Thursday, May 15, 2014

Some Great Insights About The Drive Business In France

For those of you who are not French, and that don't really follow the French retail business, there is a massive trend that showed up about 5 years ago which is shaking the world of grocery retailing: Drive through grocery shopping.

People shop online, selecting their products and pay, then they collect their food right in their truck at the drive warehouse nearby. Most of the past 5 years market growth have been otbained thanks to this new retail channel.

Olivier Dauvers is a French Expert in retailing, and has been investigating these new operations for the longest time. He recently published a blog post (in French) about what are the questions people ask him the most about the drives. He is actually right now in the US to see how American retailers are adapting the concept there. 

Here are some of the great insights he provides:
  • He forecasts that drive retail may count for about 10 to 20% marketshare once it will be mature
  • There are two different business modell: one based on in store picking (an employee go into a brick&mortar store to pick up the delivery right on the shelves) or a real drive (a warehouse only selling online, where everything is conditionned to save space and time).
  • The real business modell in the long term remain real drives, as it is the most cost efficient concept. Hence, once in a store pick up scheme an employee treat at best 85 products per hour, in a real drive, it will get 200 products... Of course, the real drive has thought everything through to save time in where the products are located to minimize the walking and roaming of the personnel.
Here is how the operating account of a drive works:
Gross margin: 25%
Wages: 9 to 11%
Investment: 3 to 4 %
Electricity and others: 1,5 to 2,5%
Advertising: 1%
Taxes: 1%
Banking fees: 0.5%
EBIT: 3 to 7%

You need to compare this data to the standard EBIT of a grocery retailer: 2 to 3% on average. Hence a well operated drive could be very profitable.

A third business model may soon be launched: A wharehouse which would prepare the deliveries, then send it to the point of sales. It would lower the cost of preparation and benefit from the point of sales to generate traffic and accessibility