com/statistics/659373/leading-online-supermarkets-based-on-share-of-shoppers-in-the-netherlands/
5 https://www.statista.com/statistics/672219/preferred-delivery-type-when-ordering-online-in-the-netherlands/
6 https://www.statista.com/forecasts/998270/online-grocery-shopping-by-store-brand-in-france
7 Global Data

8 Strategy& | The future of grocery shopping

 SECTION 2

How will grocery shopping in European markets

evolve by 2030?

Shopping with Susi – the retail journey of a fictitious customer in 2030

Metaverse Mobile
virtual reality shopping ly
ek
we
o ur ery
Y liv
de

De
10 livery
min in
. Y ot 5
ou -
sl

r d 6P
el M
iv
er
y

Experience shopping Last mile delivery

Susi

Grocery showroom Automated mini market

Source: Strategy& analysis Smart fridge

Strategy& | The future of grocery shopping 9

Susi’s grocery shopping journey in 2030

Susi now buys most groceries online, although she used to go to the supermarket several times a week.
Today is Monday, so Susi does her weekly grocery shop on her mobile phone, adding lemons and two
bags of pecans to the products automatically included in the basket of goods that she orders every week.
Selecting a delivery slot between 5pm and 6pm this evening, Susi completes her shop in three minutes.

At 5:30pm, Susi receives a notification that her order will be delivered in 10 minutes, then at 5:40pm sharp,
the driverless electric van stops at her doorstep. Retrieving her bags, she pops a return package inside
containing a T-shirt ordered online that proved disappointing.

On Wednesday, returning from work, Susi remembers her brother’s birthday. Locating the nearest mini market
online, she uses its app to put cake ingredients into her online shopping basket, then walks round the corner
to collect her order at an automated till.

Arriving home, she finds a bag on her doorstep containing two bottles of oat milk – reordered by her fridge
during the day.

When Saturday dawns grey and rainy, Susi heads to her nearest specialty grocery showroom with her friend
Martin. Browsing for fun, they find a premium cooking oil Susi’s mother would love. Using her smartphone
camera, Susi scans the can, following a link to purchase the oil. It will come in a can personalized with her
mother’s initials and be delivered directly to her mother’s house the next day.

Come Sunday evening, Susi debates visiting her local grocery shop next week to profit from the fresh food
counters, live cooking demonstrations and vegan coffee shop in the food court. But putting on her virtual
reality (VR) glasses to watch a TV series, she sees the latest ad from her grocery retailer. Its metaverse store
will allow you to stroll in as your avatar, with other shoppers, guided by a shopping assistant. As you shop
from virtual shelves, nutrition facts, recipe suggestions and sourcing details pop up, including a photo of
the farmer who grew the fresh produce. Checking out online, you choose your delivery method and time.
She chooses the metaverse experience over visiting the store in person.

Today, customers are showing growing interest in and acceptance of new business models.
Many younger people have already adopted the habit of buying groceries online. Now older
consumers are set to do likewise, after embracing other forms of e-commerce.

Younger people are often less frugal and price sensitive, and much more willing to pay for
convenient services and additional benefits. In the UK, 81 percent of consumers aged 54
or younger intend to continue or increase their online grocery shopping; in the Netherlands
65 percent; in France 70 percent and in Germany around 61 percent8.

The adoption of voice-based online shopping, using voice assistants and smart home
devices (Amazon Echo, Google Home), is increasing, with the highest adoption rates in
Germany and the Netherlands (11 percent), followed by France (9 percent) and the UK
(6 percent)9. Metaverse and VR devices are beginning to offer the characteristics of in-store
shopping, from home. We are on the brink of a multi-channel revolution.

