Online groceries face big challenges in Norway

I'm the first to admit I'm going to miss Brødboksen. The luxury of getting fresh bread and freshly squeezed juice delivered to my door every morning. But that's just what it is – a luxury.

This article was first published in Dagens Næringsliv.

Imagine how many people have been involved before you get your fresh baked bread. Of course, the baker must get up early, but there’s also the staff who pack the breadbox and a small army of drivers on the roads in the early morning. All to ensure you find fresh goods on your doorstep.

And that’s one of the main issues for the new online retailers: the large number of people involved. Our estimates show labour costs are up to three times higher for online operators than traditional retailers. This isn’t because wages are higher, but because online groceries are more labour intensive as consumers are doing less of the job themselves.

High labour costs are key to why new companies, such as Marked.no and Brødboksen, have been in trouble. The volume of sales hasn’t been large enough to achieve effective economies of scale. While some online companies like Komplett.no, through its warehouse solution Autostore, have robots that pick and send goods, others still rely on people. That's expensive.

Online groceries are growing in Norway. In 2016, net online sales totalled NOK2.1 billion, an increase of 40.2 per cent from 2015. In isolation, the growth of online groceries may seem dramatic, but traditional groceries were worth NOK170 billion in 2016. Just over one per cent of the turnover in the grocery trade in Norway is online. With such a small market share, it’s difficult to get good purchasing conditions. That's why it’s unsurprising Marked.no used bad purchasing conditions as an argument for withdrawing.

In the UK, groceries online have come further than in Norway. In total, the UK spent $116 billion on groceries online in 2016. That’s six per cent of the total grocery market in the UK.

Ocado, ranked as the premier online grocery retailer, has installed warehouse solutions where robots identify several thousand different groceries and put them gently into the shopping bag ready for delivery. Weekly, 260,000 shipments leave their fully automated warehouse. Here in Norway, Brødboksen and Marked.no are criticised for growing too fast with big losses.