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The deal to use its automated warehouse technology and online retail platform as it looks for growth online, announced on Tuesday, marks the most ambitious attempt to date by a French food retailer to tackle ecommerce, say analysts. And it comes as established grocers feel the heat from Amazon, which is hoping to disrupt food retail in the way it has electronic goods.
“Amazon has developed a fantastic model in terms of non-food — but it has not been able to deliver in food,” says Régis Schultz, chief executive of Monoprix, Casino’s upmarket brand that will be its first to use Ocado’s ecommerce platform. “That’s the beauty of Ocado.”
Online sales of food and drink in France hit almost $7bn in 2016, more than double 2010’s level, and accounting for roughly a fifth of all online sales in France, according to data provider Euromonitor. Online sales are roughly 6 per cent of the French food retail market, says Ocado. Casino recorded €36bn of net sales last year, just over half of which were in France and €1.8bn were online.
The tie-up between Ocado and Casino comes amid a shake-up in French food retail. The sector is dominated by half a dozen groups that have been locked in brutal price war with each other for more than a decade and more recently with German discounters Aldi and Lidl. The arrival of US operators in France is adding to the pressure.
In June wholesaler Costco opened in a Parisian suburb; and there is speculation that Amazon is eyeing deals in Europe, after its acquisition of upmarket US grocer Whole Foods in May. Last month E Leclerc, which recently overtook Carrefour to become France’s largest grocer by market share, said it had been approached by Amazon over a possible logistics deal.
The deal between Casino and Ocado will further squeeze Carrefour, which already lags behind its rivals in terms of online, say analysts. It was slow to embrace ecommerce and is heavily reliant on the hypermarket model it pioneered but which is now under scrutiny as sales fall amid shifting consumer habits.
Jean-Charles Naouri, Casino chief executive, spotted the potential of ecommerce and in 2000 bought Cdiscount, an online discount retailer of white goods and household equipment. He has diversified Casino’s business to be less reliant on hypermarkets, which have struggled in recent years, and developed an omni-channel approach across its group of brands.
In France, unlike the UK, the leading online grocery market, most online food sales are “click and collect”. Drive-through services were introduced by hypermarkets as long ago as 2004; home delivery makes up only about 5 per cent of grocery sales, according to analysts. There were more than 4,000 drive-throughs in 2016 in France, up from 1,000 in 2013, according to Euromonitor.
With its Ocado deal, Casino is looking to offer an alternative and, says Tom Wharram, a Bernstein analyst, “is banking on a shift in consumer behaviour to home delivery”.
Mr Naouri said: “This agreement is a major leap in terms of quality: 50,000 food items will be offered in the first stage to customers in the greater Paris areas with precise and speedy delivery at home and through a platform which makes it achievable to do this profitably.”
By teaming up with Ocado, Casino avoids having to invest the time and money to build technology on its own. Online grocery retail is fraught with challenges, not least fulfilling multi-part orders that include both fresh produce and dry goods. Operational complexities include everything from offering a smooth online purchasing experience, optimising inventory, to trying to keep shipping costs down and perfecting last-mile delivery.
Ocado will spend two years and £15m building a fulfilment warehouse to process orders for Casino in northern France and may develop further facilities close to other large urban areas. The full financial of the deal were not disclosed but Casino will pay an upfront signing fee and then ongoing charges linked to usage of the warehouse.
Ocado will also provide the French chain with its online software, with the partnership focusing initially on its upmarket Monoprix stores in Paris.
Analysts say that starting with Monoprix makes most sense for Casino because the higher profit margin on its products offsets the cost of delivery. “Monoprix’s products have a good gross margin and there’s a good gross basket size,” says Andrew Gwynn, an analyst at Exane BNP Parbias.
“This is one of the keys to making a partnership model work.” BNP estimates that while Monoprix represents about 22 per cent of French sales for Casino, it accounts for about two-thirds of French retail trading profit.
Meanwhile for Ocado, whose growth prospects rely upon its ability to strike partnerships with international retailers, the long-awaited deal marks an endorsement of its technology. Mr Gwynn says: “Casino is one of the most forward-thinking European retailers and so this is a big tick in the box for Ocado.”