Summer 2008

The major online grocery retailers are busier than ever, and getting smarter at how they work. Marcia MacLeod sets out to get a handle on how they're doing it

It's been nine years since Tesco became the first supermarket to revolutionise the weekly shop by offering home delivery for fresh and ambient groceries. So what has happened since? What's going on in the industry today? And are the four retailers dominating the sector – Tesco, Asda, Sainsbury and, through its partnership with Ocado, Waitrose – happy with their fulfilment operations?

Well, we're sorry to report that none of the four would talk in any detail to Fulfilment & e.logistics for the feature we planned for this slot, so we're not about to tell you what they themselves say, much as we would have liked to. But in a way this is a comment in itself. We suspect this is such a competitive market that they simply don't dare to go beyond the script in terms of discussing their policy or methods in public. However, if you look at their results, it's hard to see why anyone would complain.

Tesco registered a massive home shopping income – already £700 million back in 2004/5, and since then, the grocery home shopping market has increased substantially. Ocado, which has delivered over 8 million orders since its launch in 2002 (an average 12,000 per day), clocks up £350 million annual sales, and forecasts market growth of more than double over the five year period to 2012, by which time it should reach £5 billion.

 

Waitrose is the only one of the big four involved in a home delivery operation that is run as a separate, outsourced entity with dedicated stock allocation. A click on to Ocado's web site can be confusing, though, as it calls itself 'a unique and completely independent online grocer' and 'the first new grocery retailing brand in the UK for a generation'. And yet Ocado was launched 'in partnership with Waitrose' and sells products from the Waitrose range.

According to Ocado, as a 100 per cent online retailer, it is not reliant on a network of stores. Bricks and mortar, it says, 'generate higher food waste, significantly increased emissions and congestion whilst using precious land'. Instead, it uses a dedicated 23-acre, 1.2 million sq ft, four-storey fulfilment centre at Hatfield, Herts, and five regional distribution centres.

It also claims that the rate of substitutions or missing items is much lower than that of its competitors; but the problem with this model, as I have found out first-hand, is that Ocado does not carry all the Waitrose lines. If consumers are looking for a specific item that is not available, they may end up visiting their nearest store anyway.

Waitrose itself also offers a 'Waitrose Deliver' service, in which customers can order by midday for next-day delivery or collection in-store, paying a fee of £5 or £3 respectively. Waitrose Deliver can only be used for orders worth at least £50, or those which contain at least one Waitrose Entertaining item.

One assumes Waitrose Deliver is based on an in-store pick model, but the exact details of its operation are not clear. It is also not clear how widely available the service is: I was told it was not available in any of the three postcodes I keyed in – in London, Norfolk and Cheshire. When Ocado was launched, the message to the market was that it would be covering bigger urban areas while Waitrose would deal with other markets direct, but it is not clear now quite how that concept has evolved over the years.

Tesco built its service on an in-store picking operation and also allows the customer to collect in selected stores, for a fee of £4.85 – the same price as next-day delivery, but £2 cheaper than its two-hour time slot offer. It might give the consumer more choice, but can anyone honestly speak about store collection in the same breadth as home delivery?

Asda also picks in-store. Currently it reckons to deliver to 80 per cent of the UK population. By the end of the year, Asda's home shopping product will be rolled out to another 35 stores, increasing the number of potential customers to 95 per cent of the population. Product lines available online have also been increased by 20 per cent.

Green credentials

All of the supermarkets claim home delivery is 'green' because it reduces car journeys to the store (unless consumers go for the in-store collection option!). Tesco won an award from IMRG last summer for its electric delivery vehicles, and advertises the fact it offers 'carrier-bag free' delivery as an option.

Ocado's 'green delivery' service allows customers to select a van already in their area, although it's not exactly obvious how a customer ordering today will know a van will be in his or her area tomorrow. It also promotes its 'closed loop grocery bag recycling', in which drivers collect used bags from customers for recycling, and its bio-diesel powered delivery vehicles. Each van holds up to 20 orders and completes two runs a day.

The jury is still out on just how green it can be to send a fleet of vans around the country to meet two-hour delivery windows – or even one-hour, in the case of Ocado. One suspects that the supermarkets didn't have a green agenda when they originally launched their grocery home shopping initiatives. Nearly ten years ago, when all this was in its infancy, the product was geared to consumer satisfaction and, more important, boosting the bottom line.

However, the green credentials of home delivery depend a lot on drop density. A fully-loaded van delivering over a compact geographical area can be vastly more environment-friendly than a nearly empty one going a long way. So in theory, the more that home shopping grows, the greener it gets – assuming the consumers freed from the shopping chore don't do something 'ungreen' to offset the gains.

Certainly the expectations behind research initiatives by IMRG and others are that when the underlying statistics are analysed, home shopping will turn out to be greener overall than shopping the way it is mostly done now.

Scheduling to save

In any case, the use of good scheduling software can help improve delivery efficiency, reduce empty running and save money as well as carbon emissions. Both Sainsbury and Asda use Isotrak's Active Transport Management System (ATMS) to provide visibility of vehicles and, through integration to planning systems, alert the depot if there is a delay with delivery.

Asda began installation of the system, the first tracking and telematics system used by Asda Home Shopping, in June, with completion due in August. The system is, however, already used for managing vehicles delivery to DCs and stores.

'The most immediate benefit for Asda will be reduced fuel consumption due to reduced deviation from plan,' says Craig Sears-Black, sales and marketing director of Isotrak. 'Asda is not only expecting to save fuel, but also to improve efficiency of the fleet as a whole – for example by undertaking more drops per shift. In addition, temperature sensors monitor the carriage of chilled and frozen food compartment to guarantee an unbroken cool chain.

Descartes Systems, too, works with supermarkets to improve the planning and execution of deliveries. 'We focus on helping companies work with their customers at the point of taking the order,' explains Chris Jones, executive vice president for solutions and services. (See panel.)

The short time slots and flexibility are the things winning legions of fans to home grocery shopping. While no one seems to know if this is as good as it gets, certainly consumers are asking why, if they can get two-hour time slots for groceries, they can't get better delivery promises for everything they buy online. One suspects that ultimately the market won't be satisfied until they do.

BOX: Building delivery journeys on the fly – the Descartes solution

'We develop time slots and build routes on the fly,' says Chris Jones of Descartes Systems. 'Since many grocery orders contain fresh and/or premium products, it's extremely important to get delivery right. The retailer chooses how many time slots it is willing to offer.

'We ask consumers when they want the goods by allowing them to pick a slot – but the system does not present a slot unless it is available. This can even come down to product availability, so that, for example, if the consumer wants fresh salmon on Wednesday but the supplier doesn't think it will be available until Friday, we don't offer the salmon for Wednesday delivery.

'Consumers pick their delivery time before they choose their order so, continuing with the above example, if they want delivery on Wednesday morning the site simply doesn't list salmon as an option. We find there are fewer order abandonments with this system.

'Premium slots can be incorporated, to allow consumers to pay extra for, say, a half-hour time window. And we can offer a *green' option, too: a van will be in your area at x time; if this would suit you, click here' – and then we offer only what will be available for delivery that day.

'Descartes software then comes up with a *feasible' route, taking into account barriers such as river or railway crossings, the need to negotiate a large postcode area, congestion caused by the school run etc. Every time we add an order to that route, we re-calculate the schedule.'