8 Global Data 2022

9 https://www.pwc.de/de/handel-und-konsumguter/die-digitalisierung-krempelt-den-einkauf-um.html

10 Strategy& | The future of grocery shopping

EXHIBIT 2
Retail options are being tailored to needs and desires
Different business models serve different needs along the customer journey

Shopping needs Omni-channel grocery offering

Specialty
Voice showroom
commerce
Product Ultra-fast
delivery Smart shopping
craving Daily assistants
Specialties needs
Local Home Delivery
Weekly store
regulars Free-time slot

I. Base II. Current III. Future

III. Treats II. Add-Ons I. Basics channel development outlook

Monthly Home Delivery

Milkrun Automated
Meal regulars mini-market
Experience completion
Click &
shopping collect
Mobile Metaverse
commerce store

Source: Strategy& analysis

Strategy& | The future of grocery shopping 11

In July 2022, we surveyed 57 grocery industry experts, mainly based in Germany, France,
the UK, Turkey and the Netherlands, about the changes they expect to happen in the
market between now and 2030. A small number of responses from Spain, Switzerland,
Austria and Belgium were also gathered. We found that customer expectations are growing
significantly. Customer will become especially more demanding regarding eco-friendly
shopping, personalized offerings and virtual reality experiences (see Exhibit 3).

EXHIBIT 3
Customer expectations 2022 vs. 2030

27%

20% 20%
18%
16%
15%
15% 14%
13%
11% 11%
10%

7%

2% 2030
1%
0% 2022
Eco-friendly Personalized Flexibility to Quick and Various Advanced Social Other
shopping offerings choose easy web payment virtual reality commerce
fulfilment shopping options digital
option experience experience

Survey question: “What do you think customers currently expect (in 2022) from online grocery shopping and which expectations do you think customers will have in 2030?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

Customers want a seamless and flexible multi-channel customer journey, offering:

• Omni-channel online and offline options

• One-stop shopping options

• Efficiency and speedy service during purchase, checkout, delivery or collection

• Constant availability

• Availability on a smartphone

• Diverse payment options

They also seek personalized digital experiences, such as:

• Discounts, recommendations and loyalty programs

• Human contact online, including conversations with customer service personnel via phone,
chat or augmented reality

12 Strategy& | The future of grocery shopping

 • Immersive experiences via the metaverse, including virtual reality stores and
communication with store staff avatars

• Shopping via social networks, including digitally integrated community reviews of

products, and shoppable photos and videos

• Ecological awareness and sustainable shopping, with traceable origins and low-waste
packaging

• A section of Fair Trade and local products

• Premium products to satisfy high-income groups that want fresher, higher-quality products

How big will the market be?

Applying a wide variety of parameters, we used multiple regression analysis to build a model
that projects the likely growth of the eGrocery market in the UK, the Netherlands, France,
Germany and Turkey between now and 2030. We identified five factors shaping the pace of
growth: the level of digitalization, the level of technology, the degree of urbanization, the level
of food market development and GDP growth (see Exhibit 4).

EXHIBIT 4
Market model: Using multiple regression analysis to estimate future eGrocery markets

UK

Turkey

France

Netherlands

Multiple regression Germany

Data Data impact

availability (Statistical 5 input
variables
(2010-2030) significance)
eGrocery market size 2030
Online Grocery development Germany
eGrocery share development
11.15%
12%
Final parameters:
10%
8.30%
Level of digitalization Food market development
8%
6.05%

6% 4.82%

Level of technology GDP growth 3.67%

4%

2%

Degree of urbanization 0%
2022 2024 2026 2028 2030

Strategy& analysis and Strategy& market model July 2022

Strategy& | The future of grocery shopping 13

EXHIBIT 5
eGrocery market share projection by country in percentage of total food market for the years 2022 and 2030

26%
25% 23%

22%
21% 19%

11%
9% 11% 10%
8%
17% 16% 16% 9% 9% 2030 Aggressive scenario
2030 Moderate scenario
4% 3%
7% 7% 2030 Conservative scenario
2022 Status Quo

Source: Strategy& analysis and Strategy& market model July 2022

Our model projects that over the coming seven years the online share of total grocery sales will
rise to around 26 percent in the UK (from 11 percent today), 25 percent in the Netherlands
(8 percent), 23 percent in France (9 percent), 11 percent in Germany (4 percent) and 10 percent
in Turkey (3 percent) (see Exhibit 5, page 14 and Exhibit 6, page 15). Sales in existing stores
are forecast to decline – respondents said they expect sales per store to fall by an average of
19 percent by 2030.

