Insights

As Ahold Delhaize USA announces the roll out of same-day delivery and the opening of a tech office, we look at how the retailer and its banners is embedding solutions to help it win with shoppers.

Stop & Shop extends reach of same-day pickup service

Stop & Shop has announced the launch of same-day online pickup for shoppers at 20 stores in Massachusetts, Rhode Island, Connecticut and New York. Shoppers make their purchases on Peapod.com before selecting which of the 20 stores they want to collect their orders from. Shoppers then arrive at their store of choice, where between four to six spots have been created to enable the service to better serve shoppers, at the arranged pick-up time. Customers are charged US$2.95 for the same-day service.

Shoppers will be able to select from a wider range than is available in-store. The addition of the service at Stop & Shop comes after it being available at Giant and Martin’s banners. Ahold Delhaize has said it is aiming to add 600 new click-and-collect sites in 2019, with Stop & Shop set to account 175 of them.

Commenting on the service’s launch, the president of Stop & Shop, Mark McGowan, said: “ As we continue to improve the omnichannel experience for our customers, we plan to roll out 175 of these ‘click-and-collect’ locations by the end of the year. We’re excited to offer our customers the convenience of shopping online for the all the products available at their local store, which they can now pick up in just a few hours.”

Ahold Delhaize USA’s Retail Business Services opens tech office

Ahold Delhaize USA’s Retail Business Services (RBS) has opened a tech-focused office. The site will include an innovation lab and an incubator for tech start-ups. RBS said the site would be able to house 200 IT associates who will be able to provide technology services for all the retailer’s chains. RBS provides Ahold Delhaize USA brands with services and support in merchandising, marketing, private label, store operations, pharmacy, sourcing, financial, communications, supply chain and other areas.

Commenting on the launch, RBS’s executive vice president of IT and chief information officer, Paul Scorza, said: “We’re excited for this new space as we continue to expand our team. Whether it’s through our co-op program that brings college and graduate students into our innovation lab for six-month rotations, full-time hiring or partnerships with start-ups, universities and others, we’re always in the market for top talent to support our mission of creating the next generation of grocery retail.”

Ahold Delhaize promotes use of AI

Speaking at the AI Summit in London, Ahold Delhaize’s global chief information officer, Ben Wishart, has said the retailer is using AI in several pieces of its business. Wishart said three different types of the technology were being used to improve its operations for its shoppers. First, he said machine learning was being used to help the retailer ‘get better at predicting’ and to help it optimise local assortments to meet shoppers’ needs. Machine learning was also being used to better personalise offers for individual shoppers.

Secondly, Wishart said it was being used to automatically scrape data from sources like social media to help it improve the way it engages with shoppers. Finally, he said AI was being used to better employ and use automation-driven solutions in-store, in its back office operations and in its supply chain.

New appointments at two banners

Ahold Delhaize USA has made two new appointments, changing its leadership team at Stop & Shop and Giant Food. At Stop & Shop, the retailer said Mark McGowan, president will be leaving the company, to be replaced by Gordon Reid, who is presently president of Giant Food. The second appointment will see Ira Kress become Giant Food’s interim president. Both Reid and Kress will assume their new roles in late July, while McGowan will remain with Stop & Shop until the end of 2019, at the company’s request, to ensure a seamless transition.

We review Kroger’s first quarter results and the factors driving growth at the world’s second largest food retail business.

Identical store sales behind expectations

Kroger’s first quarter sales fell by 1.2% to $37.3bn, reflecting the divestment of its convenience business last year. Total sales, excluding fuel and the impact of selling the convenience store business, increased 2.0%. Identical store sales over the period increased 1.5%, excluding fuel. This is below the run-rate required to meet its full-year guidance, with several initiatives underway to try and accelerate its performance. The work undertaken on space optimisation last year is expected to generate a tailwind for the business going forward.

Source: IGD Research

Investing to redefine the customer experience

Kroger remains a business in transformation, driven by its strategic plan Restock Kroger. Central to this is its goal to increase operating profit by $400m over a three-year period, driven mainly by alternative profit streams. This will enable the business to continue to invest in the customer experience, including its ecommerce and private label operations. The business remains confidence on achieving this, with alternative profit streams expected to contribute an estimated incremental $100m this year. The retailer has made several appointments across its media and data business units to enhance its capabilities in these areas.

Ecommerce sales up 42%

Ecommerce sales increased 42% in the quarter as it expanded grocery pickup to 1,685 locations and delivery to 2,126 locations. It also started to test a 30-minute delivery service, Kroger Rush, in the Cincinnati area. The retailer made further progress with its private label business, launching over 200 new products. These contributed to sales growth of 3.3%, helping unit share to increase to 28.9% in the quarter. Its Simple Truth and Private Selection ranges performed particularly well, delivering double-digit sales growth.

Partnerships underpinning transformation

Partnerships are an important part of Kroger’s transformation. During the quarter it formed PearlRock Partners with private investment firm Lindsay Goldberg. This is a new platform to identify, invest in and help grow the next generation of leading consumer product brands. It also formed a new direct relationship with Pinterest, further enhancing its Kroger Performance Media division. The retailer also broke ground on the first customer fulfillment centre that is being developed as part of its partnership with Ocado. Developing these types of partnerships has become a much stronger focus throughout the food retail industry as retailers look to move at pace and bring new capabilities and thinking into their businesses.

Online retailer Ocado has announced it has invested £17m in the vertical farming industry.

Newly emerging industry

Ocado has announced plans to expand into food production with two complementary investments into the newly emerging vertical farming industry.

Vertical farming is the production of food in indoor facilities where crops are grown on a series of levels in a precisely-controlled environment. The method enables products to be grown all year round, without pesticides or fungicides. Vertical farming is also considered to be more sustainable due to its low wastage, low water usage and minimal land use.

The density of vertical farms enables them to be placed in close proximity to customers. Ocado plans to co-locate vertical farms within or next to its Customer Fulfilment Centres (CFCs), allowing produce to be harvested hours before packing.

One of the biggest barriers to shopping online for groceries is freshness. Of the people who claim to ‘never’ shop online for their food and groceries, 69% say they prefer to pick their own produce in-store (Source: IGD ShopperVista Mar ’18). Ocado will be able to offer shoppers year-round, British produce, grown in efficient and sustainable ways. The produce is likely to have a longer shelf-life which is better for shoppers and could help Ocado reduce its already industry leading wastage of 0.8%.

Vertical farming could become another benefit to international retailers interested in purchasing the Ocado Smart Platform, potentially opening up new markets for the retailer.

Two key investments

Ocado’s investment includes the formation of a three-way joint venture, named Infinite Acres, with US-based vertical farming company 80 Acres and Netherlands-based industrial systems provider Priva Holdings.

As part of the £17m investment, Ocado has also completed the acquisition of a 58% stake in Jones Food Company (JFC), Europe’s largest operating vertical farm based in Scunthorpe. JFC currently produces leafy greens and herbs for UK customers, with capacity expected to grow to 420 tonnes per year.

Tim Steiner, Ocado’s CEO, commented: “We believe that our investments today in vertical farming will allow us to address fundamental consumer concerns on freshness and sustainability and build on new technologies that will revolutionise the way customers access fresh produce. Our hope ultimately is to co-locate vertical farms within or next to our CFCs and Ocado Zoom's microfulfilment centres so that we can offer the very freshest and most sustainable produce that could be delivered to a customer’s kitchen within an hour of it being picked”.

Want to know more?

We review Ocado's current performance, its growth forecasts for the next five years, plus progress against key strategic objectives in our Strategic outlook for Ocado report here.