BUILDERS
Senior management and the company boards will need to have nerves of steel if they want to stay the course.
In March 2020, I tried to place orders on the Provigo, Maxi, Metro and IGA websites and discovered that I would have to wait 10 days for delivery. I ended up ordering from Young Brothers, my neighbourhood grocery store on Van Horne, which offered same-day delivery. Product quality was top-notch, and they called me without fail if an item was out of stock, to get my approval on a substitution.
What have the large grocery banners done to improve their service over the past year? What steps will they take to maintain their share of the online grocery trade, despite having inherited business and asset allocation models that are centred on the in-store experience?
Improved service level still falls short of target
Their service has improved far beyond my expectations, but it has yet to reach a level that will ensure they can prevail long-term: same-day service, no unauthorized product substitutions and a delivery fee that works out to less than 5% of the order total.
I placed a few orders with Metro last year. They offered 48- or 72-hour service starting last summer, and their product offering was larger than Young Brothers’. Every single order was incomplete or had product substitutions that didn’t fit the bill. The product substitution problem is ongoing, and delivery times are still 24 to 48 hours. So I no longer order online from Metro☹.
I recently tested IGA’s online service. The order was delivered within 24 hours, and filled 100%. They informed me the next day that IGA would no longer offer online ordering in my neighbourhood, which is right in the heart of Montreal. I felt like I had been dumped after a first date 💔.
I also gave Provigo another try, and that is where I had the biggest surprise. The best they could offer in March 2020 was curbside pick-up the following week. This time around, my order – placed at noon – was delivered at 5PM the same day. They also called me for approval of minor substitutions. Sheer bliss – almost…but only ‘almost’ because I had to pay a $9.95 delivery fee. That’s quite high for my $115 order, but it would not have been so bad for an order worth $250, back when the kids were still at home🤔.
The search for sustainable solutions
The solutions available in Quebec are currently based on manual assembly in-store. Retail margins are thin in this business, and this approach is not viable on a large scale. That’s why Sobeys, Loblaw and Metro will have to invest hundreds of millions more to come up with a durable automated solution in what has been, to this point, a learning process by trial and error. They have healthy balance sheets, but are now facing competition from native apps set up by Millennials.
Who’s going to win this battle? It’s too early to tell.
In Canada Sobeys has a head start on its two rivals
Of the three major banners, Sobeys is the farthest ahead in terms of vision, know-how and investment. The company had signed a partnership agreement in the fall of 2018 – a full year and a half before the pandemic – with Ocado, the U.K.’s leading online grocer. The plan is to launch a nationwide platform, called ‘Voilà’. The backbone of Voilà’s national network will be 3 or 4 ‘Consumer Fulfillment Centers’ (‘CFCs’): fully robotized mega-warehouses, each one serving customers within a 200-km radius. The CFCs will be located in the four main urban centres – Toronto, Montreal, Calgary and Vancouver – that make up 75% of the Canadian market. The robots in these warehouses can assemble an order in 5 to 10 minutes.
Mini-warehouses that also use robots will serve secondary markets like Ottawa, Edmonton and Quebec City. Rural markets will have access to an in-store pick-up service. All three types of service will be supported by the same integrated system developed by Ocado.
The first Voilà CFC was opened in Toronto in the summer of 2020. The second one, in Montreal – along with the Ottawa and Quebec City mini-warehouses – will open in early 2022. In-store pick-up using the Voilà platform was launched in Nova Scotia in the fall of 2020.
In the U.S., Ocado is the exclusive partner of Kroger, the most advanced e-commerce supermarket chain in the country
The viability of a model based on mega-warehouses, however, remains unproven. It minimizes inventory shortages, as well as order preparation time and costs, but delivery costs and added delivery times over distances of up to 200 km could outweigh the gains in the warehouse.
The first CFC opened by Sobeys in Toronto in June 2020
All of the platforms in China are linked to micro-warehouses in customers’ neighbourhoods, so the priority is reduced costs and delivery times from the warehouse. If the mega-warehouse experience falls short, however, Sobeys could change tack and work with Ocado to deploy networks of mini-warehouses in the major urban centres.
Loblaw regains lost ground
In November 2019 – four months before the pandemic began – Loblaw signed an agreement with Take Off Technologies. This U.S.-based company offers a solution based on a network of automated neighbourhood mini-warehouses called ‘MFCs’ (‘Mini Fulfillment Centers’), which can be set up in existing stores. This solution from China has been adopted by a number of U.S. merchants: Safeway, Stop&Shop, HEB, Wal-Mart and Shop Rite.
At Metro, a more cautious route
Before the pandemic started, Loblaw developed a tried-and-true in-store pick-up system, which proved quite useful in 2020. The company added Instacart services at the start of the pandemic, and has, since then, continued to invest in its own stores’ delivery capacities. The MFC pilot project was launched in a Toronto-area Real Canadian Superstore in 2020. While Loblaw has not released any results to date, management did say last fall that Loblaw’s growth strategy over the next few years would be centred on this model. No news since then. Has management changed its mind, or is this company also getting ready to announce an ambitious plan?
Metro is being cautious – and very discreet – about its plans. When you sign up online for delivery service, they ask you to choose your favourite store. The fact is, however, that your orders will very likely not be processed at this store. Up until now, all online orders for delivery in Quebec have been processed manually in one of nine existing stores set up with a dedicated team and space for online orders. The company has also set up two similar stores in Ontario.
In the summer of 2021, they opened a dedicated warehouse spanning 110,000 square feet to handle 100% of the on-line orders on the Island of Montreal. A broader range of products is stocked there, but orders are still processed manually. Specialized stores serving less populated areas of Quebec will remain in place for now, and the company intends to build a dedicated warehouse in Toronto, similar to the one in Montreal.
The Metro warehouse dedicated to on-line orders in Ville St-Laurent
A non-automated warehouse would obviously not be able to handle most of the volume for a chain like Metro. Management has likely decided to wait and see which model works best at Sobeys and Loblaw before investing significant capital.
A poker game?
Sobeys is investing heavily in automated order processing. Loblaw seems to have hit the pause button on its automation plans, opting to improve its service level by deploying manual order processing in its existing stores. Metro is sticking to manual solutions for now. None of this, however, can be paying off just yet. The transition to e-commerce reduces margins in the short term and calls for major capital investments, while the long-term success of each solution remains uncertain. Senior management and the company boards will need to have nerves of steel if they want to stay the course, but they do have the funds they need to see it through.
Native apps are not facing as much pressure, since they do not have to think about the profitability of a network of brick-and-mortar stores.
I am eager to see how the dedicated Metro and ‘Voilà by IGA’ warehouses in Montreal will impact these companies’ level of service. For now, I will continue dealing with Provigo and Young Brothers for most of my groceries. I also go to Marché Laurier to pick up baskets of vegetables from the McGill students’ farm, where my daughter works. I have also just reactivated my Goodfood account, so I can try out the new WOW service.