Royal Ahold is currently testing its pick up business both in the Netherlands and in the US. Officially it´s still in a testing stage, but one can be assured that the Dutch-based retailer is seriously building a new core business. The pipeline of new pick up points is filled for the next 18 months, Ahold stated in November at their Capital Markets Days in Philadelphia.
CEO Dick Boer and COO Europe Sander van der Laan quantify Aholds ambition for the pick up business: at least 40 per cent of online sales by 2016. As Ahold aims for its online food sales to reach 1.5 billion euro that year, the pick up business would account for 600 million euros.
In Philadelphia I discussed all this with both gentlemen for an interview for the French publication Linéaires. As France is the leading nation when it comes to the ‘Drives’, as the pick up points are called there (no French word for it, that’s strange…), French retailers operations and business models have clearly been of inspirational value to the Dutch.
French retailers are well advanced with their ‘Drive’ concepts. Did they inspire Ahold to develop the ‘pick up points’ as you call it?
Boer: “James McCann joining us from Carrefour was important in this respect. When he came on board, we had a long discussion on online retailing. At Ahold we have online services of Peapod in the US and Albert in the Netherlands. Still I had the feeling that something was missing, so I asked James about his opinion on our offer. At Carrefour he already was involved in strategies to attack the ´Drives´ of Leclerc and Auchan. James said that such service to collect your online ordered groceries at a location and time of the customer´s convenience was missing at Ahold as well. Therefore we decided to start the development of our own pick up points both in the US and in the Netherlands.”
Did you visit the Drives in France to see how they are operated?
Van der Laan: “Yes I did. There it’s a very successful format to such an extent that most of the supermarkets’ sales growth can be attributed to the Drives. The French were much faster in developing these services. In France it may well be easier to get the necessary licenses than in the Netherlands, where legislation is more strictly applied. In the end however, I think that the shopping needs and preferences of French customers are similar to their Dutch peers.”
Does Ahold have a different operation of its pick up points compared to the French?
Van der Laan: “Our approach is ordering online today and pick up the groceries tomorrow. French retailers offer same day collection. Even two hours after the online order, French customers can collect their groceries. This can only be done if you pick the orders instore. We don’t think that’s a profitable business model. And we can tell, as both Peapod in the US and Albert in the Netherlands started with instore order picking. We therefore build our model on warehouse-based order picking overnight. In the Netherlands we now have three home shopping centres, as we call our warehouses for online and we will triple our online offer to 24 thousand items. In the US we have a semi-automated warehouse enabling us to handle up to 20 thousand items. By 2014 we intend to have a fully automated online warehouse operational. On a surface of some 30 thousand square metres it can handle 25 thousand items.”
How does online fit in Ahold’s strategy?
Boer: “We are transforming to become a retailer full of choice for customers. They can choose whatever is most convenient to them. Shop in small convenience stores or in supermarkets. Shop online and have the products delivered to their homes or pick them up at a location of their choice. The success of the pick up points we opened recently is remarkable. How quickly customers adjust to that. It gives us great insights in opportunities for future growth. Take Belgium for example. You can ask yourself if we need to open that many stores to gain the market share we want to have, like we have been doing in the past in the Netherlands. So by expanding in new markets, you can think of new models that combine services from both offline and online. This offers huge opportunities.”
Van der Laan: “In the Benelux our formats are small convenience stores, supermarkets and online. We believe in each of these individual formats, but particularly in a combination of them. In our thinking it’s about bricks and clicks. We want to build bridges between the supermarkets and the online business.”
What are your expectations of the online business?
Van der Laan: “With pick up points we are still in the testing stage. November 1 we opened our first large stand alone unit in Heemstede. Three weeks later it already served 530 customers a week and numbers are increasing. In 2013 we will open small stand alone units and store-based pick up points. Only the large stores can be used for this. The parking area should be large enough and it must not hamper the operations of the store.”
Boer: “When mature home delivery makes an EBIT margin of 2 to 3 percent. We however expect pick up points to be more profitable than home delivery. We are confident to triple our current online sales because there is significant expansion possible in home delivery. But also the pick up business is growing. It is a strong accelerator in our business plan. If our estimations are correct, it will account for 40 per cent of the online business by 2016.”