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Opportunities in the e-food business

12 Jul 2021

Interview with entrepreneur, investor and e-food expert Dominique Locher

Copyrights: Dominique Locher, emophoto

Dominique Locher describes himself as a convinced foodie and has made a name for himself in the market as an e-food expert. After studying business administration at the HSG in St. Gallen, in Cambridge and at the Stanford University in California, the Swiss national went straight to Nestlé in Asia, where he worked in marketing and sales. In 1998, he took the cold plunge from the "corporate world" into entrepreneurship first as Head of Marketing/Sales and Logistics and then as Managing Director of LeShop, one of the first online supermarkets and pioneers in online food retailing. After a successful exit from MIGROS Switzerland, Locher moved abroad again to further positions as eFood project manager at OZON in Russia, as an e-food board member at Migros Turkey or as an active advisory board member of the Edeka delivery service Bringmeister. Here, the likeable Swiss focused his activities on the areas of digitalisation, retail and fast-moving consumer goods (FMCG).

On the one hand, as an entrepreneur and investor himself, Locher invests in companies that move in the food value chain between farm and fork. Investments in the Swiss online farm shop Farmy.ch, the delivery service Jiffy in London or the shopping list app Bring! are just a few examples. He himself says:

"Titles are a relic from the corporate world and accordingly I've always been indifferent to them, I want to have an impact and help the teams of these companies make the business even better and accelerate it."

On the other hand, Dominique Locher is on the board of directors or advisory board of various pure players or in the retail sector and advises here in the area of online grocery on an international level. In addition, he supports private equity and venture capital companies in their search for the right investments. The Anuga team spoke with the e-food expert about the challenges in the market and what role food delivery services will play in the future.

Copyrights: Dominique Locher, emophoto

Mr. Locher, the ongoing Corona pandemic continues to drive business for delivery platforms. According to the Online Food Delivery Services Global Market Report 2021, the global market for online food delivery services will grow from US$115.07 billion in 2020 to US$126.91 billion in 2021 with a compound annual growth rate (CAGR) of 10.3%. In your view, what are the prerequisites for a profitable business?

It is true that the market, which has been slumbering in a kind of Sleeping Beauty slumber until now, has been kissed awake by Corona. The developments have been accelerated by at least 10 years in a few weeks by the pandemic. Looking at the European market, a proud growth of 55 to 60 per cent was recorded in the e-food business here. In the first half of 2019, this was still just over 2 per cent, in the first half of 2020 it was already almost 5 per cent. So, a crazy acceleration has happened here. If we talk about the prerequisites for a profitable business, then it needs a certain volume, which we have now achieved through this exponential growth. The question is how profitability is defined. Do I look only at the channel per se or do I look at it from an omnichannel approach? I strongly recommend a holistic approach, because you don't ask whether the customer buys a banana online or offline. What is certain is that the customer goes shopping at a retailer, be it in a classic analogue or now digital format of the same food retailer. Therefore, the question should be, is the customer profitable as such? Of course, there are also channels that are or were profitable in themselves, such as LeShop. But the holistic approach is much more important.

Customers combine channels, it is not an either/or but rather a both/and shopping behaviour that the consumer displays. This means that omnichannel customers usually spend twice as much as those who only use one channel, which is much more profitable. I can fully confirm these figures from my work at LeShop, Sainsbury, Amazon Whole Foods and also activities in Germany. This means that the combined customer is much more loyal, has a higher combined shopping frequency and his share of wallet in the channel is greater.

As a company, I must therefore succeed in keeping the customer promise. The customer wants to have his assortment delivered in high quality, on time and with a smile. If this basis is not given, higher customer acquisition costs, for example, hardly pay off. Operational excellence, i.e. the optimisation of the core processes in the value chain with regard to effectiveness and efficiency, must be given. Without question, retail is a difficult business to make profitable. The margin has to be large, as everything revolves around a large average shopping basket. Thus, retailers should primarily focus on a product mix and not just on one segment such as beverages, in order to end up bearing the costs, for example, of providing the assortment or delivery costs. It is therefore an interplay of various factors. Let's take Gorillas, which has an assortment of about 1,000 to 1,500 products and delivers in just under 10 minutes. Here, speed and the guarantee of delivery without a delivery window reservation compensate for the size of the assortment.

What are currently the biggest challenges in the food delivery business or online food retail?