Looking out as far as 2050, a higher degree of uncertainty is reflected in the wide variations
in responses. However, respondents expect the market share of online grocery shopping to
increase to between 35 percent and 50 percent in each of the five countries by that date. On
average, respondents in Germany expect the market share there to be 43 percent by 2050 –
a tenfold increase.

The growth of eGrocery is slowed by the complexity of logistics chains, which need to be able
to handle dry, chilled and frozen goods, and by the sensory appeal of shopping for food in
person, allowing customers to feel, smell and taste produce before they buy. Nevertheless,
some 95 percent of respondents said online grocery shopping will have a ‘significant’ or
‘rather significant’ impact on the traditional grocery market, reflecting the need for retailers to
take action now.

14 Strategy& | The future of grocery shopping

EXHIBIT 6
Projected growth of eGrocery sales in selected countries as percentage of total market

Online Grocery development UK Online Grocery development France Online Grocery development Netherlands
eGrocery share development eGrocery share development eGrocery share development

30% 30% 30%

26%
25%
25% 25% 23% 25%
21%
20%
20% 20% 20% 18%
17%
16%
14% 14% 14%
15% 15% 15%
11% 10%
9%
10% 10% 10% 8%

5% 5% 5%

0% 0% 0%
2022 2024 2026 2028 2030 2022 2024 2026 2028 2030 2022 2024 2026 2028 2030

Online Grocery development Germany Online Grocery development Turkey

eGrocery share development eGrocery share development
11%
12% 12% 10%

10% 10% 9%
8%

8% 8% 7%
6%
6% 6% 5%
5%
4%
4% 4% 3%
Aggressive scenario

2% 2% Moderate scenario
Conservative scenario
0% 0%
2022 2024 2026 2028 2030 2022 2024 2026 2028 2030

Source: Strategy& analysis and Strategy& market model July 2022

The eGrocery share is expected to grow significantly in all assessed

countries, which will have heavy implications on the entire industry with
profitability challenges, required reassessments of store and logistic
infrastructure and new capabilities needs.”

Strategy& | The future of grocery shopping 15

SECTION 3

Picking the most promising eGrocery business models

Grocery retail as we know it today will continue for some years, anchored by stores that offer
fresh food, sensory and human interaction, and by their capacity to act as a showroom. But
lots of new business models are pushing into the market, such as Gorillas, which promises
“groceries at your door in minutes” in major cities across Europe – a very different business
model to that of traditional players such as Lidl (see Exhibit 7).

EXHIBIT 7
Current and emerging eGrocery models – by retailer type, delivery model and supply area

Home delivery Click & collect

Others
(e.g., self-
Ultra-fast Fast commerce Free time slot Milk run At stores service lockers)
commerce (fixed time slot)

City (> 100,000)

Supply area by Town (> 20,000)

number of
inhabitants Village (> 5,000)

Rural ( < 5,000)

Tesco REWE Sainsbury’s REWE Auchan REWE ASDA

Bricks and Waitrose ASDA Waitrose ASDA Auchan
Migros Carrefour Auchan
mortar retailers Tesco Albert Heijn Tesco
Tesco Monoprix
Migros Sainsbury’s Migros Albert Heijn

Gorillas Flink Knuspr Ocado Picnic

Online istegelsin Bringmeister eismann Getir
Zapp Getir
supermarkets Crisp Amazon fresh bofrost
Yemeksepeti myTime

flaschenpost HelloFresh Ekoplaza

Niche players Ekoplaza

Bringoo Amazon
Deliveroo
Platform Trendyol GO hepsiburada
aggregators Uber Eats
hepsiburada Trendyol GO

Technology Ocado Swisslog Amazon Dematic Takeoff

companies SAP Obsess Spryker Alphabet Microsoft

Source: Strategy& analysis

16 Strategy& | The future of grocery shopping

 When we asked which business models will be most likely to prevail in the long term,
respondents predicted that traditional discounters and full-range retailers would endure
alongside technology companies. But they were divided on the prospects for pure online
retailers: 37 percent think they will very probably thrive, while 24 percent doubt their long-
term success (see Exhibit 8).

