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Curbside Pickup, Connected & Robotic Retail Revolutions

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Curbside Retailers Will Steal Share: Cowen estimates curbside pickup will be a $30-35 billion annual opportunity. Over 15% of the U.S. have tried curbside pickup. We estimate it will rise to 25% by the end of 2020 given high customer satisfaction, younger customer preference for curbside, and higher spend in this channel. The rise of autonomous and industrial robotics in retail will occur in tandem with the growth of curbside and customer interaction data.

Curbside Is the Future of Retail: Opportunity to Become $30-35 Billion Channel By the End of Fiscal Year 2020

Cowen expects curbside pickup adoption will quickly accelerate. We anticipate at least 25% of the U.S. will have tried the service by the end of 2020. Further, we estimate curbside could become a $30 billion to $35 billion channel by the end of 2020.

We expect curbside pickup should see very strong growth over the medium term as: 

  1. Scaling curbeside is a major initiative for many of the biggest broadline and grocery retailers in the U.S. including WMT, TGT, Kroger, Whole Foods and others.
  2. Curbside has incredibly high satisfaction scores. The service saves shoppers time, eliminates the need to enter stores, and eliminates the friction of searching aisles for products and standing in lines to check out

We anticipate the well-established grocery players could see 40-60% incrementality (vs. channel shift), with share gains coming from smaller players who are not able to invest in digital capabilities.

Curbside Pickup is a Catalyst for the Transformation of Retail

Cowen views curbside pickup as the natural evolution of the traditional in-store shopping experience. We believe curbside pickup will also rapidly alter the physical retail store. Major changes ahead include:

  1. accelerated elimination of the center-core
  2. a more narrow assortment of brands and SKUs over time
  3. accelerated picking and packing robotics innovation
  4. stores will serve as a gateway to automatic dispensaries

Curbside pickup is well positioned to drive rising customer lifetime value (CLV) given likely high retention and repeat use rates. Further, the curbside shopping experience is ripe for practical personalization given prior order interaction data, feedback programs, broadline selection, and prescriptive shopping possibilities.

Cowen’s Proprietary Curbside Survey Data Reveals Shoppers Skew Younger and Wealthier Than Overall U.S. Population

Cowen’s Proprietary Consumer Internet Survey reveals increasing curbside pickup  adoption rates. When asked “Have you ever ordered groceries online and picked them up in the store?”, in 4Q18 curbside adoption expanded to 15% of respondents, or +310bps Y/Y.

Our survey reveals a typical curbside shopper is 41 years old, younger than the U.S. population’s average age of 46. Meanwhile, penetration is highest for 25-34 year olds at above 22% over the last several quarters. We believe this bodes well. This cohort of shoppers will soon be entering into their biggest grocery purchasing years and will be an important demographic over the next five years.

Meanwhile by household income, Cowen’s survey reveals the average curbside shopper has annual income of $62k, above U.S. average of $57k. Further, penetration is trending higher for all income brackets, but remains highest for wealthier cohorts. In 4Q18, 18% of participants who earn between $50k to $100k, as well as those who earn above $100k noted to having tried curbside vs. 13% for those with HHI below $50k.

Retail Is Increasingly Turning to Robots and Artificial Intelligence to Solve Omni-Channel Challenges and Improve Tasks

We view the future of retail as a collaboration between humans executing consumer facing tasks and robots automating repetitive tasks. For example, a large multinational discount retailer is leaning heavily into robotics to solve for improving highly repetitive, non-guest facing tasks.

Further, Cowen believes that robots will be critical to automating a growing percentage of the grocery pick and pack process. We expect curbside adoption and utilization to accelerate. Therefore, automating robotic picking will become necessary in order to alleviate curbside (and delivery) related traffic from manual picking in-store. Automating the picking process will help reduce stock-out risk.

A large US retailer continues a strategy to shift and automate the store backroom sorting process to the distribution centers with its on-demand replenishment solution test. We believe this process will significantly improve in-store efficiency, lower out-of-stocks, and reduce working capital needs. As we look ahead, we believe capital availability will become increasingly important. Our take is that retailers with bigger capex budgets will be better positioned to invest in next-generation robotics and supply chain capabilities.