Morrisons is scrapping store picking for online grocery deliveries from 50 of its supermarkets – a move that raised many an eyebrow following the rapid surge in ecommerce demand during the Covid-19 pandemic. 

Morrisons-delivery-van

The supermarket giant’s decision to scale back its workforce in that division stands out as an incongruous marker compared with the last 18 months.  

After the pandemic hit, all of the big-four grocers, as well as the likes of Iceland and Waitrose, focused on ramping up ecommerce capacity in a bid to keep pace with the spiralling growth in online grocery demand. But that appetite has now begun to subside – a point made by Morrisons itself. 

“At the start of the Covid-19 pandemic, we rapidly grew our store home delivery service to serve the many customers who moved from shopping in store to online,” said a spokesman.

“As we enter this next phase of the pandemic and with many restrictions now eased, we must now adapt and make some changes to the size of our online operation to meet our customer demands.”

But what does Morrisons’ move tell us about the future of the online grocery market?    

The new normal

Ecommerce grocery penetration has been declining steadily over the past few months as customers return to socialising and eating out of the home. 

Kantar data shows that total online sales began to retreat in June and continued to decline during the summer months.

Online sales accounted for 12.2% of grocery spend in September – the lowest level since May 2020, but still well ahead of 2019 levels. 

Kantar’s head of retail and consumer insight Fraser McKevitt says this share of the wallet is likely to represent “the new normal” for online moving forward. 

“Ecommerce penetration has definitely been slowing down, but it’s going down to a new base well in excess of what we were seeing pre-pandemic,” he says.

“Pre-pandemic, the base ecommerce market share was 7.9%. In the last year and a half or so, it’s basically gone up four percentage points or half as large again.” 

But is online grocery becoming a less popular method of shopping among consumers?

“In the same way that supermarkets were able to ramp up pretty quickly to keep the nation fed in the early days of 2020, they can unwind that relatively easily” 

Fraser McKevitt, Kantar

As Morrisons has flagged, falling basket sizes have been a contributing factor in its decision, rather than declines in the number of orders being placed. 

According to Kantar, the average online grocery basket was £78.28 in September, compared with £95 at the peak of the pandemic. Prior to the onset of the coronvirus crisis, average baskets were around £75. 

Larger basket sizes were key in improving the efficiency and economics of home grocery deliveries, but as those baskets slim down, McKevitt believes all the major grocers will seek to streamline their operations to match that customer behaviour. 

“In the same way that supermarkets were able to ramp that up pretty quickly to keep the nation fed back in the early days of 2020, they can unwind that relatively easily to adjust the levels of staffing to be appropriate for the demand,” he explains.

Pick-from-store no more?

Morrisons hired some 45,000 extra staff over the course of last year, the vast majority of whom were plugged into its surging online operation – either as pickers and packers in store or as delivery drivers. 

But the pick-from-store model is often more labour-intensive and less efficient than fulfilling from warehouses – something Morrisons also does through its partnership with Ocado. 

One source at a rival grocer says that fulfilling orders from supermarkets “may sound simple on paper, but it’s logistically very complex”.

They add that “unless you’ve got a really good geographical spread of stores in any one location, it can become hugely expensive and time-consuming” to fulfil orders in a big region from a handful of stores. 

Back in March, Morrisons boss David Potts insisted the supermarket’s online blitz had been successful, pointing out that online sales during its financial year had tripled. 

Its own online delivery capacity surged fivefold during the period, but it grew sales in other areas, too.

Orders placed through Amazon accounted for as much as 10% of overall sales in some supermarkets, while its partnership with Ocado is back up and running from the latter’s automated Erith warehouse. 

“This is all about Morrisons getting the operating platform to a position where they can start to optimise the efficiency of each store and of each vehicle” 

Clive Black, Shore Capital

Clive Black, research director at Morrisons’ house broker Shore Capital, suspects these other digital channels will comfortably pick up any slack. 

“This is all about Morrisons getting the operating platform to a position where they can start to optimise the efficiency of each store and of each vehicle,” he says. 

In doing so, Black believes Morrisons is working to a similar end goal as its competitors: “to make online grocery more productive and more profitable”.

Tesco, which more than doubled its online capacity last year and can now fulfil 1.5 million orders per week, is seeking to achieve this by building at least 25 urban fulfilment centres (UFCs) across the UK.

The UFCs will be attached to existing stores, meaning online baskets can be picked from the same location but not from the shop floor.

Tesco boss Ken Murphy says they will add “an element of automation” to the process, reducing the labour required and providing a ”game-changer” for productivity.

Shopfloor Insights founder Bryan Roberts believes grocers will now be re-evaluating the value of fulfilling online orders from dark stores rather than supermarkets, despite the fact that many had started to move away from large warehouses pre-pandemic. 

“Picking rates in dark stores go up because you haven’t got idiots like us in the way,” he says.

“You also don’t have the local kebab shop coming in and buying up all of your lettuce. You haven’t got those unpredictable shocks and demands that you get in the store sometimes.”

Quick commerce slowdown?

The other huge growth area for online grocery during the pandemic has been in on-demand food shopping.

The likes of Deliveroo and Uber Eats have benefited from a surge in the number of customers on smaller, time-pressed shopping missions.  

Data by Kantar published at the end of 2020 showed that around 7% of all customers who had shopped online for groceries had also used one of the on-demand apps – 19.4% of those customers used Deliveroo, over and above its rivals. 

Does Morrisons’ move suggest those quick-commerce specialists may begin to come under pressure?

“What’s happening at the moment is that it’s the main shop that’s moving and going back into either supermarkets or discounters from online” 

Bryan Roberts, Shopfloor Insights

Roberts believes such businesses serve a different consumer need than the traditional grocers’ websites and will therefore be “largely insulated” from the overall decline in online food spend.  

“What’s happening at the moment is that it’s the main shop that’s moving and going back into either supermarkets or discounters from online,” he says.

“All of the rapid delivery people are focused on a very different need, shopper mission and basket size,” Roberts says. “So I think they’re going to be largely insulated from this wider trend.” 

Partnerships with the likes of Deliveroo – penned by Waitrose, Aldi and M&S during the pandemic – are also cost-effective for the supermarkets as they involve staff picking and packing from smaller c-store formats rather than supermarkets, while also requiring less upfront investment and delivery driver costs. 

The online grocery market may be shrinking, but it is likely to settle at almost double pre-pandemic levels.

While Morrisons is the first grocer looking to streamline its ecommerce business in line with changing consumer demand, it certainly won’t be the last.

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