Expectations for 2022
As the year draws to a close it is a good time to start looking towards the next year. The previous post reviewed some of the most interesting events for the past year.
As I don't believe in predictions, which tend to go wrong for even the most experienced and skilled economists. Instead of predictions, I would like to highlight some exciting topics that I look forward about the next year.
This list is about other topics than food retailing, there will be another post about Nordic ofod retailing especially.
Here is a list of four interesting and possibly long lasting topics for the next year:
Amazon advancing in Sweden
It is already more than a year since Amazon launched in Sweden. Despite that, there has not been a lot of big headlines about the company in Sweden. The most significant event was the introduction of Prime during last September. It will have a big influence as the deliveries become "free" for Prime customers.
To enforce the importance of Prime, Amazon has also upped it's game for the Marketplace. As the amount of merchants and subsequently products on the Amazon platform increases, customers come also. Just like in Australia couple of years ago, in Sweden Prime and Marketplace will lead to rapid increase in sales. This will be a big challenge for the Swedish retailers to keep up. But it is also a big opportunity for smaller Swedish brands and retailers to start selling online and maybe later on expanding to other Amazon countries.
The questions to consider for 2022: how much will Amazon grow this year with the Prime introduced and the assortment growing? Will that erode the revenues of other ecommerce retailers or will simply increase the overall adoption of online retailing?
Costco opening in Sweden
Another american retail giant is entering Sweden during the coming year, Costco opens a warehouse near Stockholm. Costco is a unique retailer in many ways. It's business model is tailored to offer very low prices. Thus, it will be interesting to follow how Costco's arrival influences the discount-oriented retailers in the Nordics.
Costco will show retailers in the Nordics that it is not all about big assortments: Costco has about 4 000 products in the assortment. The membership model employed by Costco is also something that customers and retailers in the Nordics are not accustomed with. It will be interesting to see how Costco is able to stir excitement before the launch despite the “shortcomings” of their model and the fact that they don’t invest in advertising. Despite that the recent launches in China have been huge successes.
One could imagine that Costco's plans go further than one warehouse in Sweden. When will we see further warehouses in Sweden and subsequently in Norway and in Finland?
Quick commerce: where will it end up?
As mentioned in the previous post about the most important events during 2021, Quick commerce has grown rapidly. Year 2021 was the year Quick commerce burst into the grocery retail scene with explosive growth in valuations. As the valuations and hype has grown, the market has seen a flood of new entrants. With tight margins it will be difficult for these companies to become economically sustainable, let alone when there is intense competition.
This has already led to intereasting alliances (Tesco & Gorillas), consolidation (Getir acquired Blok) and flame outs (1520 bankcruptcy). 2022 can turn out to be a defining year for many of the companies. Those companies, which have been able to build a solid operational model with sound order level economics can see strong growth. On the other hand, companies which are burning money to acquire customers with poor operational models could end up as acquisition targets for the healthy companies. After all, there seems to be a lot of money available for the quick commerce companies that can prove their models.
Some have questioned whether the entire model of quick delivery is just a pandemic induced hype. One has to remember that quick commerce caters to customer needs that the traditional online grocery does not cater well: impulse purchases. Thus, many brands have a high incentive to help the quick commerce companies to succeed.
It is also not wise to bet against the importance of convenience for the customer. Once the customer has gotten a taste of ultra convenient delivery, there might not be turning back.
Online grocery in Germany
Germany has for years been a laggard in the online grocery space. The share of online in groceries has hovered below one percent and after the pandemic, it is estimated to be around 1,5%. This is very small compared to the 5-10% figures in many western economies. Especially, when one takes into account that Germany is the biggest and one of the most wealthy economy in Europe. Additionally it is the home of many pure play ecommerce retailers, such as Zalando. Germany is also the biggest non-American market for Amazon.
This illustrates that German people know how to buy online. The grocery retailers have just been reluctant to sell online. This is about to change, probably already in 2022.
Because of the above mentioned facts, there are several small online grocery retailers that have launched or are about to launch in Germany. Dutch Picnic has already started its operations in some parts of Germany. Picnic has also signed a sourcing agreement with the gorcery giant Edeka making the company a potent online challenger.
Besides Picnic entering from the west, Czech company Rohlik (2h delivery) has entered Germany from the south. A third challenger is Norwegian Oda, which is about the start operations in Berlin region. Then there is always Amazon...
As these three well funded and fast growing pure players start establishing their services throughout Germany, the share of groceries sold online will also most probably start increasing. This in turn will most likely push the incumbent Rewe to also invest more into the online channel.
It will be interesting to see how fast the share of online will start growing in German grocery retailing.