‘New retail’ is the phrase coined by Jack Ma, co-founder of Alibaba, to describe its aim to redefine commerce by enabling seamless engagement between the online and offline worlds.
Like another of the world’s 10 largest companies, Amazon, Alibaba began life as a pure-play online retailer. Both companies have recently moved into new retail, or, as we know it, the omni-channel format, by embracing bricks and mortar. Amazon achieved this by acquiring Whole Foods Market and Alibaba launched Hema supermarkets in China.
There is still a belief that when a Tesco or Sainsbury’s van comes to your front door with your weekly food shopping, the products have come from a large, online-only big-box warehouse or ‘dark store’. In fact, 90% of Tesco, Sainsbury’s, Asda and Waitrose online grocery orders are fulfilled from a store. Tesco is the largest online retailer in the world by sales, but it has just six online-only warehouses, all around London, compared with more than 300 omni-channel grocery stores.
Omni-channel grocery stores combine in-store, which is the largest sales channel, with online, which is the fastest-growing, providing a symbiotic rather than competitive relationship with online fulfilment. The most recent trading updates from Morrisons, Tesco and Sainsbury’s showed the growing popularity of omni-channel services, with all reporting record numbers for their Christmas food-to-order ranges, fulfilled via click & collect and home delivery.
It is this model, pioneered in the UK, that the world is now embracing for grocery. Hence Amazon’s and Alibaba’s decision to acquire and build out a network of bricks-and-mortar supermarkets and, vice versa, Marks & Spencer’s discussions with Ocado about establishing a food delivery service for the first time.
These omni-channel stores have characteristics not evident in other forms of real estate, namely:
- They have flexible buildings adapted to operate in-store and online operations, accommodating multiple loading bays, refrigeration units and home delivery vehicles;
- They are strategically located near major road networks, allowing efficient stocking of goods and distribution of home deliveries;
- They are situated in population centres close to consumers, simplifying last-mile, online delivery logistics;
- They have large floor areas capable of housing a full range of fresh groceries and providing scale economies for the operator.
M&S’s agreement with Ocado is a reflection of M&S’s inability to keep pace with the evolution of retail. Constrained by the size of its high street stores, it has been unable to compete with rivals such as Tesco and Waitrose, which provide online offerings via their stores. For Ocado, the sale of 50% of its grocery business is a recognition that pure-play online in grocery is not profitable and enables it to focus on the technology solutions business.
In the US, Amazon is rolling out its two-hour grocery delivery and 30-minute click & collect services to all its 475 Whole Foods Market stores. Amazon recognises that physical stores are essential for increasing overall market share as well as acting as delivery hubs for effective online fulfilment.
The importance of large flexible sites that can support click & collect, delivery and in-store picking, cannot be overstated. To my mind, Ma’s new retail concept is the key to physical retail’s comeback story.
Ben Green is partner and co-founder of Atrato Capital