Waitrose & Partners’ owner, the John Lewis Partnership, reaffirmed its plans today to grow the upmarket grocer’s online platform as it prepares to split from Ocado.
From September 2020, Waitrose will stop selling its products through Ocado, which will instead partner with Marks & Spencer after striking a £1.5bn joint venture deal.
The move allows Waitrose to turn its attention to doubling the size of its own ecommerce grocery business, Waitrose.com, within five years.
Waitrose trumpeted that it grew online grocery sales by 14% – “well ahead of the market” – in the year to January 26. The growth helped the broader Waitrose business improve operating profits 18% year on year, to £203.2m.
As he targets further online growth, Waitrose managing director Rob Collins is banking on the quality of its own-label proposition to not only lure Ocado customers to Waitrose.com but also bring in new customers from other grocery rivals.
But will this be enough for Waitrose to compete with Ocado and, by extension M&S, come September 1, 2020?
Website and app functionality
Many analysts believe Waitrose knew about the coming deal between Ocado and M&S for some time – and had already been making contingency plans. For its part, Waitrose says it has poured £80m into its ecommerce platform over the last five years.
A Waitrose spokeswoman says capex has been injected “across the entire service, from investments in our digital platforms and apps to our delivery performance and doorstep service – such as driver handsets and text messaging”.
But Practicology marketing manager Sam Gaunt says Waitrose.com still lags behind Ocado when it comes to online customer service. Waitrose does not offer online shoppers the option of live chat functionality to deal with any queries or problems, for instance.
“Live chat remains the customer service channel with the highest levels of user satisfaction,” Gaunt says. “It provides customers with quick solutions to queries and allows them to multitask while browsing.”
Gaunt also believes Waitrose.com’s product search functionality pales in comparison to Ocado’s. He says while keyword searching works well in itself “there are some limitations”, particularly around “sort and filter” criteria.
He explains: “Criteria like ‘filter by customer rating’, ‘sort by lifespan’ and ‘sort by price per grams’ do not exist [on Waitrose.com]. This limits the usability of the product search in comparison to Ocado.”
Obsession with customer service has helped Ocado become arguably the best in class when it comes to online grocery deliveries
As a result, the customer journey of building a basket is likely to take longer on Waitrose.com than it does with Ocado. In a world where consumers are increasingly time-poor and crave convenience, this could be a deal breaker when shoppers come to select their online grocery retailer of choice.
Downloads of Waitrose’s transactional app spiked 30% on the day of the M&S and Ocado deal, compared to an average 24-hour period. Waitrose claims this is a trend that has continued “every day since” the landmark partnership was revealed last week.
The jump in the number of smartphone users downloading the app suggests many people are at least considering switching to Waitrose.com to continue purchasing the upmarket grocer’s products online.
Waitrose only made its app transactional within the last 12 months, so it is perhaps inevitable it will have some failings in comparison to Ocado’s equivalent.
Ocado’s app, for example, can operate on smartphones and tablets without needing to be connected to the internet. When a user first downloads the Ocado app, it effectively downloads the grocer’s entire range to your device, allowing customers to compile their grocery basket whenever and wherever they want.
Service and delivery options
On this particular metric, most analysts agree Ocado has a clear advantage over Waitrose.com – and indeed many of its other grocery rivals.
According to Bryan Roberts, insights director at TCC Global, Ocado’s unique advantage over every other ecommerce grocery service is the “accuracy, timeliness and reliability” of its deliveries. He suggests that proposition is “markedly superior to that offered by Waitrose.com”.
The statistics back this up. According to its 2018 annual report, 95% of Ocado’s deliveries turned up on time or early, while 99% of orders were delivered accurately, without any product substitutions. At the time of writing, Waitrose has not shared this information.
Ocado has built a reputation for both reliability and impeccable customer service over the last two decades, and boss Tim Steiner is banking on this heritage to convince customers to stick with the online grocer beyond the end of the Waitrose deal.
Waitrose is clearly alive to the need for speed and has launched its own Rapid Delivery service
Even after its customer fulfilment centre in Andover was gutted by a fire last month, Ocado still operates three warehouses, compared to Waitrose’s one.
Waitrose has plans to open a second fulfilment centre in London, but Gaunt believes that the grocer will struggle to match Ocado, particularly when it comes to product availability.
“Picking and delivery is fulfilled by local [Waitrose] branches. This means that once an order has been placed, the availability of the product is dependent on what is then available in stores when the items are being picked,” he says.
But Gaunt adds that Waitrose.com compares favourably to Ocado in many ways when it comes to the delivery proposition itself.
Orders can be booked through Waitrose.com for next-day delivery at no extra charge and are available in hourly slots between 6am and 11pm. Waitrose.com customers can also “make changes to their order up until 11pm the day before delivery”, which Gaunt says “outperforms Ocado”. The etailer can only guarantee changes to orders that are made 24 hours before delivery.
In terms of its delivery drivers, Waitrose says they “regularly help bring shopping into customer’s houses when delivering an order” but couldn’t confirm if drivers were actually insured to do so.
Ocado and its drivers are renowned for going the extra mile when it comes to customer service. As reported in 2017, one job description for an Ocado delivery driver said: “We are looking for drivers who can offer our customers the best service possible.” It is that obsession with customer service that has helped Ocado become arguably the best in class when it comes to online grocery deliveries.
