I have updated the list of Canadian startups that I will be covering in the next three months in the posting schedule here. It is an exciting list spanning across health-tech, edu-tech, home-tech and transportation. Also, all these companies are hiring amidst COVID-19. In case you are someone you know is looking for an opportunity, I hope the list and the upcoming analysis proves to be helpful.
Three months ago, I had planned to write about Loblaw Digital in this edition. However, as I was researching more on the online grocery delivery players, I decided to change my plan and am covering Voila by Sobeys today. Voilà is the much anticipated grocery delivery service by Sobeys. It is still in the wraps and there are two things that got me excited to write about it. First, Voilà has a somewhat different strategy than almost everyone else in this sector. So, I thought that it would be fun to share my perspective on it. Second, I want to see how my prediction of the service holds up against the reality in the coming months as Voila becomes available in the Greater Toronto Area. With that, let’s dive in.
Origin Story
Canada’s 2nd biggest retailer Sobeys has been working on launching its own grocery delivery service since 2017. Early 2018, Sobeys had inked a deal with Ocado to launch online grocery. In May 2019, they unveiled the name and the brand for the service i.e. Voilà.
Voilà is a new team dedicated to launching and scaling Sobeys new e-commerce grocery home delivery business.
And now we are already in the middle of 2020, waiting to see Voila deliver. This is also the year when Coronavirus has accelerated the trend of Grocery delivery thereby making it all the more likely for Sobeys to reap returns on 100s of millions of dollars that have been spent in building the infrastructure behind Voila.
So, what is the business?
The business is pretty straight forward, Sobeys has been one of the largest Canadian grocers and it seems that a lot of people now prefer to buy groceries from the comfort of their homes. There are a lot of people like me who hate grocery shopping. So, if you aren’t going to visit Sobeys, it would come to deliver groceries to you thereby continuing to make money on your weekly grocery purchases. Voila’s tagline is “Your groceries delivered. Just like that.” Below is Voila’s pitch to you:
Life is busy. We get that. Get more time back when you shop the widest range of fresh products with delivery times that match your lifestyle. Exactly what you want, when you want it, every time.
Won’t it be expensive for them to deliver? How would Voila make money?
Well, currently almost nobody makes money delivering groceries. It is expensive to go to every single household and deliver groceries. One needs delivery vans/trucks. Those vehicles need fuel and drivers. You have to pay someone to sort and pack the orders. All of these add up quickly. But then companies don’t play for the short term.
The hope is that you will continue to spend a certain portion of your wallet on groceries and Voila will take that portion from you every week. And you won’t be the only one but your entire neighborhood will buy from Voila. They would send one truck to your neighborhood that will make 15 deliveries with a fixed/variable delivery fee amount. So you along with your neighbors will pay a part of the delivery expenses. Voila will get to such a scale that the markup on groceries along with these fees would still make a decent profit after deducting all the costs associated with the deliveries.
Market and Competition
At the end of 2019, online grocery purchases represent about $2 billion of the $120-billion food retail market, according to e-commerce researchers at retail consultancy J.C. Williams Group. With the acceleration in online grocery purchase adoption, this is a big market and therefore is a crowded one as well. There are a lot of providers and if you live in a big city like Toronto, you have got more than a few grocery delivery options.
You can order your groceries from aggregators like Instacart and Cornershop. They do deliveries from multiple grocers like Walmart, Metro, Loblaw etc. These aggregators don’t own the grocery supply chain. Neither do they employ drivers to make the deliveries. They find independent contractors to do the shopping and deliveries from the store to your house. They make money through a combination of service fee, delivery fee, covid fee, grocery markups and random fees that only they can understand.
You can order directly from the grocers such as Walmart, Metro, Longos, small independent chains or one off stores etc and they deliver through their own delivery channels or 3rd party logistics services that they work with. Voila would fall in this category with its own delivery channel. They typically charge a fixed delivery fee on top of your order or get you to buy some sort of subscription that locks you into their service for a fixed period of time.
You can even order a meal kit delivery using services like Hellofresh or Goodfood. These are essentially groceries in a box with a recipe on how to use your groceries to create a few meals.
So, what’s different about Voila?
