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Japanese supermarket giant Aeon, in online grocery push

AEON organic retail store

AEON organic retail store

Credit: Aeon

 

 

Aeon is partnering with British online grocery pioneer Ocado to launch a new company by March 2020 that will use AI and robotics to deliver a cutting-edge digital experience. Also, as a sustainability initiative, Aeon has set up a platform to help boost organic farming in Japan, where demand is outstripping supply of organic food.

 

Fresh food delivery has yet to truly take off among the Japanese, who largely still pick up fresh produce on a daily basis. But with better logistic networks and different demographics – such as more dual-income households and senior citizens – that’s forecast to change. And with AmazonFresh already in Tokyo, and Walmart (owner of Aeon rival Seiyu) beefing up its online grocery delivery together with Japanese e-commerce giant Rakuten, it’s no surprise that supermarket Aeon is also making the leap. In a statement in November, Aeon said it will leverage Ocado’s world leading know-how to launch and operate “the next generation online supermarket.” It plans to open its first customer fulfilment centre harnessing the Ocado Smart Platform by 2023 to serve Japan’s Kanto region, followed by others over the following two years in order to eventually serve the whole country. And it anticipates achieving online grocery sales of about 600 billion yen (about €4.92b) by 2030. “Aeon will realise a highly efficient operations and distribution system to deliver ‘anytime, anywhere, anything’ through a superb application interface to meet our customer needs. It is expected that these technologies can be utilised for the existing Aeon online supermarket business, store pick up, click & collect,” the company said in a press release. Aeon also plans to seek more partners both in Japan and around the world in order to be at the forefront of the digital era. Ocado, it should be mentioned, has also been chosen as a partner by other major supermarket groups around the world, including Kroger in the US, Casino in France, Marks & Spencer in the UK, ICA in Sweden and Coles in Australia.

Produce from farms run by Aeon Agri Create // Credit: Aeon

 

A platform to boost organic production 

Two other key initiatives from Aeon are in the area of organic food. Back in 2017, among the sustainable procurement goals the group set itself was that of boosting the sales ratio of organic products to 5% of all its agricultural products by 2020, also when Tokyo will host the summer Olympics. Aeon says it wants to contribute to “human, social and environmental health” through organic products, furthermore ones that are “cultivated, distributed and consumed naturally.” It also says it is “responding to our customer demands for safer, better tasting, and environmentally friendly food products.” However, while interest in organic produce is on the rise in Japan, “supply of organic products has not caught up with growing consumer demand,” it says, and “organic JAS certified producers in Japan account for only 0.2% of all farmers.” Given this context, in September 2019 the retailer announced another initiative, the new Aeon Organic Alliance (AOA). In a statement, it said this platform will boost the supply of organic products and help farmers overcome the burden of high organic cultivation costs and those incurred due to inefficient distribution, as well as giving them opportunities to gain new skills, exchange information and share and solve issues together. The AOA platform will be used to “centrally manage production, procurement, processing, distribution, and sale of organic agriculture products.”

Organic produce in Bio c’ Bon store in Japan // Credit: Aeon

 

14 new organic stores in Japan

AOA members will also have access to technological know-how for the acquisition of Global G.A.P. and organic JAS certification. Aeon has acquired such expertise via the 20 farms it directly manages across Japan. The farms are operated by the company Aeon Agri Create and three hold organic JAS (Japanese Agricultural Standard) certification, one of which is the fully organic 16 ha Saitama Hidaka Farm. Aeon’s organic farms will serve as distribution bases that collect products from growers who are members of its organic alliance, thus reducing distribution and delivery costs while also facilitating joint purchasing of materials necessary for cultivation, which in turn lowers costs. Furthermore, an AOA website will share what is happening in stores, including customer feedback, product line-ups, and sales performance, as well as overseas trends and other relevant information. It will also serve as a communication platform for connecting producers. Another group subsidiary, Aeon Topvalu, develops Aeon’s private brand for organics, Topvalu Gurinai, which is sold in group stores across Japan. Also providing a sales outlet for organic produce in Japan are the Bio c’Bon stores operated by Aeon in partnership with French firm Bio c’ Bon. There are now 14 such stores in Japan.

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DIA expands its online business in Barcelona

DIA says its online shop includes a range not available in certain high street stores and is the cheapest establishment in the entire company, thanks to its aggressive rates and promotional discounts.

DIA has expanded its online shopping business with the launch of an online platform in Barcelona,

In a press release, DIA said that having rolled out this experience in Madrid and Málaga, it is now making its online business available to reach a potential 4 million consumers in Barcelona.

