LONDON (AP) – A pandemic that forces everyone to stay home can be the perfect moment for online grocery stores. In practice, they have struggled to keep pace with an increase in orders, highlighting their limited ability to respond to outstanding demand.
After buying panic in left-hand store shelves, which were clad in staples such as pasta, preserved goods and toilet paper, many shoppers quickly found online grocery stores almost impossible to come by.
“It will be a little more challenging to cook a meal,” said Paul Smyth, a software engineer living near Manchester, England, where the online grocery industry is particularly advanced. He is a long-time customer of the British supermarket Ocado online but has not been able to land a place since he got his last delivery two weeks ago.
The problem for many delivery services is to get staff to pick goods in stores and deliver. But for Ocado, a groundbreaking service that relies on warehousing robots, significantly increasing deliveries would mean a major investment in new machines and warehouses too late to catch the nail demand.
Smyth said he is starting to run out of meat and frozen goods, but wants to avoid going to a supermarket because he worries about his asthma, diabetes and high blood pressure are risk factors if he catches the new coronavirus.
“I will not panic for another week, but if I have to wait another two weeks for a delivery place, it will be very close to the bone.”
The Coronavirus crisis is giving the e-commerce industry a boost, but problems at Ocado and other online grocery stores highlight how difficult it is for the industry to rapidly increase online delivery.
In the US, grocery shopping had only slowly migrated online, accounting for 3% of the food market, according to a report last year by Deutsche Bank.
When the crisis hit, delivery orders increased while millions of Americans stayed home. During the week of March 2, even before some cities and states imposed “stay at home” orders, sales of food deliveries Instacart, Amazon and Walmart jumped by at least two-thirds from a year earlier, according to Earnest Research. Instacart, a platform that collaborates with more than 25,000 stores in North America, says orders in recent weeks have increased by 150%.
As a result, customers in hard-hit New York City wait days to schedule deliveries that usually only take hours.
In China, where the outbreak originated early this year, ubiquitous smartphone food apps helped millions get through months of strict lockdown. Despite this, it was reportedly recruited by e-commerce giant Alibaba supermarket chain Freshippo as a restaurant worker for temporary employees when more customers moved to order per app and average basket sizes jumped during the first half of February.
The UK’s online food market, one of the world’s most advanced, is estimated to account for 8.3% of all 2020 sales, according to market research firm Mintel. Still, Ocado and the online arms of bricks and mortar rivals that Tesco, Sainsbury’s and Walmart owned-Asda booked. To be fair, they prioritize slots for vulnerable customers.
Ocado has been pioneering online grocery stores in the UK since 2002 with automatic stock robots and has licensed its technology to other companies including Kroger. That experience was not enough when the site merged after traffic doubled.
The company struggled to get the systems back to normal by taking their smartphone app offline and stopping new account sign-ups. It temporarily blocked its website, then all visitors had to wait in a virtual queue and extend long users.
“It felt like they had completely abandoned customers,” said Smyth, 50, who waited as long as four hours online just to find that there were no delivery locations. Ocado now has a new system for allocating slots, but Smyth has still not been lucky and can handle basic goods from a local store.
CEO Melanie Smith emailed customers to tell them that demand was nailing to 10 times the normal level. Her announcement came after Prime Minister Boris Johnson announced new locking rules and urged people to use food delivery service.
Each time the British government announces new measures to fight the virus, she said, “we are seeing another extraordinary sharp increase in customers.”
“No matter how hard we work, we will not have enough capacity to serve the outstanding demand.”
Ocado operates three bearings where cube shaped robots on wheels zipper along huge grids, pick up boxes of soda, tea bags or apples and deliver them to “picking stations.” There, people or robotic arms gathered customer orders to be delivered by a van.
The company said it handled 343,000 orders per week during the quarter ending March 1, and sales have since doubled. Analysts note that the most important factor affecting the growth of an automated system like Ocados is the storage capacity.
“There are only so many of the stocks you can build,” said Simon Bowler, an analyst at Numis Securities. It takes up to two years for Ocado to build a warehouse, so “says today, we’re going to build a new warehouse, it won’t solve the problem here and now.” A fourth layer was destroyed by a fire last year.
Traditional supermarkets have their own less sophisticated online activities and use people to pick items off the shelves.
It’s “a little easier to flex to sudden huge increases in demand,” Bowler said – you just need to hire more.
Companies have begun to do so. British supermarket Morrison’s employs 2,500 additional drivers and pickers. Amazon is looking for 100,000 more employees, while Instacart plans to add 300,000 gig workers, more than double the number of people who have picked and delivered groceries.
Nevertheless, Instacart’s employees have struggled to achieve efficiency goals, as the stores set distance rules and business increases.
Highlighting the main disadvantage of human store pickers, Bowler said: They are 10-15% less cost effective than robots.
Zen Soo in Hong Kong and Alexandra Olson in New York contributed to this report.
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