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Future of Food Retail
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While e-Commerce is expected to continue to grow within the food retail industry, Barclays Research analysts anticipate that it will hit a market share ceiling because of the challenges of the “last mile” and customer preferences for inspection and inspiration.

The cost of the last mile

In supply chain management, the “last mile” refers to the high cost of transporting goods on their final, short leg – to the customer’s home – after what’s generally a more efficient and cost-effective method of long-distance shipping. Online food retail typically means home delivery, which consequently results in the challenge of an expensive final leg of delivery, which is estimated to comprise up to 28% of a product’s total transportation cost. There is also the issue of perishable food items needing a temperature-controlled environment during delivery.

While many brick and mortar grocers in the UK offer inexpensive or free home delivery as the norm, the tactic is more about remaining competitive rather than making a profit. France and Italy have been somewhat more successful with an online click-and-collect option, which lessens labour and logistics costs. However, this does require a network of locations from where customers can pick up orders, and is arguably less convenient for the consumer.

Partnering with innovative start-ups, which enable the swift adoption of the latest technologies without intensive investment upfront, could resolve some of the last mile problems for brick and mortar establishments. However, we argue there are still limitations to the scope of online within food retail, as research shows that customers want to physically engage with the product before purchase.

Consumers want to inspect and be inspired

75%

of US online shoppers rarely or never buy groceries online.

Source: Reuters/Ipsos

Most consumers indicate that they will always prefer to buy some items in-store. A Reuters/Ipsos 2017 survey showed that 75% of US online shoppers say they rarely or never buy groceries online. Customers want to inspect food quality (by squeezing the avocado) or be inspired (by impulse buying a pizza for dinner). A retail store also offers customers the chance to interact with staff members, ask questions and get new food and meal ideas.

20%

of post-millennials say they do most of their grocery shopping at their local store.

Source: IGD for McColl’s

It will take a while to change consumer attitudes about online grocery shopping. In fact, research shows that brick and mortar grocery stores – hypermarkets, supermarkets and convenience stores – will remain the dominant channel with a combined global value share of 53% by 2021, compared to approximately 55% in 2017, according to Kantar Worldpanel.

Five top categories where Generation Z influences family spending

Source: Kantar Worldpanel Winning Omnichannel Report June 2018. Growth is 2016-2017. * Includes cash & carry, market stalls, drug stores, door to door etc.

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Related content

From bricks to clicks: Food retail goes omni-channel 

Our analysts argue there are limitations to online’s market share of the food retail sector. Brick and mortar stores must focus on productivity and convenience to generate a true omni-channel experience for customers.

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About the analysts

Emily Morrison is an AVP in the newly-formed Sustainable & Thematic Investing team within Equity Research at Barclays focusing on Thematic Research. Emily joined the team in June 2018 following two years covering the European Food Retail space and one year covering the European Telecoms sector. Emily graduated with a degree in Economics from Cambridge University.

Hiral Patel is a VP in the newly-formed Sustainable & Thematic Investing team within Equity Research at Barclays focusing on Thematic Research. Hiral joined the team in June 2018 following five years covering the European Technology, Payments and FinTech sector. Prior to that, Hiral qualified as a Chartered Accountant with KPMG where she worked in Audit covering Financial Services. She graduated from the University of Warwick in 2009 with a degree in Economics, Politics and International Studies.

Anushka Challawala is an Analyst in the newly-formed Sustainable & Thematic Investing team within Equity Research at Barclays focusing on Thematic Research. Anushka joined the team in September 2018 following two years covering European Telecoms. Anushka graduated with a BSc in Management from the University of Warwick.

Read the full report

Future of Food Retail – Long Live Clicks and Mortar is now available to Investment Bank clients on Barclays Live or on the Barclays Live App.

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