“DIA’s online shop, which includes a range that is not available in certain high street stores, has become the cheapest establishment in the entire company, thanks to its aggressive rates and promotional discounts.,” it said.

Delivery will be made from 7 DIA shops, where the number of staff has been increased, with a total of 14 new hires, and is free for orders over €50. If the order is made before midday, it can be delivered that same day, and an SMS is sent to customers 20 minutes prior to delivery.

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CAGR of 63% in line for India’s online grocery market to 2022

6Wresearch predicts India’s online grocery market will grow at a CAGR of 62.7% over 2016-22.

India’s online grocery market is still in a nascent stage and primarily confined to Tier 1 cities, says New Delhi-based market intelligence centre 6Wresearch.

And the hyperlocal model (which usually features on-demand delivery) is growing faster than the ‘pure-play’ one (such as  businesses that focus only on e-commerce) in India, it says in a recently published report summary.

“(The) pure-play business model requires heavy investments and warehouses, which pushes the overall operating cost. On the other hand, hyperlocal model saves cost and time of delivery due to the support from the local merchant,” it says.

6Wresearch predicts India’s online grocery market will grow at a CAGR of 62.7% over 2016-22.

“India is the sixth largest grocery market in the world, which is majorly dominated by the unorganized sector with over 12 million pop and mom stores all over the country. Online grocery market is one of the fastest growing markets fueled by the intensifying e-commerce industry.”

But senior research analyst Avishrant Mani said the fruit and vegetables segment is growing sluggishly compared to other grocery segments, “since (the) consumer prefers to purchase fruits and vegetables in fresh condition, favours touch and smell of the items to judge the quality.”

Otherwise, the grocery and staples segment is contributing major revenue share in the online grocery market, followed by the FMCG segment.

Bengaluru from southern region is the key market for online grocery, followed by Mumbai from western and Delhi from northern region. Online grocery companies are mainly operating in metropolitan cities due to better infrastructure facilities and higher internet penetration as compared to tier II and tier III cities.

“However, online grocery firms are now targeting tier II and tier III cities to expand their presence on a pan India level. BigBasket, one of the key players of the market, is planning to enlarge its operation to 50 cities by the end of 2016.”

Read more “Wide Acceptance of Online Shopping and Busy LifeStyle Spurring the Growth of Online Grocery Market in India – 6Wresearch

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Inside India’s biggest e-grocer – BigBasket

Big Basket is currently India’s biggest online grocery player, clocking an average 12,000 orders a day – 70% of which include fruit and vegetables – and sales growing 10-15% month on month.

BigBasket says fruit exporters have a big chance to grow their brands in India, the world’s 6th largest grocery market e-grocery

Currently India’s biggest online grocery player, BigBasket clocks an average 12,000 orders a day – 70% of which include fruit and vegetables – and sales growing 10-15% month on month.

Even so, that’s just a drop in the ocean of potential grocery e-commerce in India. Against a total F&V market of about US$ 53 billion, modern retail sales of fresh fruit and vegetables contribute around US$ 500 million and online sales around US$ 30 million. So said Vipul Mittal, head of fruit and vegetables for Bangalore-based BigBasket.com.

Speaking to ED from India, Mittal also stressed that e-retail success is “not as simple as it looks.”

“A lot of back end work has gone into this company over the last 3-4 years to make it very powerful. It’s about being a comprehensive service and delivery package and not just a web site.”

And Indian consumers look for value irrespective of the channel through which they buy. Hence constant benchmarking against all competitors takes place to compare prices and ensure value, he said.

E-grocery potential in India

With an estimated 1.27 billion people — and likely to overtake China by 2028 as the world’s most populous country — India also has lowest rate of meat consumption, highest rate of vegetarianism, and a growing affluent class keen to try new cuisines.

According to the Indian daily Business Standard, last year Randstad India – which pegged India as the world’s 6th biggest grocery market – estimated just 1% of the groceries Indians buy are online. By 2020, it expected that to grow to 2%, making India’s online grocery market worth around €9 billion.

Indian households tend to buy fruit and vegetables 2-3 times a week, and the same trend is seen on Bigbasket.

Mittal said e-commerce facilitates insight into consumer buying patterns and allows the offering to be tailored accordingly, for instance running a promo on apples to all mango customers in the off-season (July).

Expansion into ready-to-cook food

The online retailer sells other grocery items apart from food, such as personal hygiene products, but until now, sales of fruit and vegetables have hovered around 14-16% of its total value sales, Mittal said.

However, having built a solid customer base, it now plans to increase its assortment further with many other food products including an imported and gourmet range.