Often the old classic retail thinking is still in the minds of the management. The online business is only marginally considered and often seen as cannibalising or even distracting. This is where the first challenge lies to initiate a change in thinking. If you look at countries that are already successful in online retail, you can always draw a parallel between the concentration of retail. If the concentration of traditional retail is high, the question is how online retail is viewed. Let's take the paradise country of Great Britain. Here, retailers like Tesco or Sainsbury have been on the online map for 20 years. There is no difference between in-store or home shopping, there are store pick and darkstores with home delivery and/or click and collect - the boundaries are blurred. Before COVID-19, the online retail share of these retailers was 7 per cent and they are now already at 13 and15 per cent respectively. Thus, these retailers have managed to integrate the online business into the overall business and push e-food retailing. The situation is similar in France with retailers such as Carrefour or E.Leclerc, which have already focused on online business at an early stage. Germany, with its strong discounter business, is comparatively lagging behind and could do more here. For the food delivery business itself, there are of course further challenges to meet the demanding customer requirements. This means that today it is much more crucial to combine the idea of convenience with the idea of speed. Added to this is an assortment that is large, fresh and, best of all, personally delivered to the customer's home.

Who are the current winners and losers in the global market?

The big winner is the customer, because before the pandemic, business was often a matter of capacity as well as supply and not necessarily demand. With the tremendous acceleration of the e-food and delivery business, the capacity is now available because retailers have invested and expanded here. Not only that, they have also understood that online grocery is not just a luxury item, but that customer demand here is growing enormously. This means that you have to be involved here in order to stay in the market. Other winners are all online retailers, especially pure players, which have gained extreme momentum in the past year. Farmy, the online farm shop from Switzerland, almost tripled its turnover in 2020. Especially new older target groups were gained here, as they did not want to go to the shop due to COVID-19. In the first quarter of 2020, €324 million was invested in start-up food tech companies in Europe. A year later, it was €2.4 billion, or 7.5 times more. These are mainly companies like Gorillas from Germany, Rohlik from the Czech Republic (Knuspr in Germany), Kolonial from Norway or Getir from Turkey and of course our start-up Jiffy in England, which are spurred by the capital market to offer a service to customers. Also major winners are producers and manufacturers in the food trade who, due to the slump in the out-of-home market, have expanded their distribution channels directly to the customer - the buzzword D2C sends its regards. If we take a look at the losers, these are mainly those who have not reacted or taken advantage of the favourable time and who have not understood that there has been a massive channel change from offline to online. Those who continue to ignorantly believe only in their classic model and do not see the combined world of online and offline will also not survive in the long run.

You yourself have just invested in the fast delivery service Jiffy, which is initially focusing on the UK. Are quick delivery services the future? What advantages does this model have over the classic online food trade?

That's right, I am even a founding member of Jiffy. The advantage of the new fast delivery services is primarily that convenience is combined with speed and the certainty of being delivered when needed without having to get hold of a delivery window in advance - because the latter no longer exists. In addition, these services offer security with regard to the desired delivery, because in the classic online supermarket, customers usually have to reserve a delivery window, which may no longer be available on the desired date. With Quick Commerce Players, consumers have the security of being delivered when they need it. Guaranteed delivery without advance reservations is a key advantage of quick delivery services. 60% of Jiffy customers shop four or more times a month. 25 % of customers shop eight times or more a month. Some even use the service several times a day because these services are so addictive. It even replaces the fridge or freezer at certain times. Why do I have to store my ice cream or pizza in the small fridge when I can get it delivered within ten minutes?

Another advantage of fast delivery services is that they are often more sustainable, as they deliver by bicycle or electric vehicle. In addition, fast delivery services can usually do without extensive refrigeration with cold packs or dry ice as well as packaging, as the delivery is transported from A to B in the shortest possible time with refrigerated bags. At Jiffy, for example, the mini-depots are always close to residential areas, so that short distances are guaranteed. The fact is that there is a lot of dynamism in this market and here, too, it is not the classic retailers who are fostering this business, but pure players who have realised that there is great potential here. 60% of the customers' shopping routine is planned - this is, for example, the big weekly shopping. For this planned shopping routine, the online supermarket has been the alternative to the traditional grocery store. Convenience was the main argument here. For the remaining 40% of shopping missions, namely spontaneous shopping without planning or for "stress shopping" (I urgently need eggs & flour for baking - I've run out of the last nappy - I need beer and snacks and I'm sitting in front of the TV watching an exciting international match), the classic online supermarket with delivery the following day or at best the same day did not offer a valid alternative to going to the shop. Now this protected analogue shopping bastion is being taken over by the convenient online quick delivery service. In this respect, the quick commerce business will definitely continue to play a major role in the future.