A month and a half after my last post and it appears that SBRY would have been a good short-term hold as well 
ÂŁ2.22 and counting. 30% up in 6 weeks. Profits in line with expectations. Interested how this one continues.
N.b. Iâm bragging because I never get it right like this
Personally i think it is inevitable that all high street supermarkets will close and be replaced by delivery warehouses and convenience stores. I have noticed the latter for years. The coop is getting in early as its not competitive with the main supermarkets. Aldi and lidl will be the last to go. I have already noted that some supermarkets have opened delivery warehouses. Think of the banks and even atm are disappearing rapidly. The supermarkets will follow as each one becomes loss making they will have to close it. I wonder how this will effect there profits while they go through the transformation.
Most supermarkets are on 25 year lease, not easy to walk away from that, unless they can find a use for the site. Housing?
Obviously no time soon, i assume!
Thatâs an interesting theory, but I think thereâs quite a lot of evidence that it is not likely to happen in the foreseeable future.
Self-service stores were an evolution of the traditional person-behind-a-counter stores, and supermarkets were an evolution of small self-service stores. Each evolution brought with it dramatic improvements in efficiency, but the fundamentals havenât changed: a shop has a collection of products and it needs to get those into customersâ hands as efficiently as possible. The key to each evolution has been an opportunity for shops to shift more of the manual labour onto their customers. Most recently, self-service checkout has enabled shops to shift even more labour onto their customers.
Delivery might feel like the next logical step, and itâs certainly convenient for a certain type of customer, however, itâs reverting to where we were more than a century ago. Delivery is expensive and inefficient. A Sainsburyâs customer who walks into their local Sainsburyâs and then uses self-checkout to complete their purchase has a negligible marginal cost for Sainsburyâs, so much so that we can probably consider each customer who comes through the door to be âfreeâ.
Delivery has a marginal cost, every delivery order has a cost, and itâs a substantial one: it shifts all of the labour back onto the shop! A customer places an order online and then some stressed order picker spends 10 minutes sprinting around the store grabbing the items before a stressed delivery driver spends 20 minutes on the actual delivery. The store has gone from the negligible marginal cost of a customer to 30 minutes per customer. Even if, with years of investment in robots and ai and any other fantastical idea, thereâs a 75% improvement in the cost of delivery, thatâs still orders of magnitude more than the cost of a customer just walking into the store.
The only way delivery can compete with in-store is if thereâs a way to reduce the cost of delivering an order to nothing, however, even supermarkets at the cutting edge like Ocado are struggling to make it work (and have been struggling for decades). Recently the âinstant groceriesâ boom in major cities has shown that this reality (delivery is expensive) is inescapable, even with small well-located mini-warehouses. Supermarkets succeed because of high volume and low marginal costs, they benefit from the efficiencies available at scale.
As a customer, I love delivery, but until we discover a way to deliver at no cost I donât see how it can compete with customers buying in-store at no cost. Even with the promise of self-driving trucks and cars, thereâs still a substantial cost associated with deploying and managing that technology. I am a regular customer of Amazon Fresh, and even that, a service by the gold standard for efficiency in delivery, is terribly inefficient: based on my own anecdata, it takes at least 15 minutes for an Amazon delivery driver to deliver my Amazon Fresh order (i.e: from the moment they leave the previous customer, to finishing my delivery, is at least 15 minutes).
Supermarkets are very close to maximally efficient within our current constraints (i.e: no ability to teleport). If you imagine youâre Amazon, and someone offered you the magical ability to become self-service (like a supermarket) youâd jump at the chance, because if all you had to do was put products on a shelf, your customers would walk in and pick it up and carry it and pay for it and take it home without any work on your behalf, wow, what a miracle.
If I were a betting man, Iâd bet in Sainsburyâs favour and Iâd bet against Ocado.