EXHIBIT 8
Business models prevailing in the long term

Technology
companies
6% 27% 67%

Traditional
discounters
6% 39% 55%

Traditional
full-range retailers 12% 43% 45%

Specialized
providers 27% 31% 43%

Platform
aggregators 12% 49% 39%

Pure online
supermarkets 24% 39% 37%

Direct-to-consumer
companies 22% 41% 37%

Not likely Likely Very likely

Survey question: “Which types of business models will be most likely to prevail in the long term?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

Click & collect is available almost everywhere, but the range of eGrocery options tends
to decline as population density diminishes. Ultra-fast is available only in major cities, but
regular milk-run deliveries like those offered by Netherlands-based international retailer
Picnic may also work in smaller cities and suburbs.

When we asked which delivery model, from click & collect to ultra-fast delivery, was likely
to lead the market in 2030, 39 percent of respondents said delivery within a selected time
window. As Exhibit 9, page 18 shows, this is the option with by far the highest expectation
of success.

Strategy& | The future of grocery shopping 17

EXHIBIT 9
Business models prevailing in the long term – by delivery model

Delivery within a fixed time window

(Milk run)

Click & collect

9%
at stores

11% Delivery within a

selectable time
39% window

Click & collect

at other locations 12%

14%
14%
Delivery within
30 minutes
Delivery within 120 minutes
30 (Ultra-fast delivery)
(Fast delivery)
120

Survey question: “Which of these business models do you think will account for the largest market share of online grocery in 2030?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

eGrocery business models differ not only according to what they offer and where they are,
but also in their product range and the customer segments they serve. For now, traditional
retailers serving the mass market and offering a broad product range occupy the most
crowded sector of the online grocery market, as Exhibit 10, page 19 shows:

18 Strategy& | The future of grocery shopping

EXHIBIT 10
Current and emerging eGrocery models – by target consumer segment and product range

Mass Stock-up service Mass convenience

ASDA
Migros Auchan
Sainsbury’s Tesco Uber Eats
Target consumer segment

Albert Heijn Deliveroo

Getir Zapp EDEKA24 Picnic REWE Bringoo
Waitrose Amazon Fresh
Gorillas Flink
Bringmeister
flaschenpost
Monoprix
eismann
HelloFresh Crisp Knuspr
Hawesko Ekoplaza myTime

Macrocenter

Premium Premium shopping basket Premium convenience

Focused Broad
Product range

Source: Strategy& analysis

As technology develops, online retailers will be able to develop business models tailored to
different situations and products. Some will target:

• Spontaneous cravings such as sweets, snacks, drinks, ice cream or wine, fulfilled by
ordering via an app from an ultra-fast delivery eGrocer – but at a price

• Top-up products to complete a meal such as sauces, toppings and herbs. These are
another target for ultra-fast delivery eGrocers or click & collect models using robotic local
mini-markets, especially in urban areas. If consumers switch from a large weekly order to
frequent top-ups, supermarket revenues may decline

• Daily needs for differentiated products. Though some shoppers may continue to visit
favored supermarkets for fresh vegetables and organic meat, these can also be ordered
online for delivery or collection

• Weekly regular product needs, such as pasta, bread and milk. These are ideal for
supermarket in-app features like pre-built shopping carts based on previous purchases,
for regular collection or delivery. Smart fridges or shelves, re-ordering automatically, might
render store visits obsolete for some customers

• Monthly regular product needs such as toilet paper, detergent and cleaning supplies.
These could be delivered via a subscription model or ordered by voice command via
Google or Amazon. That could affect brand loyalty and facilitate a shift to buying the
cheapest option. However, such a change could also free up space for retailers to focus
on higher-margin products

Strategy& | The future of grocery shopping 19

To prosper, ultra-fast online suppliers and digital start-ups will need to focus on dense urban
areas where delivery can be cost-effective. Meanwhile, pure online supermarkets can attract
those short of time, including parents, by delivering products to their homes during fixed
time slots. Many supermarkets have moved into home delivery and click & collect to defend
market share against online-only rivals. However physical stores are well placed to develop
an omni-channel strategy, because a dense store network and a sophisticated multi-
temperature national and local logistics network can offer a competitive edge.

