Major online pure players cannot sustain themselves in the highly digitized Dutch market, which is why Ahold thrives in this particular market: both online and offline, it is miles ahead of the competition, something that its merger with Delhaize will only strengthen.
"The Dutch omnichannel Amazon"
Jumbo is Ahold's only real competitor, but it has to catch up, which it may do if it strikes a deal with British Ocado. That is Rabobank's opinion in its newest Ahold-focused report. The analysis is titled "The Dutch omnichannel Amazon", creating high expectations for the Dutch retail multinational's online growth potential.
The report ignores Ahold's American online division, Peapod, and focuses entirely on Ahold's Dutch online and offline activities. According to the Rabobank analysts, that was done because "the market does not entirely understand these activities".
Two fundamental misconceptions
The bank feels the core of these misconceptions lies in two erroneous assumptions which are constantly made when it comes to the online potential of the Dutch food industry. First of all, experts all focus on the absolute market share and the online's profit position, while its growth pace is not featured enough.
Secondly, the Dutch market is always compared to the United Kingdom's market structure, which Rabo analysts feel are two fundamental misconceptions that may be misleading as to the online market's possibly perturbing effects.
Many of the comments about online food sales say that online is only 1 % of total food turnover and that the supermarket industry's high store density and high e-fulfillment costs are major obstacles. The report says that those allegations could not be further from the truth. "AH.nl has a 3-year head start on everyone else. Many competitors are active in the regions and order-pick in stores, while pure online players are just going through the motions of getting started".
AH.nl has a larger impact than Lidl
AH.nl experiences a yearly 25 % growth already, which could speed up to 35 % according to the analysts. That would mean that Albert Heijn would generate 900 million euro in online sales in 2018 and if it kept up that pace until 2020, online sales would have a 7 % market share.
"That is in line with AH.nl's current share in Amsterdam, where it has already become profitable", the report states. The high delivery density in urban areas are a perfect fit for Ahold's operational force and it generates a 3 % gross profit locally. If AH.nl can speed up its current, gigantic growth pace, then it will have a larger impact on the Dutch supermarket industry than Lidl's arrival and surge.
If AH.nl could become such a resounding success, it would cannibalize its own sales elsewhere, according to Rabobank. That means that about half a billion euro in turnover would shift from physical stores to the online channel on an annual basis, equaling an annual 1.2 % shift in market share.
Online would steal away 200 supermarkets' worth of turnover every three years and analysts feel that AH.nl, which is by far the largest online player, would stand most to gain from that. The bank says it is not about the unproven online business model, but about the pressure Ahold can put on the turnover and profitability of its competitors' offline core activity thanks to AH.nl.
United Kingdom: struggles online, Netherlands: growth potential online
The second misconception is the comparison to the online market in the United Kingdom. Even though it is one the world's biggest online retail markets, it is also a market full of struggles. 6 relatively large online food retailers, all with a well-developed online supply chain, are competing for market share, but that is not the case in the Netherlands, where Ahold pretty much has the online place to itself.
Ahold is dominating Randstad (the area around Rotterdam, Amsterdam, The Hague and Utrecht), where online sales have the most potential, because it is the only retailer with a highly developed online supply chain. Most competitors still have get by with in-store order-picking. Whereas the online food market is a fight market in the United Kingdom, the Dutch market is a growth market and Ahold will benefit most as it is the largest and most developed online retailer.
This growth scenario, which favours Ahold and where Albert Heijn is the only one able to resist the lost offline turnover with profitable online sales, will only be possible if an important prerequisite is met, Rabobank feels: the pure online players will have to stay clear of the Netherlands. That may very well happen as the Netherlands are a relatively small consumer market, compared to the United Kingdom, Germany, Poland or France, which are way more attractive for online players as they need to quickly build scale.
Jumbo may become Ocado's partner
If Amazon ignores the Netherlands, then Ahold will thrive, as the Netherlands will then remain an online growth market. The company can take full advantage of its potential thanks to AH.nl's strong position in food and Bol.com's strong position in non-food. The scale enlargement and growth potential will only increase once its merger with Delhaize has been finalized.
Jumbo also stands to profit if Amazon decides to ignore the online Dutch market, because it is the only possible online contender for Ahold. In a record pace, it has built a network of 160 pick-up points, most in or near a supermarket, while it will also launch its home delivery service soon.
In that case, Jumbo delivers the online orders to the store and the entrepreneur or manager of that particular store will have to take care of the actual delivery at home. In most cases, Jumbo actually owns the store location itself, which means it has a firmer grip on its franchisees and that a dispute will not arise that quickly. Most of Ahold's franchisees own the store themselves and are not as dependent on the centralized organization as Jumbo's franchisees.
Jumbo will do anything in its power to catch up to Ahold online and one of its options is to use Ocado's advanced online platform, which basically means it will buy knowhow. If it does so, it would instantly surpass Ahold when it comes to an advanced picking system and the home delivery of online orders.
Rabobank mentions Ocado as a serious option for Jumbo, but it will also be a very expensive choice. Ocado has been looking for a non-UK partner, hoping to find one in a major consumer market, but if Jumbo is willing to pay enough, Ocado will probably be content with an ambitious partner in the smaller, but nice Dutch online market.