It is the strategy and the investment behind the strategy. Voila is a startup within Sobeys. It is a small entrepreneurial team that has the muscle and money of Sobeys behind it. Sobeys has invested hundreds of millions of dollars in setting up Central Fulfillment Centers (CFCs) in partnership with Ocado a British technology company that provides the technology that automates sorting and picking of grocery items using robotics, data science and machine learning. Watch this video if you want to see what a fulfillment center with robots looks like:
Not just the fulfillment center but Sobeys has also invested in procuring refrigerated trucks and employing delivery staff that would provide a white glove premium service at your doorsteps when you order groceries through Voila. It is kind of the amazon model where everything is controlled by Sobeys. They have direct control over the entire end to end experience from ordering to delivery.
What is exciting about Voila?
Customer Experience - Walmart can’t control/dictate the customer experience when you order via Instacart or Cornershop. How many times has it happened to you that you ordered a certain brand of cereal and by the time the shopper visits the store, that brand is no longer available on the shelves. At this point, either the shopper will give you a call to ask for a replacement or you wouldn’t get any cereal at all. You are definitely not getting the brand that you asked for. This is a poor experience. Sobeys can control for that. When you are placing the order they would know exactly what’s available in their inventory at the CFC. They aren’t dependent on a third party. Neither are they dependent on stores and inventory on the shelves. There should be exactly zero cases where you don’t end up getting what you ordered for. At the end of the day, it is the experience that keeps taking you back to a product/service and Voila is certainly in a position that they can provide a superior customer experience than any available options.
White glove premium service - It isn’t limited to you getting the product that you ordered. The product will be delivered by a Sobeys employee. Think black car limousine vs Uber pool where Voila is the limousine and everyone else Uber pool. In the times of COVID, safety precedes everything. What if you learn that when you order with Voila, your groceries are picked by robots and delivered by staff that goes through temperature monitoring and uses PPE. I don’t know if that would be the case but Voila is likely the only player that has the ability to do so. And in my opinion should do so.
Less price elastic customer - Not everybody cares about the above two things. But the ones who do care about these will be willing to pay a little more. They make the premium customer segment that everyone wants to corner. Voila will have an opportunity to capture this market on the merits of Sobeys investments. Premium customer segment means more purchases, higher sales. Think of a small portion of a thicker wallet.
What makes me nervous about Voila?
To understand my nervousness, let’s look at Walmart vs Amazon in grocery delivery - an area where Walmart has consistently outperformed Amazon. Amazon wins in e-commerce by an efficient logistics network that plays out of large fulfillment centers that sit outside cities and hold millions of products. However, groceries are fundamentally different from books. One, there aren’t millions of grocery items. Two, groceries are perishable unlike books/phones. In a Stratechery article published in 2019, Ben Thompson has beautifully explained why Walmart is so successful at grocery deliveries:
In groceries, the winning formula is a good-enough selection, low prices, and the logistics to get perishable items to customers while they are still fresh. Walmart has accomplished exactly that, first with its own stores that not only held inventory but also were delivery points for customers (who did Walmart the favor of covering the last mile on their own!), and now by building an online portal on one end and building out delivery points on the other, either in-store pickup or delivery to homes.
Voila’s trucks can’t get groceries delivered to your doorstep within 2 hours of placing the order. Instacart and Cornershop can do that and many consumers have already gotten used to it. In fact that has become an expectation for many. In the first few weeks of COVID-19 in Canada, both Cornershop and Instacart were struggling with low supply of drivers. One had to book delivery slots at least 48 hours in advance but they have solved the issue now and are back to 2 hour delivery. It is possible because the deliveries are being made from local stores that aren’t more than 30 minutes away from the customers. If Voila needs to compete with the same experience, they will have to come up with a hybrid model that uses both the CFC and existing stores either for deliveries or curbside pickups. This would be completely different from a strategy that’s focused on CFCs that sit outside the city. A hybrid strategy would be harder for Voila to pursue on its own and if Voila ends up relying on third party logistics (3PL) services, it would be compromising on the white glove user experience that it is striving for.
It wouldn’t be viable to build CFCs to serve less populated areas. A lot of Sobeys franchisees serve such areas and will be looking at Sobeys to provide delivery services. Sobeys will be left with three options to appease and engage franchisees. One, build smaller CFCs which wouldn’t be financially viable. Two, do nothing which would eventually mean giving customers to Loblaw or another provider. Three, come up with 3PL partnerships with local services. This would mean lack of national partnerships given they would be using CFCs in big cities and a lot of burden on internal teams to manage multiple local partnerships. This could turn out to be an ugly scenario.
Additional Resources for Further Reading
Canada Post research suggests that Canadians are hungry for click-and-deliver in the emerging online grocery sector.
Online grocery shopping explosion
Voila’s career page
That’s all for now :)
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