Studies have shown that omni-channel customers tend to spend more on every shopping
occasion than their pure online/offline counterparts10. We believe this holds true for the
grocery market too because omni-channel players have a close customer relationship and
ample information about the breadth of customer needs. They also provide customers with
established and trusted channels to resolve any problems that arise. Collaborating with
online players can provide traditional grocery chains with the new capabilities they need and
speed their expansion into becoming omni-channel players.

Quick commerce is also a much riskier business model, both financially and reputationally
when it comes to issues such as labor policies, so working with an existing player may be
a less dangerous approach for store-based retailers than starting to build their own service
from scratch.

REWE’s collaboration with Flink is a good example. REWE has already built up a strong home
delivery and click & collect business, on top of its existing stores. Now the retailer is
increasing its range of home delivery options and becoming more of an omni-channel player,
with the ability to offer delivery of a range of products within one day, or ultra-fast bike
delivery by Flink.

Platform aggregators and tech companies meanwhile certainly have the technology and skills
to grab a slice of the eGrocery cake. Offering existing customers grocery delivery too seems
an easy extension of their business, at least for dry goods, though weight could be an issue
and the logistics of delivering chilled foods are more challenging.

Niche players, which offer a specific assortment of premium-quality products for a very focused
target group, can do well, either locally or by supplying premium branded products such as
health supplements and coffee capsules.

What is undeniable is that more and more companies are entering the online grocery market.
Exhibit 11, page 21 shows what survey respondents believe the competitive landscape will
look like in 2030:

10 https://hbr.org/2017/01/a-study-of-46000-shoppers-shows-that-omnichannel-retailing-works

20 Strategy& | The future of grocery shopping

EXHIBIT 11
Likely eGrocery player trends by 2030

Consolidation has
taken place 10% 46% 44%

Bricks and mortar

retailers are 31% 40% 29%
dominating

Pure online
supermarkets 38% 33% 29%
have taken over

Big tech companies

are dominating 35% 52% 13%

Market is highly
fragmented 31% 56% 13%

Not likely Likely Very likely

100%
Survey question: “What will the competitive landscape look like in online grocery in 2030?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

The road to 2030

The grocery market is vast and we believe there is space for many online business models to
coexist, some local, others national or international, attuned to different shopping occasions
and customer preferences. Consolidation may be focused upon particular areas such as
quick commerce, which is unprofitable, highly competitive and likely to see the type of
concentration that already happened in meal delivery (see Exhibit 12, page 22).

None of the ultra-fast delivery companies we examined was profitable. Now, the war in
Ukraine and the resulting political decisions respectively, has been driving up energy prices
and inflation everywhere, causing consumer demand for premium products and more
expensive services to slump. Massive inflows of seed capital are likely to dry up as interest
rates rise: some contenders will lose the race for scale.

In the long term, the profitability of ultra-fast delivery companies will depend on the size
of shopping carts, delivery fees, capacity utilization of deliverers, customer loyalty and
how often they shop. Ultimately, only one or two big, ultra-fast players and some niche
contenders are likely to survive.

Strategy& | The future of grocery shopping 21

EXHIBIT 12
Germany’s meal delivery market has undergone dramatic consolidation

A similar development might happen for ultrafast delivery

Foodora

Pizza.de Delivery Hero

Lieferando

Lieferando Lieferando Lieferando

Deliveroo

Delivery Hero Deliveroo

Deliveroo

Fragmented First Second Current

market consolidation wave consolidation wave state

Source: Strategy& analysis and illustration of selected market section

Bricks and mortar grocery, however, is already largely consolidated. Developing eGrocery
services will be a way for store chains to slow their loss of market share as new online
challengers expand. But some will prove better at eGrocery than others and market share
might shift between players in different locations. Some traditional retailers might buy pure
online grocers before they reach critical size, or partner with platform aggregators, perhaps
internationally. This would give them additional customers, technology and vital back-office
infrastructure. Similar advantages arise from partnering with retail tech specialists (Amazon,
Ocado), permitting labor efficiency gains and access to vast logistical infrastructure and
digital capabilities.