According to recent reports, BigBasket is also set to offer more organic fruit and vegetables and plans to start selling gourmet salads and ready-to-cook meals – initially Thai, Mexican and Italian dishes – that include freshly cut vegetables and other ingredients, and recipes. This it has launched under the brand ‘Happy chef’ – a la Blue Apron.

Technology aids forecasting

Getting supply right is the key to BigBasket’s success, Mittal said. ”We have used a lot of technology for forecasting demand and use a dynamic model to plan capacity and the availability of vehicles.”

“Historical data has limited scope to assist demand forecasting in perishables, especially when the growth is so rapid and there are multiple variables.”

Big Basket has developed backward linkages with growers and buys directly from growers wherever possible, giving it better control of quality and enabling delivery of fresher produce by reducing time between harvest and consumption.

Direct sourcing preferred

BigBasket is currently located in six cities – Bangalore, Hyderabad, Mumbai, Pune, Chennai and Delhi – and tries to source what it needs in the vicinity of each.

By the end of this financial year, it will have opened 50 more locations, all in clusters with 5-6 cities around six central locations typically with one central warehouse.

BigBasket has no contracts with growers as yet, but is setting up collection centres to source directly from multiple farmers. It plans to establish linkages to bring safe food to the table with complete traceability, having already set up four such centres in southern India.

“We are currently a very small player with respect to total production in an area. So typically when we go into source areas, there are multiple farmers who can supply us. We create an enabling environment for the farmer to bring his produce to us soon after harvest and provide him the transparency of price and weighment. We have also initiated a pilot to provide extension services to the farmers through our field agronomists.”

BigBasket may also draw on wholesale markets to fill any gaps but prefers not to, Mittal said, because the produce is a step further from harvest, therefore less fresh and more expensive. “Quality and freshness are the driving force rather than price and margin.”

Chance for exporters to build brands

In terms of opportunities to export into India, it is a matter of creating differentiation, which so far has been very limited. BigBasket is looking to stand apart by bringing in different products and varieties, such as seedless watermelon, wider variety of pears and apples, exotic fruit, etc. (Few vegetables are imported by India, mainly due to shelf life reasons.)

Mittal stressed he sees a big – and so far largely untapped – potential for foreign suppliers to harness e-commerce to build their brands.

Most imports into India are channelled through traders and conventional retail channel. Growers/shippers don’t have much opportunity to build their brands because they don’t have much control over distribution channels, as well as other marketing elements. BigBasket, in contrast, can package, display and deliver its imported apples under a brand, for instance.

“It’s a big opportunity to build a brand in India, where ecommerce is still in a very infantile stage but set to expand rapidly,” he said, stressing e-commerce’s power to communicate directly to consumers.

(BigBasket is also said to be looking at launching a data analysis business to offer information on customer trends related to brands.)

Also on imports, Mittal said produce should adhere to global food safety and quality standards but trade with India is “not as tricky” as with the EU and US.

No questions asked returns

BigBasket’s customers mostly order by noon for same day delivery or choose a convenient slot among four options the next day. Insulated boxes are used to maintain the cold chain for temperature sensitive products such as mushrooms.

Its recent acquisition of a a hyperlocal food delivery startup in Bangalore will be act as a springboard to compete with rivals offering hyper-rapid delivery.

Mittal said customers can return produce at the time of delivery if for any reason they don’t like it. The return rate for fresh fruit and vegetables is about 0.5% and the most common reason is a problem with quality caused by transit damage.

Analysis of complaints has led to service improvements, such as in the case of customers finding worms in their cauliflower. Now the company has introduced florets, thus solving the worm problem “and adding value.”

Another big source of complaints was fruit being delivered semi-ripe. Thus, in March, BigBasket set up a ‘freshometer’ – for bananas, mangoes and papayas – on its sales page so consumers know when to eat them. Mittal said this is important because BigBasket tends to ship these fruit to consumers at the semi-ripe stage – to reduce transit damage – so consumers need to know what to expect and when to consumer for best results.

Customers expect Big Basket to be ‘greener’

Mittal said customers’ increasingly expect Big Basket to be environmentally friendly, but e-grocery has its pros and cons in this regard.

On the one hand, all its produce must be pre-packed for home deliveries and till recently only plastic was used. But unlike on retail store shelves, having transparent packaging is not a necessity for home deliveries, so Big Basket is now trying to increase its use of more eco-friendly packaging, such as paper and cardboard boxes. “For example, this season all mangoes were shipped in cardboard boxes,” Mittal said.

BigBasket.com

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