Expectations for 2022 - online grocery in Sweden
Year 2022 is promising to be an exciting one with lots of interesting themes for online grocery retailing. It will be a year when we see “the future” of online grocery in the Nordics as the markets in Finland and in Sweden get new players and more efficient capacity for fulfilling the online orders. This will enable more reliable and higher quality online services.
In Sweden this means big new warehouses that have either opened in late 2021 (ICA/Ocado) or are about to open in 2022 (Mathem). Besides that Axfood is building a new warehouse with home delivery capabilities.
In Finland the new and more efficient online grocer is Oda that is about to launch in early 2022. From its centralised warehouse they will be able to offer more robust services with high volumes. Currently the online services with the store based picking have been running into problems with capacity constraints.
This post concentrates on the Swedish market. There will be another post tomorrow to focus on the launch of Oda in Finland.
A more serious challenger to ICA?
In Swedish online grocery most attention is focused on two topics: new warehouse capacity and the Mathem/Axfood partnership.
Big warehouses need big volumes
In December 2021 ICA opened it's long awaited warehouse built by Ocado. It will be interesting to see how the ownership changes within ICA will influence the online investments. ICA will become private in January as the ICA traders have purchased the company back from the stock market. One reason for this could be the inability of ICA management to respond to the rise of the price focused players like Willys and Lidl. As ICA becomes private there will probably be some major changes in the management of the company. This can also influence the online business as well.
On the other, online has become such a big part of the business in the big cities that it can’t be ignored. And then there is the big investment in the warehousing capacity.
The big investment in the online capacity within the greater Stockholm region will require ICA to start investing in the marketing also. The big warehouse requires big volumes to work efficiently and eventually amortise the 100 M€ invested in it. ICA as already rather clearly the market leader for online grocery in Sweden. ICA online has about 75% more revenue than the second biggest online grocer Axfood.
As ICAs revenues start increasing more rapidly, the competition will need to step up their game.
This is probably one reason why Axfood sold their pure play online grocery arm mat.se to Sweden's biggest online grocery pure player, Mathem. At the same time Axfood became the second biggest owner in Mathem and the two companies also signed a sourcing agreement by which Mathem would source majority of its assortment through Axoofd. What does this mean?
Will Axfood eventually buy Mathem?
As Axfood and Mathem come closer together, they have a better chance to compete with ICA in the online channel. Together their combined online revenues are slightly bigger than ICA online.
In total (online and offline combined) Axfood/Mathem is small compared to ICA with revenue less than half of ICA's total revenue. Thus, the benefits of the partnership are more focused on Mathem and it's ability grow faster and more profitably.
For Mathem, the extra customer base from mat.se is a nice benefit, even though quite a small one. However, the more significant benefit of the deal for Mathem is the sourcing partnership with Axfood. Especially, as Axfood is now the second biggest owner of Mathem, there is a real stake for both companies to make the sourcing agreement work. This enables Mathem to have competitive prices and wider assortment to sell online.
In the longer term the deal could also mean that Axfood buys Mathem to make it the only home delivery option for the company.
Axfood (especially Willy's?) has grown it's online revenues rapidly. However, they have highlighted the importance of Click & Collect. The Axfood banners (Hemköp, Willy's & Citygross) could narrow their online services from the stores to Click & Collect only.
With this kind of arrangement Axfood could use it's entire store base as a marketing vehicle to promote Mathem deliveries. Bricks and mortar grocery stores with their millions of customer interactions every day could provide a much needed and free customer acquisition channel for Mathem to attract new kinds of customer groups.
It would make sense for Axfood to concentrate deliveries to one service provider. With home deliveries it is important to drive volumes up, because it makes the deliveries much more efficient and cheaper.
Share of online to keep growing
Home delivery and Click & collect share of all groceries sold in Sweden
With Coop investing also to build online competences, the competition between the three giant grocery retailers is heating up. This bodes well for the customer and the online share of the entire grocery market.
After the pandemic, online's share of the market dropped to 3,5% in July. It has since gained back to 5,1%. If the big retailers continue to compete intensely in the online channel, one could imagine that the share could increase significantly. When will we see again above 7,5% of groceries sold online?
As the market reaches that level on a more long term basis, it will influence also the store network. What kinds of repercussions will that have for the big stores in major urban areas?