Early eGrocery business models have often been country-specific, but the most effective and
transferable ways of doing business are now becoming clear. As competitors gain share and
learn quickly, the risk of falling too far behind to catch up increases significantly because
rivals are already learning how to succeed online and gaining market share. It is time to act:
players should start conducting market tests and building expertise in online transactions
and delivery to lay the foundations for scaling up.

22 Strategy& | The future of grocery shopping

 SECTION 4

Searching for eGrocery profitability

The development of online grocery sales has been hindered by low margins, the fragility
of some products and weight of others, and the need to keep products chilled or frozen.
But now consumers everywhere are used to ordering almost everything else online and are
increasingly willing to buy groceries in the same way. Yet many eGrocers are losing money
and for omni-channel grocery retailers, online is likely to be margin dilutive. Yet as our survey
responses above show, customers want a convenient online delivery service and there
are plenty of companies offering that, so retailers cannot refuse to take part without losing
market share.

Exhibit 13 shows the main hurdles to eGrocery profitability today, as rated by our survey
respondents:

EXHIBIT 13
Current hurdles for online grocery’s breakthrough

High operational
Low economies of complexity of
scale and respective 0 food delivery
high unit costs 0

1/6 survey participants rates

respective issue as main
1/6 survey participants rates 0
hurdle for eGrocery success
respective issue as main 0
hurdle for eGrocery success

0
0 Consumers' limited
willingness to pay for
delivery services
High investment
costs for logistics
infrastructure 1/5 survey participants rates
respective issue as main
hurdle for eGrocery success
0
1/4 survey participants rates
respective issue as main
hurdle for eGrocery success 0

Survey question: “What are the current key hurdles limiting the online grocery market’s breakthrough and financial success?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

Strategy& | The future of grocery shopping 23

The good news is that retailers and industry experts expect this situation to change: around
90 percent of our survey respondents expect online grocery to be profitable by 2030.
eGrocers have two broad routes to closing the profit gap: they must sell more, at better
margins; and they must find ways to cut costs. Looking at each in turn, success according
to our survey respondents means (see Exhibit 14):

EXHIBIT 14
Concrete cost-reducing and revenue-enhancing measures will allow online grocery to become profitable in the future

Cost-reducing measures1 Revenue-enhancing measures1

Advertising revenues,
Economies of scale in 23% 19% data monetization, and
logistics
retail media
Automation technology in
Growing customer base
darkstores or fulfillment 23% 19%
increasing overall revenue
centers

Smart routing drop rate optimization

17% 19% High margin products
reducing cost of last mile

Autonomous driving vehicles,

13% 18% Personal product
drone delivery, and
recommendations
other last mile technologies
Usage of customer data for highly Additional services
11% 15%
targeted marketing campaigns such as subscriptions

Artificial intelligence boosting Delivery fees to cover

5% 5%
efficiency in processes basic operational costs

Online grocery specific Focus on high price

4% 3%
product packaging products

Other 5% 2% Other

1 Percentage of respondents who believe the measure is most likely to make online grocery profitable
Survey question:
a) “What concrete cost-reducing measures will allow online grocery to become profitable in the future?”
b) “What concrete revenue-enhancing measures will allow online grocery to become profitable in the future?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

Without exception, companies will need to adapt and upgrade all operations, developing a
lean discount assortment and tailored packaging for online order delivery, cost-efficient and
automated last mile delivery, automated infrastructure and efficient picking, and low-cost
payment solutions.

Automation, robotics and data analytics will play a vital role in transforming the profitability
of online grocery shopping (see Exhibit 15, page 25). Although self-driving trucks and
widespread use of delivery drones remain a distant prospect, there is much that managers
can do today to enhance sales, improve operational efficiency and lower costs.

24 Strategy& | The future of grocery shopping

EXHIBIT 15
Which fulfilment technologies will most help online grocery become profitable?

