Pioneering Perspectives From Online Grocery

E-commerce veteran Scott DeGraeve discusses industry giants, paths to profitability and a new business venture
Scott DeGraeve
Illustration by Olivier Balez

Chicago-based grocery e-commerce veteran Scott DeGraeve (Scotty’s Home Market, Peapod, Door to Door Organics) is the COO of Locai.

Jon Springer: Welcome to the Breakroom, Scott. Your career in grocery e-commerce goes back nearly 25 years to the Scotty’s Home Market business acquired by Peapod in 2000. Looking back, has the industry evolved in the way you imagined it would?

Scott DeGraeve: When you start out, you have some visions in your mind of where the industry can go, and you are continually working to convince yourself you are in front of it and are headed in the right direction. There was no real road map to follow, so through trial and error it was continually looking at how to lead the consumer, how to influence the supply chain and figuring out how the model needs to work financially.

Overall, I think the growth in online grocery has gone much slower than I thought that it would. Groceries are very personal to consumers, and it has taken a long time to build a level of trust to buy this category online. The exponential improvements in technology, in the past few years especially, have been a huge enabler to this. Also, if you don’t have a good service in all aspects, social media takes care of ensuring everyone knows that. It has driven e-grocers to really do whatever it takes to satisfy the customer.

You’re commissioned to carve a Mount Rushmore for influential figures in grocery e-commerce. Whose faces go on the rock?

1. Andrew Parkinson, for co-founding Peapod with his brother Thomas, and paving the way.

2. Tim Steiner of Ocado, an early leader in utilizing robotics in each-pick grocery.

3. Marc Lore, for his pure plays and the leadership now at Walmart.

4. Apoorva Mehta, for Instacart’s incredible growth.

 What should our readers know about your new business, Locai?

Locai is a team of experienced e-grocery veterans, bringing our expertise alongside retail partners. In addition to providing consulting support, we also have what I consider a next-level end-to-end e-commerce platform to enable personalization of e-grocery. The platform came from Door to Door Organics, which has ceased operations, but the software was one of the real strengths of the business. It is built on a modern microservices architecture, which allows us to offer this as a white label to retailers in either full, or through a number of plug-in features that can integrate through API’s to existing front ends.

Some of the most unique features include meal planning, which serves up personalized recipes based on what is already in your cart, your dietary preferences, your past purchases, or what is already in your refrigerator; “searchandising” which is a unique way in which we combine search with customizable merchandising; endless aisles functionality that integrates into a single cart checkout; and multi-format fulfilment capability, including a very efficient fulfilment management system for warerooms, dark stores, and integration to robotics.

Our experiences include Peapod, Fresh Direct, Door-to-Door Organics, and Relay Foods.  We have consulted with a number of grocery banners in helping them move to the next level with their on-line business.  We have learned and experienced what the key levers are to achieve profitability.  We were the retailer for many years.

There has been a lot of development in the grocery space this year (micro fulfillment centers, Spark delivery, Ocado, Prime Now, etc.) What of those or other recent developments have captured your attention, and why?

The majority of retailers fulfill orders in-store today. That has already become problematic in some busy stores, as they begin to tip over with congestion in the aisles and out-of-stock on the shelves.  A number of retailers are beginning to evaluate how to evolve their fulfilment to the next level.  We are beginning to see micro robotic centers ready to be tested either attached to the store, or at a location away from the store.  I think these will gain momentum after a period of trial and testing. I also believe there is a less automated step in between that will make sense for many retailers, be that step to a wareroom attached to the store, or to a dark store or small warehouse. 

I believe retailers will find they are going to have a multi-format fulfilment toolkit where some continues to be done in-store and some is done out of dedicated fulfilment centers. It is important to think about the technology they are employing to ensure it won’t be a limitation, but rather an enabler to evolving to a multi-format solution.

Can grocery e-commerce be profitable? What will take?

The short answer is yes. From a broader view, we need to be looking more holistically at customer profitability. Your customers should feel as though you are agnostic if they want to come in-store, pick it up or have it delivered. When you as a retailer are able to do that, you will maximize the dollars that come into your banner. You will be profitable in total.

When we look specifically at the e-commerce channel, there are a number of levers to work to achieve profitability. The variable costs are very key, starting with fulfilment, and this multiformat approach is going to drive improvement. The delivery costs are what most retailers fear, understandably. However, my experience is that when you do delivery and compare that to just click and collect, the basket size is significantly higher. This higher basket, and associated margin, allows you to fund the shortfall in your delivery fees against your delivery cost. Most retailers who haven’t done significant deliveries don’t realize this, and you can also use a tiered delivery fee structure to drive a higher basket. Basket size is an essential metric, among others, to achieving channel profitability.

Lightning Round

Who does the food shopping for your family, and where does it get done?

We do 80% online and both my wife and I have a look at the list before we send it off. We still use Peapod, having worked there for 15 years, but also try other grocers through Instacart.

Cubs, White Sox or “other”?

Lifetime Cubs fan.

Best piece of business advice you’ve gotten?

“Don’t be afraid of the analysis.” Sometimes we think we might not like what the analysis shows and it will force us to a decision we don’t like. Just do the analysis: it’s just one piece of data in your decision process. 


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