You make good points about costs but doesnât change the basics people are moving more towards delivery and going to a local convenience store for stuff they want fresh (milk for instance) and the stuff they forgot to order. The increase in convenience stores shows this.
Supermarkets will have no choice but to continue deliverys and therefore your maths is irrelevant. If people want deliverys supermarkets will have to supply them and customers will have to pay for it.
An aside they do have delivery vehicles in the US up and running which have no drivers and are in fact designed to have no drivers and just to deliver. Maybe each supermarket may do deliverys that way. The vehicles do not exceed 25 miles an hour so should wind up all the car drivers.
That would depend on your age!
I absolutely believe that grocery delivery has a future, and I think there is still growth to come in the sector, however, itâs important to differentiate between what drives loyalty and what drives revenue. Loyalty is one of the most important aspects of the relationship between a supermarket and its customers â the term âloyaltyâ appears a dozen times in Sainsburyâs annual report and a dozen times in Tescoâs annual report.
Loyalty means that the value of a customer does not need to be measured on a per-purchase basis, rather it can be spread across multiple transactions, some of which may be loss-making and some of which may be profit-making, but average out to be profitable. If you know that the average customer will purchase from a supermarket 100 times in a year, of which 80 will be in person and 20 online, you may determine that if youâre only able to capture the 80 in person, it makes you vulnerable to a different supermarket capturing the 20 online and then leveraging that to capture some (or all) of the in-person purchases. So, you decide to service the 20 online purchases even though theyâre loss-making because it ensures you capture the 80 in person which is profitable overall.
Youâre right to say that Sainsburyâs (and Asda and Tesco and Morrisons) have no choice but to offer delivery because it keeps customers loyal, however, itâs the loyalty that delivers the value to the business, not the delivery. Thereâs no money to be made directly from grocery delivery, as Ocado has shown and continues to show.
The loss leader principle is probably the easiest way to conceptualise it: a supermarket may sell milk at a loss because money is made on the other items the customer will purchase while in the store, leading to supermarkets being very profitable. However, you could not run a store just selling milk at the same price as a supermarket, because you arenât making up for the loss elsewhere. Delivery is, essentially, a loss leader.
And as deliveries increase they will have to raise prices across everything. They donât face an option as Morrisonâs found out. They didnât intend on going into deliveries but had to.
In time the supermarket shops will be loss making and will start to close down due to lack of customers, just like the banks have.
Loyalty? well you can still buy from the same supermarket online.
And i have my doubts about the Loyalty of the British consumer.
Well, Iâm not convinced that deliveries will increase significantly to seriously impact the number of supermarkets any time soon.
This from their recent Half Year Results (https://www.investegate.co.uk/sainsbury-j--plc--sbry-/rns/half-year-report/202211030700051422F/) paints a different, more nuanced picture. They have seen some return from online to supermarket shopping, although they expect to have closed 3 of the 600+ supermarkets, and are expanding convenience stores - net addition of 8 to the 800+ current. Plus they have their âOn Demandâ service that saves those trips to the local convenience store.
We are well positioned to serve our customers wherever and however they want to shop. As customer shopping habits normalise and people return to stores post-pandemic, we are growing overall market share with a higher proportion of online customers switching to our own stores versus competitors14. Supermarket sales grew 3 per cent15
¡ Convenience sales are now 7 per cent higher than pre-pandemic, driven by particularly strong growth in less urban convenience stores
¡ Our online productivity metrics have improved with item pick rate per hour up 13 per cent versus pre-pandemic and deliveries per hour up 9 per cent
¡ By the end of the financial year we plan to have opened around 16 convenience stores, closed three supermarkets and closed eight convenience stores as part of our focus on having stores that are in the best locations for customers
¡ We now deliver around 118,000 On Demand grocery orders per week in as little as 30 minutes from nearly 700 stores through our Chop Chop service and partnerships with Deliveroo and Uber Eats
Overall, they appear on the ball and fairly agile to adapt to changing shopping habits.