Predominant technologies/models used for commissioning in online grocery in 2030

Fully automated
large scale 9% 41% 50%
warehouses

Micro-fulfillment
centers
9% 50% 41%

Darkstore 17% 54% 28%

In-store
picking 52% 41% 7%

Predominant technologies/processes used for the last mile delivery in online grocery in 2030

Electric vehicles 4% 35% 61%

Artificial Intelligence
routing
7% 43% 50%

Small means of
transportation 9% 52% 39%

Drones 52% 37% 11%

Autonomous
vehicles 41% 48% 11%

Not likely Likely Very likely

Survey question:
a) “What will be predominant technologies/models used for commissioning in online grocery in 2030?”
b) “What will be predominant technologies/processes used for the last mile delivery in online grocery in 2030?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

When it comes to assessing profitability, it’s important that retailers with both bricks and
mortar stores and online sales look at the P&L across the entire enterprise. The benefits also
go beyond the profit generated by each transaction: omni-channel customers are particularly
valuable because of their loyalty, as described earlier. eGrocery is also attractive because
retailers can learn a lot about customers by collecting data, which can be used beneficially
across all their channels.

Strategy& | The future of grocery shopping 25

SECTION 5

Time for retailers to act

Store-based retailers
The core business of traditional, mainly store-based retailers is endangered. Those who fail to
adapt risk losing market share, declining footfall and dwindling profits. Those who delay their
online launch risk being shut out by early entrants who gain market dominance. The early
movers that take a market-leading position will gain powerful economies of scale, making
them all but unassailable. They will also build a group of loyal customers who become reluctant
to switch suppliers. Ultimately, a head start also enables them to learn and implement best
practice in picking and delivery, as well as optimizing shoppers’ baskets. Followers will struggle
to catch up.

EXHIBIT 16
Potential impact of growing eGrocery share on physical stores´ profitability

Current status 2022 Projection 2030

4-11%1 4.5%1 11-26%1 0.7-2.9%1

eGrocery market share EBIT of physical stores eGrocery market share EBIT of physical stores

Profits of physical stores might decline by -35% up to -85% depending on the specific country and eGrocery
growth from 2022 to 2030. While stationary revenues and variable cost decrease, the store network’s fixed
cost remains constant and thus squeezes the EBIT margin.

1 Range across countries in scope (UK, the Netherlands, France, Germany and Turkey)
Source: Strategy& analysis. Indicative calculation for fictitious retailers with store network and substantial fixed cost structure

The continuing growth of eGrocery will likely cannibalize in-store sales. Because these have
high fixed costs, their profitability is expected to plummet by up to 80 percent – or possibly
more (see Exhibit 16). The bigger the shift to online grocery purchasing, the bigger the decline
in profitability of stores:

• Our model predicts that eGrocery’s market share will rise from 11 percent to 26 percent in
the UK by 2030, which risks pushing in-store profits down by 75 percent

26 Strategy& | The future of grocery shopping

 • In the Netherlands, the jump from 8 percent to 25 percent would result in an 85 percent
drop in in-store profits

• In France, the move from 9 percent of grocery sales online to 23 percent could send
profits down 70 percent

• In Germany, the change from 4 percent to 11 percent could result in in-store profits
slumping by as much as 35 percent

• In Turkey, eGrocery’s market share will rise from 3 percent to 10 percent, whereas in-store
profits will decrease by 30 percent over the same period

To address this threat, firstly retailers can cut costs by shedding their least-profitable stores,
reducing size and renting out unused space. They can also minimize staffing, notably by
using automated checkouts and shelf-scanning robots. Secondly, they can improve logistics
and warehouse infrastructure. Thirdly, they can rethink what their stores offer. Stores can
become both picking locations for home delivery and click & collect orders. They can become
experience shopping stores, providing leisure activities and focused on fresh and premium
products (see Exhibit 17).

EXHIBIT 17
Which fulfilment technologies will most help online grocery become profitable?

33%

27%

17%
14%

5%
4%
1%

Stores serve Stores become Store properties Stores are Stores cannot Stores are Others
both as classic experience are freed up due enhanced prevent the converted into
stores and as shopping to reduction by additional decrease of click & collect
picking locations venues with in frequency frequency revenues due pick-up
or distribution leisure as well as drivers such to rising online stations only
centers activities product range as in-store grocery shopping
consolidation restaurants

Survey question: “How can bricks and mortar grocers modify stores to mitigate decreasing store profitability due to the growing online grocery market?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

Strategy& | The future of grocery shopping 27

Our survey responses show 33 percent of participants believe stores will serve as both
traditional stores and pick-up/distribution centers for home delivery and click & collect
orders, while 27 percent think stores will become experience shopping venues (see Exhibit 18).

