EMPORIX INSIGHTS "What's next in grocery e-commerce?"

Enjoy the recording of our EMPORIX INSIGHTS web seminar

"What's next in grocery e-commerce"

with

Ulrich Theilmann from MPREIS

Carsten Thoma Investor & Entrepreneur

Eberhardt Weber Co-Founder & CEO of Emporix.

Emporix insights: what’s next for grocery e-commerce? Lessons from e-commerce winners

Frank Smith (chair): Welcome everybody to this very first and special episode of Emporix insights where we will be asking the question: what’s next for grocery e-commerce?

Today I am joined by three heavyweights of the e-commerce sector and together we will be taking a look at digital transformation in the grocery industry and asking what it takes to win.

With me I have the man behind one of the very first European tech unicorns; a visionary, investor, entrepreneur and thought leader, Mr Carsten Thoma. We also have the digital transformation and e-commerce lead at the hugely popular Austrian grocery chain, MPREIS, Mr Ulrich Theilmann. And last, but not least, we have founder and CEO of headless commerce software specialist, and our hosts today, Emporix, Mr Eberhardt Weber.

I would like to start by asking Ulrich the first question – MPREIS has been running grocery delivery services for a number of years now and you’re currently in charge of relaunching its online platform. I wondered whether you could talk us through some of the fresh thinking that has led to this, and your overall strategy?

Ulrich Theilmann: Yes, we started some years ago. I joined MPREIS one and a half years ago and we started by taking a look at the digital landscape. What we saw was that we had a lot of experience-driven marketing in place, but the e-commerce solution was really old. We decided to build a new architecture to be more flexible in the future, as it is an area that we want to grow. At the beginning it was more of a test, but now we have found a partner where we can set the whole system up with a solid foundation, so we’re really happy to be working with Emporix on this.

FS: And when you talk omnichannel with MPREIS, what does that mean for you?

UT: We have around 250 stores in Austria and of course most of the business is still in these stores, but we are trying to bring the two distribution channels of instore and online closer together. The basic need of the customer is that they want to buy something, and they don’t need to make up their mind about how and where they want to buy it. If the customer is out at work, they might want to go to the store nearby, or during the night they might want to purchase the goods online. For me, an omnichannel approach is one that can enable you to serve the customer no matter where they are, or through which distribution channel they want to use.

FS: Is this about targeting new types of customers, perhaps younger customers?

UT: No, they’re not necessarily younger. I think it’s more of a convenience factor. We are seeing lots of family customers shopping online, for example.

FS: And have there been any other benefits from the digital storefront? Potential cost-savings, for example?

UT: For the first time, we are able to display the whole assortment of our products online through the digital storefront. Before, the website was just a place where we could talk about our values, or the nice architecture of our stores, for example, but what is the customer actually searching for? They want to find our products, find out which are on sale. This is now provided by the digital storefront that we launched in the summer.

It also means that we can approach a lot of customers via a digital channel. We used to only use print marketing to reach customers. We know from research, however, that we were only reaching a maximum of 50% of customers with our print marketing, and we don’t know how many of those will just throw it away. We just didn’t reach the other 50% before. With our digital storefront we now have the opportunity to reach them all, and to reactivate them again and again.

In the beginning there’s no cost saving because it’s an additional channel that is being introduced, but I think that over time we will phase out the print marketing altogether, and there will be cost savings there.

FS: Carsten, you’ve been successfully building and investing in technology companies for quite a long time – since the late nineties and the early days of the internet. How do you think the grocery sector is progressing in terms of its digital transformation and how would you compare it to other sectors that you have been involved in?

Carsten Thoma: It’s a good question. Grocery is very similar to other industries where a few years ago we wouldn’t have expected fast progression and digital transformation. It’s also a good example of what happens if a big a gap opens up that players can attack. In this industry, for sure, the incumbents didn’t move fast enough to protect themselves from that type of disruption.

I remember when I used Instacart for the first time. It was years ago, and I have to admit that it was a fairly rudimentary service back then. I was intrigued. The order arrived at my hotel but it was really not a great user-experience. But, it did serve a specific purpose. It also reflected a lot of what was going on in the Bay Area back then, geared towards the gig economy. We know what happened next – it started to show up in more metropolitan areas and continued growing. It took advantage of what, on one side, was a lot of cheap labour and on the other side was a lot of capital. And soon enough they will take the next steps too.