Ocado has also raced ahead of Waitrose.com with the speed of its deliveries, after launching its new one-hour Zoom service. Zoom should fit perfectly with the M&S proposition, where customers tend to purchase smaller baskets focused mainly on food for immediate consumption.
Waitrose is clearly alive to the need for speed and has launched its own Rapid Delivery service. That offers customers in parts of London to benefit from two-hour delivery on around 1,500 SKUs, for just £5. But it has work to do to compete with Ocado Zoom.
Last week, Steiner was confident that M&S’ range would be “a near-perfect match” for outgoing Waitrose products, bar the “odd individual product”.
Even then, he insisted the retailers could work together to “identify a gap and, if we can, the great innovation teams at M&S can go out and replicate that product for our customer”.
But does the maths stack up?
Waitrose stocks more than 27,000 SKUs across its entire range, of which circa 4,500 own-brand products are currently offered on Ocado.
Steiner and M&S boss Steve Rowe confirmed that around 5,000 of M&S’ 7,000 own-label SKUs will be available for Ocado customers as part of its 50,000-strong range of products.
For head of retail and consumer insight at Kantar Worldpanel, Fraser McKevitt, while there is some overlap between Waitrose and M&S’ ranges – particularly in categories like chilled ready meals or meat – it is the former that boasts a better selection of own brand and everyday essential items.
“There’s a reasonable overlap towards the more convenient, chilled and premium end of the two ranges,” he says. “Where there will be a gap is on more everyday basics, like the Waitrose Essentials range.
“That’s not something that M&S particularly offer, or at least certainly not to the same degree.”
“The one that places the customer – not technology, brand or marketing – at the heart of their strategy will win market share”
James Hammersley, Good Growth
Roberts agrees, but doesn’t necessarily believe this will help Waitrose win out over Ocado in the long run. He argues that very few consumers complete a full grocery shop at M&S and suggests Ocado’s own-brand lines will help address the day-to-day product imbalance following next year’s tie-up.
“Waitrose has two very strong, own-brand label ranges and a fuller assortment of branded items, but I still think that Ocado will probably shade it,” Roberts says.
“They’ve got an absolutely massive range. So, I don’t think that M&S will necessarily have to make up that difference [between it and Waitrose] themselves, so long as it’s content with its stores offering just a few dozen really key brands.”
McKevitt says while Waitrose won’t be able to offer the same depth of range, it can take heart from Kantar’s most recent grocery market index. The figures showed in the 12 weeks to February 24, 41% of Ocado’s shoppers also shopped with Waitrose either in-store or online.
“A good number of Ocado customers shop there because they can get Waitrose products,” McKevitt says. “So, a good number are essentially using Ocado as a Waitrose delivery service. The big question then is how many of those people currently shopping on Ocado will move across to Waitrose.com.”
Good Growth chief executive James Hammersley says the answer to this question lies in how Ocado and Waitrose separately listen to their customers.
“Are there three-quarters of a million customers who are Ocado loyalists or indirect Waitrose devotees for whom Ocado was simply a facilitator? The answer will lie in how each business listens to their respective customers. The one that places the customer – not the technology, brand or marketing – at the heart of their strategy will win market share.”
While both retailers operate at the top end of the grocery market, Rowe is insistent his business will be cheaper for Ocado customers in the long run.
“We think Ocado customers are going to see our goods and work out that it’s cheaper than they were at Waitrose,” he said. “They’re going to get those products for a better price.”
Roberts argues Waitrose represents better value than its upmarket rival, but, as he points out, customers of both retailers tend to be more affluent than the average consumer. He therefore questions how vital a factor price will ultimately be when customers come to decide whether to stick with Ocado or switch to Waitrose.com.
“We think Ocado customers are going to see our goods and work out that it’s cheaper than they were at Waitrose”
Steve Rowe, Marks & Spencer
“My suspicion would be that, in terms of price, Waitrose is not hugely cheaper, but there will certainly be a modest price differential,” Roberts says.
“Having said that, if you can afford to shop with Waitrose or M&S, you’re not particularly price-sensitive. I think Waitrose being 1% or 2% cheaper is probably something of a drop in the ocean.”
If shoppers do jump ship from Ocado to Waitrose, they would need to build bigger baskets in order to qualify for deliveries. The minimum spend to receive home deliveries from Waitrose.com is £60, compared to £40 on Ocado. However, deliveries are free on Waitrose.com, while customers must purchase a Smart Pass on Ocado to receive unlimited home deliveries. These can be bought on a monthly (£10.99), half-yearly (£49.99) or annual (£109.99) basis.
Going toe to toe in the ecommerce delivery sphere with a pureplay retailer like Ocado was always going to be a challenge for heritage, bricks-and-mortar brand like Waitrose. However, there are positives to take from their position as well. It now no longer has to compete with what was effectively a wholesale partner, and will also have full control of its customers’ data. Waitrose also has a strong range of products that demand great customer loyalty.
Whether that is enough to ensure Waitrose.com thrives without Ocado remains to be seen, but it has given itself a fighting chance.
Retail Week Live 2019
Rob Collins is speaking at Retail Week Live on March 27, at London’s InterContinental O2 hotel.
To check out the packed programme, and book your tickets, click here.