EXHIBIT 18
Most important success factors for bricks and mortar retailers’ transition to online grocery

Strong brand
positioning
26% 74%

Store
infrastructure
43% 57%

Omni-channel
offering 41% 59%

Negotiation power
over suppliers 54% 46%

Efficient logistics 67% 33%

Long-term
experience 74% 26%

Global, national,
local assortments 96% 4%

Percentage of respondents rating as less important Percentage of respondents rating as important

Survey question: “What can be key advantages for traditional full-range retailers and discounters compared to online grocery?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

Traditional retailers have many strengths, ranging from strong brands to efficient logistics,
experience and an offering that is drawn from national and local suppliers. These are factors
that challengers can take years or even decades to replicate.

Full-range retailers and discounters will each face different types of disruption. To stay
successful, both will need to break down organizational silos, empower employees and
become lean, agile and omni-channel. To do so, they will need to invest heavily in digital
technologies, automation, talent and training. To attract the necessary skills they must
become modern, attractive employers, friendly, non-hierarchical and well led. And they must
understand and embrace the global drive for sustainability, overhauling products, packaging
and delivery, and creating a single, green, efficient, integrated omni-channel supply chain.

Our survey respondents prioritized the following success factors (see Exhibit 19, page 29):

28 Strategy& | The future of grocery shopping

EXHIBIT 19
Most urgent changes for bricks and mortar grocery retailers

Customer
data
2% 17% 80%

Digital
capabilities
2% 22% 76%

Sustainability
efforts 15% 46% 39%

Agile and lean

org. structure 24% 37% 39%

Attractive
employer 17% 48% 35%

Supply chain
integration 9% 61% 30%

Personalized
shopping 7% 74% 20%
experience

Partnering with
other companies 17% 65% 17%

Not likely Likely Very likely

Survey question: “What changes do existing bricks and mortar grocery retailers most urgently need to make to properly position themselves for the future?”
Source: Strategy& analysis and Strategy& industry expert survey July 2022

The executives we surveyed were very clear that bricks and mortar retailers should develop
digital skills within the next two years. They need to better leverage their customer data and
improve their environmental performance, as well as making their organizational structure
more lean and agile.

In the eight years to 2030, the fastest growth is expected to be in home delivery, followed by
click & collect, while the number of automated mini-markets is also likely to increase. Sales
from traditional stores will continue to decline, however.

Strategy& | The future of grocery shopping 29

Full-range retailers have customers who are less price-sensitive and their products often
have higher margins. Combined with their existing purchasing economies of scale and strong
logistics, this gives them a competitive edge over pure online players and could help them
achieve early online profitability. But delivery speed and customer experience also matter.
Finding the optimal balance will take imagination, experimentation and effort. The time to
start is now.

Discounters face a bigger challenge because their operational and delivery costs are
proportionally higher relative to their low-margin products; automation will be essential to
achieve online profitability. They are most at risk of losing market share as convenience-
seeking consumers increasingly order top-up products from new online players, while
full-range retailers and specialized niche players focus on fresh and local products and a
pleasant in-store experience to attract premium-paying customers. Discounters must act
now if they want to prevent challengers such as Picnic, with slick technology and low prices,
from gobbling discount customers and market share. The good news for discounters is that
they already operate with a laser focus on keeping costs down, which should help them
achieve eGrocery profitability as they establish their online channels. The current period of
high inflation and the threat of recession will also play to discounters’ strengths, as shoppers
become more price sensitive.

During our research we also looked at the implications for logistics operators and grocery
suppliers. If you would like to know more about our findings regarding these players, please
get in touch.

As our research and survey responses make clear, online grocery retailing will make greater
and greater inroads into the traditional market in the decade ahead. While bricks and mortar
stores will still have a significant market share, their revenue and profitability will be eroded as
consumers take advantage of the convenience of new digital services. The full extent of the
change to an omni-channel model and the exact road ahead are still unclear, but the grocery
retailers already getting it right online are pointing the way.

30 Strategy& | The future of grocery shopping

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