Although online grocery shopping in Germany is not as widespread in comparison to other countries, there is high potential for the future. What is needed is a supplier that provides the customer with added value: excellent service, high-quality produce and low prices. Just like the milkmen of old.
Stagnation in the market
Germans spent €1.36 billion buying their groceries online in 2018. This is a substantial sum but is only a small fraction of total €153 billion spent on groceries (2017). In comparison, market share of online grocery shopping in the UK is currently at 8%. This is extremely surprising in a culture where online brands like Zalando have made major breakthroughs in recent years.
One can only speculate on the reasons for this stagnation in the market. The total number of supermarkets per household is strong in Germany which means that city-dwellers (which any online service would need to convince) find it simpler and possibly also cheaper to go to their local store rather than ordering online.There might be doubts about the quality of the produce and the quality of delivery. In the country home to discounters like Lidl and Aldi, it could be that a willingness to pay a delivery charge just is not there.
Many have tried and failed. Smaller players such as Shopwings and Bonatavio have withdrawn from the market and larger stores such as Lidl and Kaufland have ended pilot projects. Even dominant Amazon doesn’t appear to have found the secret. Amazon Fresh was hugely hypedin 2017 but experts comment that they have been relatively quiet of late, important partnerships have ended and they do not detect any immediate plans for expansion.
Nevertheless, turnover from online grocery shopping in Germany continues to grow annually.
Major player in the market Rewe.de turns over €100 million annually with the benefit of a strong brand and branch network, with smaller more regional players like Bringmeister.de also showing strong willingness to experiment (a temporary cooperation with Lufthansa meant passengers to and from Munich and Berlin were able to place food orders with Bringmeister from the aircraft or in a Lufthansa lounge). A recent study conducted by PWC shows a growing interest in online grocery shopping. 15% of consumers have already had an online grocery shopping experience so far, and 40% more plan to order in the next six months. These findings show that even if German consumer has reacted conservatively so far, they are ready to make a change, perhaps if and when the right delivery model comes along.
The future of the sector
New providers have recently caused a stir in the market. With no in-house delivery fleet, warehouses or stores, getnowboasts a similar asset-light model to US success storyInstacart. Personal shoppers pick the order from the nearest partner supermarket and an external logistics company delivers, ensuring fast, flexible delivery times. Although the company currently only partners with Metro, the potential to aggregate supply from numerous grocery chains in Germany is significant considering Kaufland and other large players have withdrawn from the online model. The company no doubt benefits from their cost-light model, however we question whether supermarkets in Germany will want to undergo such transparency and price comparison, especially since Rewe and Edeka have their own services. And while fast delivery no doubt appeals, customers still pay a relatively high €4.90 delivery charge for this benefit.
Dutch start-up Picnic takes a different route. They aim to increase the quality of home groceries delivery, offering a regular Picnic delivery driver (mainly highly-educated students rather than the subcontractors providers like Amazon use) who builds a personal connection with customers. Drivers have regular delivery routes and offer customers a delivery time based on when they are in the area - the "bus line model" over the on-demand "taxi model”. The company sets great store by punctual delivery within a 20 minute time slot, customer satisfaction and the delight & surprise approach. They ask that all orders are placed by 10pm the day before delivery, to ensure fresh produce the following day. A very similar idea to the milkmen we used to know and love.
Picnic leverages its growing customer base to increase profitability by building waiting lists of interested consumers and adding routes only when there are enough customers to make the new route profitable. Consumers receive a small gift for each week they wait on the list, and the current list is said to have several thousand people in the pool. While the customer is more restricted regarding delivery times, the structural cost advantage makes it possible to achieve significant savings which can be passed onto the customer. In the form of a low minimum order value of €25 and no delivery charge.
As a result, Picnic has grown rapidly and has gained an estimated 10% of the Dutch online market in just three years, while operating in only a few municipalities. In mid-2018 it also expanded into several markets in northern Germany.
Picnic is an extremely interesting model. Whether they achieve success in Germany remains to be seen, but certainly initial results are good and we are really encouraged by their initial success. We have seen models with commitment to excellent service work well in other markets and we are excited to see how the online grocery market develops going forward.