E-grocery: Challenge or opportunity for reusable packaging?
By IFCO CEO Wolfgang Orgeldinger
E-commerce is rapidly entering the food sector on a larger scale. More and more retailers are starting to offer home delivery also for fresh produce, which requires very specific logistic processes. RPCs (reusable plastic containers) can play an important role in managing the logistic challenge, one of the most decisive aspects of successful e-grocery.
High Growth Rates - examples in Germany and Europe
The German and European food markets are undergoing intense changes, consumers have more sophisticated needs than before and at the same time they want to spend less time shopping.
In 2015, about 4% of all food purchases in France and 5% in the United Kingdom were made on the internet, whereas in Germany it was only 0.6%. By 2015, only one fifth of all German consumers had ever bought food items online, but the scenario is changing rapidly, and within the food segment the percentage of fresh produce is growing.
German consumers spend over €170 billion (US$182 billion) yearly on groceries, but so far less than 1% of the total turnover is generated through e-commerce. For the next 10 years however, the market research institute GfK expects a real boom of the online food business in Germany. According to a GfK study from last year, food and drugstore items belong to the fastest growing online segments. By 2025, the online business could make up about 16% of all food sales in Germany.
Amazon, having already started e-grocery activities with fresh produce in the U.K., Spain, and Italy, recently also entered the German fresh market, although for the time being the offer is limited to very few big cities and to customers with an Amazon Prime account. A Germany-wide availability for all consumers via Amazon Fresh is still pending, but the traditional retailers are closely following every step of their giant U.S. competitor on the German market.
Rewe was one of the first big players on the German market to extend its activities to e-grocery, including fresh produce, and the first German online supermarket with its own delivery fleet. Also Kaiser Tengelmann’s online supermarket ‘Bringmeister’ offers fresh products, though the service is restricted to the Berlin and Munich areas.
The most recent example among the big players on the German market is Kaufland who entered the online business in October, including deliveries of fresh produce. The orders are delivered with own transport means in reusable containers. Also Lidl and Edeka offer online ordering.
Consumers’ expectations and logistic challenges
What is driving the growth of e-grocery? One important factor is certainly a general change in purchasing behavior, as today’s younger generations have grown up with computers and simply extend their shopping habits to grocery items. Also the so-called baby boomers, born between 1945 and 1964, who look for time-saving options to make their lives more convenient, are among the potential heavy users of e-grocery offers. The continuing internationalization and increasing digitalization of the retail market are further strong drivers, as European supermarket chains follow the example of their international competitors in other countries.
A basic expectation of internet customers – apart from reliable logistics – is a responsive customer service channel, for example via social media or chat boxes. According to a recent enquiry conducted by the market research institute Ipsos, most consumers consider personalized customer attention as a critical point. To attract and retain customers, many online supermarkets offer value added services, such as recipes, saved shopping lists, product suggestions, lists of frequently purchased products, and so on.
The strict hygiene and cooling requirements for fresh produce are one of the main challenges for e-grocery. This, in turn, leads to a need to carry out an order quickly and accurately, and then deliver within a small window of time, whether through manual order fulfillment at retail outlets or other approaches such as sophisticated automation. A fast pick-up time is important also in view of the increasing number of competitors in the e-grocery market. More and more consumers expect same-day delivery without surcharge. For example, in the U.K., Tesco experienced a clear increase in sales after having eliminated the pick-up charges for e-grocery orders.
A crucial point when it comes to fulfilling consumer and market requirements is offering enhanced service while keeping costs at a reasonable level, which to a large extent depends on the logistic organization.
With regard to the execution of online orders, there are several logistic and transport options, from an own delivery service to cooperation with established service providers like DHL. Also Click & Collect plays an important role, combining online ordering and then picking the order up at a local retail outlet or other convenient location. Such an approach greatly aids retailers looking to minimize their delivery costs by avoiding individual household deliveries, and is popular with many consumers as well, especially in the French and U.K. markets as early adopters of the Click & Collect system.
To date, most grocery e-fulfillment is performed manually by professional shoppers at retail outlets or dedicated e-commerce fulfillment facilities – the “Dark Store”. On the positive side of manual order fulfillment, capital investment in automation is avoided. The manual approach is expensive, with online orders generally involving considerable travel time for professional shoppers as they traverse the aisles to fulfill their customer orders.
The alternative to manual order picking is automated order fulfillment: Flexibility is a critical concern as wide eyed retailers watch e-grocery grow. A key approach is for the automated system, whether conveyor, robot or other approach, to bring the goods to the picker. Such systems have become increasingly robust, with better design for productivity and ergonomics.
One of the pioneers in the EU was Tesco which, in 2013, marked a switch from professional shoppers to an automated goods-to-person approach. This kind of system is usually applied in a “Dark Store” or warehouse.
How RPCs can support the logistic process
With the strong growth of e-grocery expected for the forthcoming years, it is highly probable that logistics will reach a higher degree of automation to cope with the challenge of flexibility and speedy delivery. In this respect, reusable plastic containers may play an important role provided that logistic processes are coordinated in an adequate way.
IFCO, as a market leader in RPC pooling, expects an increase in the use of RPCs in the e-grocery segment as well and is ready to support its clients by developing customized solutions for order picking and delivery on the basis of standardized RPCs.
In doing so, the company works hand-in-hand with retail organizations and logistics providers to address the new requirements for segments like fresh fruit and vegetables, bakery products, eggs, fresh meat and poultry, seafood, beverages and possibly other categories to follow.
For those retailers who opt for an automation of their e-grocery business, RPCs can be helpful as standardized measurements and easy handling of the crates facilitate the optimization of order fulfillment processes, while the robust material ensures the protection of the goods during transport.
Already today, standardized reusable packaging is used in different constellations for the processing of online orders in Germany and other European countries: for example, for products that are ordered online and either collected by the consumer or delivered to her home address, for regular deliveries of fresh fruits and vegetables in a “subscription system” or for the dispatch of ingredients for complete menus. Especially suppliers of organic food are very open for the use of RPCs.
IFCO has a generally positive attitude toward food e-commerce and can offer the appropriate packaging solutions also for on-line orders, depending on the requirements of customers and suppliers. Upon demand, for example, IFCO develops RPCs with the logo of the retailer, both for home delivery and collection by the consumer. The logistic process is very simple: The final customer either returns the RPCs to the shop himself or hands them over to the driver when the next delivery is made.
As consumers are becoming increasingly conscious of environmental issues, it can be expected that also in the online business there will be an increasing tendency toward the use of returnable packaging instead of plastic bags and/or one-way cartons.
Of course, the possible uses depend on the kind of products, but everyday goods are delivered already quite frequently in RPCs, thus the use of RPCs can be extended to the whole supply chain, up to the consumer’s home – which would contribute to a “greening” of the e-grocery business.