In this month’s Retail Times and Euromonitor International Retail Spotlight, Raphaël Moreau, retailing analyst at Euromonitor International, explores the growth of drive-through delivery formats in France and considers how they may operate alongside hypermarkets in a multi-channel retail environment
Unlike their British counterparts, notably Tesco, major French grocery retailers have been reluctant to embrace internet retailing through home delivery, citing the lack of a critical mass in the number of orders resulting in prohibitively high delivery costs to make this delivery method profitable. Having not solved the ‘last mile’ equation satisfyingly from a logistics perspective, French retailers have chosen to embark on an expansion race with drive-through click and collect concepts, which is unmatched in any other European market.
Drive-through offers shoppers low cost and flexibility
Unlike internet retailing through home delivery, hindered by high delivery fees, the drive-through concept has proved popular among shoppers, with over 4% of French households having used it in 2011. Beyond price, consumers also appreciate they can remain in control of their schedule rather than wait at home for the whole duration of a delivery slot, typically two hours.
For the growing number of shoppers who find shopping at a hypermarket too time consuming, the drive-through concept provides a convenient solution, while it also reduces the temptation to do impulse purchases and help control their spending.
However, to better satisfy these needs, the optimum locations for drive-through units are likely to be the stand-alone pick-up points nearby busy roads rather than those attached to a hypermarkets, which will incur the risk for retailers of seeing shoppers increasingly bypass hypermarkets altogether, even when used as collection points.
Système U and Leclerc show two successful approaches
At the end of June 2012, there were around 1,200 drive-through units operated by the largest grocery retailers in France, of which just over 1,000 were located next to supermarkets or hypermarkets and fewer than 200 were stand-alone sites, usually found nearby major road junctions. With over 450 units, Système U ranked number one in terms of number of sites, followed by Leclerc with almost 250 units.
Leclerc, which generates most of its sales through hypermarkets, has championed the drive-through concept, with sales more than doubling in 2011 to reach over €400m in France, accounting for over 2% of its total sales, a proportion which it expects to rise to 5% by 2015. The group has already opened over 100 new drive-through units in 2012, and has a target of 400 by 2013. Meanwhile, with Leclerc reporting total sales growth of 6% in 2011 in France, its hypermarket performance remained stellar, and it compares favourably against a 1% fall for Carrefour, excluding the impact of the Dia disposal. Leclerc’s results indicate the strong expansion of the drive-through need not necessarily jeopardise growth of hypermarket sales.
However, the rapid development of drive-through sites by Système U, which predominantly operates supermarkets and small hypermarkets, could create a shift in consumer behaviour. Système U, whose sales from drive-through reached only €125m in 2011, expects them to rise to €250m in 2012 and to generate 10% of the sales at stores where the service is available by 2015. As Système U’s model allows consumers to easily integrate click and collect internet retailing into a shopping routine that does not involve driving to an out-of-town large hypermarket, but instead to a nearby supermarket, footfall at hypermarkets could see a further decline.
Not a panacea for hypermarkets but can help mitigate decline
French hypermarket players are fully aware the success of the drive-through click and collect could exacerbate the paradigm of the long-term decline of this format, notably for non-food products, as it would further reduce the incentive to travel through these large stores.
However, standing idle, notably against the rise of pure-play internet retailers in non-food categories, is not a viable option. Embracing this concept will allow grocery retailers to benefit fully from multi-channel synergies which pure-play retailers cannot match. Hence, Carrefour, the most troubled hypermarket operator in France, which was until recently slow to develop its drive-through presence, with only 125 sites in June 2012, also plans to accelerate openings in order to catch up with Leclerc.
With the saturation of the hypermarket format in France, converting some of the hypermarket retail space into a fulfilment centres and pickup areas for internet retailing orders could partly solve the dilemma of what to do with underperforming stores.
In the same way Tesco in the UK has benefited from its large online shopping expertise to know its customers better, French hypermarket retailers can also use internet retailing to better personalise their offer and promotions and increase customer loyalty, which could ultimately help boost sales of non-grocery ranges, either in store on online.