* Higher margins in non-food helps compensate for food
* Sainsbury's CEO sees Argos boosting distribution network
* Dutch, French deals help keep Amazon in check
* Amazon moves into food so customers shop more often
* Retail complexity comes at a cost
By Emma Thomasson
BERLIN, Feb 24 As Amazon encroaches on
supermarket territory, traditional European retailers are taking
bigger steps to fight the U.S. ecommerce giant by offering more
non-food products and using extensive store networks as delivery
Persistent food price deflation across Europe helped trigger
Britain's Sainsbury's bid for home products retailer
Argos. That follows Dutch chain Ahold's
purchase of leading ecommerce site Bol.com in 2012 and French
Casino's decision to take full control of e-commerce
retailer Cdiscount in 2011.
Sainsbury's hopes that using its stores as pick-up points
for a wider range of goods will boost profitability. Ahold and
Casino have both achieved more sales volume through their stores
by encouraging customers to pick up non-food orders at their
supermarkets. Ahold's online sales grew more than 30 percent in
the fourth quarter while Cdiscount customers can collect goods
from 2,500 Casino stores.
"Food retailers offering non-food is a necessary survival
move," said Sophie Albizua of retail consultancy eNova
Partnership. "Margins in food are razor thin and margins in
online food are almost non-existent so non-food is a way to have
a slice of a more viable market."
Britain is one of the world's most advanced markets for
grocery ecommerce. Even German discounter Aldi, which has been
sceptical about ecommerce, is feeling the pressure to change.
Its British arm started to sell wine online in January.
But it has taken pioneers like Tesco and Ocado
decades to reach break even, as keeping fresh produce
at the right temperature makes logistics pricey.
To have a chance of turning a profit in grocery ecommerce,
retailers need scale and they are more likely to recoup delivery
costs if they can get shoppers to add higher margin non-food
items to their fruit and veg shop, or better still, they would
prefer customers to pick up orders themselves from a store.
As ecommerce leaches sales from stores, many retailers have
looked for ways to trim their expensive real estate portfolios.
However, stores can be an asset in the fight against Amazon if
used as distribution hubs for goods ordered online.
"From a real estate perspective, supermarkets are in a prime
position due to their proximity to customers," said Carl
Hartman, head of logistics technology company Temando, which
expects customers to demand ever faster, more flexible delivery.
Sainsbury's Chief Executive Mike Coupe says buying Argos
would give the combined group a major advantage over Amazon due
to a network of 2,000 stores-cum-collection points.
"The more points of distribution you have ... the more
attractive and convenient that is for customers, because in the
end, retailing generally is driven by proximity," he said.
Coupe noted that department store chain John Lewis says half
of its online orders are now collected in store, with 35 percent
picked up from its sister chain of Waitrose supermarkets.
Recognising the popularity of "click and collect" in Europe,
Amazon is setting up a network of parcel lockers to offer a
broader range of pick-up options.
Amazon is advancing into food to try and entice customers to
shop more frequently.
"Fast moving consumer goods don't drive huge amount of
margin percentage but they can help drive trip frequency that
earn you the right to capture the margin dollars through non-
food," said Keith Anderson of ecommerce consultancy Profitero.
Amazon has been expanding its "Pantry" offering of packaged
groceries for its Prime subscribers and is expected to
eventually extend to Europe its U.S. Fresh service, which offers
about 20,000 chilled, frozen and perishable products.
Shares in Ocado jumped last month on reports that Amazon
could make a bid to help it launch a fully-fledged grocery
service in Britain, but have drifted down again after Ocado
denied talks were under way.
"If the deal were to go ahead, Amazon would not only be
acquiring Ocado's expertise, but its customers, fulfillment and
delivery fleet, delivery routes and optimization algorithms,"
Profitero's Anderson said.
The next frontier in the race to provide the most convenient
shopping experience for customers could be integrating non-food
and food supply chains and delivery options.
Sainsbury's Coupe said he could imagine delivery of non-food
items eventually piggy backing on existing food logistics.
Amazon Fresh trucks already deliver food and regular parcels
together in some U.S. cities and the company is starting to
locate temperature-controlled warehouses for food next to or
near to non-food storage.
Bernstein analyst Bruno Monteyne believes it will take a
long time for Amazon to establish the kind of consumer trust
that supermarkets enjoy in food. But he also cautions against
established players from fighting Amazon on too many fronts,
"It is a game they cannot win," he said.
Sainsbury's bid to buy Argos-owner Home Retail
would make it the biggest non-food retailer in the UK, ahead of
Tesco, John Lewis, Amazon and Marks & Spencer
, although a higher offer from furniture retailer
Steinhoff means a deal is by no means assured.
($1 = 0.9093 euros)
(Reporting by Emma Thomasson, Editing by Elaine Hardcastle)