We have seen this in other industries. I remember when we were smiling about Mercedes taking a stake in Tesla and then selling it when they were not happy with it anymore. There were a lot of other joint ventures between the traditional motor industry and Tesla, but before it got serious they all sold their stakes. So, with grocery, it’s definitely something that will take further steps forward, but the good news is that, compared to other industries, there is still enough time to prepare for that and not miss the opportunity.

FS: And what sort of role do you see technology playing? What sort of technology is needed to accelerate the growth of the grocery sector?

CT: You certainly don’t need the levels of funding that Instacart has – you don’t need hundreds of millions of dollars. There are robust platforms available if you focus on the right things, such as the quality of your product data and the quality of the process – how you pick the products, how you integrate into the last mile, how you can stay competitive etc. And these solutions have gotten more affordable. These are not propriety solutions that Fresh Direct or other such companies had to build in the early days. Yes, it is still complex – grocery is an advanced industry – but we are in the fourth generation of cloud software now. We can deliver solutions that bring value to the customer in terms of the quality of your products that you can deliver in your cart, in the delivery window, in the way you engage with the customer etc. It has definitely progressed over the past ten years, and there’s a lot that is now possible.

FS: Ulrich, you’ve enjoyed a lot of success in digital transformation in other sectors, such as fashion and luxury brands. What lessons did you take from those sectors into the grocery market, and also what are the major differences?

UT: Something that I learned the hard way is the importance of communicating internally. You need to explain to the company leadership exactly what it is that you are building, and what changes are going to happen as a result. It’s not just an ‘e-commerce project’. It will change a lot of the other business processes and workflows in other departments such as marketing, IT, the buying department, category managers etc. In the past I did not focus enough on that. Now we make sure that we talk within the business much more frequently about what’s happening, because shifting everybody to a new mindset can be a really slow process. The technology part is a quick win, but the change in mindset takes much more time.

FS: The product mix must cause a challenge too? For example, selling a pair of trainers will be more straightforward than selling the full mix of products that you can find in a grocery store. Is that right?

UT: Certainly. I think grocery has one of the most complex supply chains. Maintaining temperatures, for example, or incorporating bottle charges.

Another key challenge that I realised early on was that in grocery, unlike other sectors, you don’t actually know what your shopping basket will finally cost – you only know that for sure when the products have been picked. This is a big difference compared to other e-commerce industries.

FS: Eberhardt, could you provide us with some insight into the special role that software plays in the online grocery experience? How does it deal with some of the complexities that Ulrich was talking about?

Eberhardt Weber: Typically when you look at an e-commerce scenario, you’ll assume that there is a big warehouse somewhere and that the retailer will ship products from that warehouse all over the continent. That’s what many companies do. This approach is also reflected in the software that you will find on the market.

Most of the e-commerce software will end its role once it has taken the customer order, because they will assume that there is another system in place that takes on the order from there, like an order-fulfilment system, or a warehouse management system. But in grocery, the order coming in is actually where the real process begins.

Things work differently in grocery, because you cannot ship fresh, perishable products, or bulky products from your weekly shopping, over long distances. This is why you need to work in a local context with grocery. You have to pick locally, you have to pack locally and you have to deliver locally. Ulrich mentioned the cool chain, which can be a challenge. You also have sensitive products like bananas – you touch the product and then it gets a bruise, and nobody wants to receive bananas with bruises.

And there’s another argument about why you should run your grocery business in a local manner, and that’s trust. Food is probably the most sensitive trust product – customers increasingly want to know where their food has come from and ideally you want to know your local grocery store. Provenance is a big issue. This is a great advantage for MPREIS, as it is a trusted brand at a local level, and this should not be underestimated.

You need the software to support this end-to-end process, from taking the order to getting it to the customer. There are a number of aspects involved too – you could talk about weight articles – ordering and pricing based on weights – you have product deposits and product substitutes, as you can’t have everything fresh available all of the time. And then you want to deliver at a desired time. There are really a lot of details that you need to take care of to get the whole thing working.

FS: Could you explain what headless commerce is, and its benefits?

EW: Headless commerce is quite a simple concept where you separate the frontend – the user experience – from the backend, which is the business logic of the software and the storage of data, to put it in simple terms.

A lot of software companies claim to be headless, but the full benefits come into play only if you have cloud-native underlying software architecture. Cloud-native means that your software is not a single big monolith but is many small pieces of software – often referred to as microservices. These microservices are independent pieces of software, and they have an API that is used to connect to them.

Thanks to these APIs, you can create any kind of touchpoints for your customers, and you can connect to all of these APIs in a very consistent way.  A touchpoint could be a website, or it could be a mobile app, it could be a voice system, it could be a chat system, it could be a text system. From an IT perspective, if you can connect these APIs in a consistent way, it is very much cheaper than if you had to build individual software applications for each of these touchpoints.

When you look at big companies like MPREIS, it’s equally important how you connect to the existing systems, like the ERP system, point of sale systems, product databases etc. That’s why APIs are so important.

Typically, as a businessperson you don’t want to have to think about all the plumbing, but microservices are extremely important because they really speed up your software development processes. If you have a big piece of software and then you change something, you have to test the whole thing again, and again, and again. You don’t want to break anything, so you don’t release updates too often – perhaps only once or twice a year. But if you have small pieces of software, you can just test these little pieces of software in isolation, and it’s very quick. You can deploy new features very frequently. That can be in weeks, days or even hours, and this is a huge benefit, especially in a context where you want to try new things, and you want to be agile.

That’s why this headless commerce technology counts – there’s no interruption to services and customers can keep shopping while the updates are taking place.

FS: How do you see online grocery continuing the growth curve that we’ve seen over the last ten months of the pandemic?

EW: First of all, online grocery has come to stay. This is very clear, and it will not go back to pre-pandemic levels. I believe that grocers need to take this really seriously. You’ll remember the discussions that we had about the bookstore market 15 years ago, and we’ve seen what happened there. We don’t want to have the same situation happen in the grocery sector.

I’ve been in the eGrocery business for over 10 years now, and I’ve learnt that you really have to look at all of the details. There’s a lot of details that you have to get right to win, to retain happy customers, and to operate at a profit.

UT: Where we have invested a lot is in our user experience. What we saw in the first lockdown, during the first peak, was that we had a growing customer base, but the question was how can we turn them into loyal online customers. We invested a lot into the marketing. We’ve built a customer data platform where we can really work on the retention marketing. This has helped us a lot. The pandemic has driven digital transformation at MPREIS, and I hope that we can continue to do a lot more.

CT: The quality of the delivery of online grocery is an important factor. While there is a certain control and satisfaction you get from going to the store yourself, if the quality of your online offering is spot on, then that helps gain the trust that we were talking about earlier.

Reliability when it comes to the delivery window is also super important. Grocery shopping for most people needs to be convenient. It’s not something that people want to spend hours on. There needs to be reliability and options on how you get your goods delivered, and it has to arrive on time within the window. It also has to offer flexibility on how and where you can receive the goods, either by picking them up or delivered to your home. These are the most important factors in succeeding. And then, finally, you need to enable grocers with a solution that they can master and that is broad enough, as Ulrich said, to offer the opportunity to engage your customer and provide incremental services to the core grocery service.

FS: Should grocers trust Instacart as a partner, or is it likely to compete with the grocers in the longer term?

EW; Well, why would you want to give away all of your customer data? Why would you want to give away control of the product catalogue and the pricing? Why would you want to give away your customer experience? What’s the point in doing that? It might sound tempting to partner with Instacart as a grocer, but I think you will want to control your customer experience yourself. Where will the business go in the long term? It will go online. It will not be 100% online, but maybe in ten years’ time it will be 20%. Think of 20% of your business not being instore anymore? That’s a significant amount that you would be giving away.

FS: How do you cope with the same day delivery, Ulrich?

UT: We did have it already, but we needed to stop it during the first lockdown. We’re working on it again. However, looking throughout Austria, it’s not always the perfect setting for same day delivery, because there are not that many really large cities. In Vienna it may be possible to deliver within 60 minutes, but if you get into the countryside, 60-minute delivery is just not possible. It is an important factor though, and we are working on reactivating it as much as possible.

FS: Final question then – what does the grocery shopping experience of the future look like?

UT: It depends how far you want to look into the future really. If you look at the digital shopping list that we’ve built – the microservice that we are using there – one of the next steps will be integration with Alexa or any other voice activated assistant. I think voice commerce will get really interesting in the near future.

I also think that grocery will go more in the direction of marketplaces. We saw that in fashion – they started with their own assortment, and then they started opening up marketplaces to partner with other providers. I think this approach will happen in grocery as well. When you are driving to a neighbourhood several times a week, for example, why shouldn’t you deliver other goods that you don’t have in your own assortment – such as partnering with the local farmer to offer their produce.