Analysis: Retailers look to click & collect online profits

1 of 5. A click and collect adverts are seen on a shopping trolley stand at Tesco store in Leicester, central England, August 29, 2013.

Credit: Reuters/Darren Staples

By Emma Thomasson and Dominique Vidalon

BERLIN/PARIS | Fri Sep 6, 2013 9:56am EDT

BERLIN/PARIS (Reuters) - European retailers have gone back to bricks and mortar in the hope of turning their online food businesses profitable - racing to build pick-up points to capitalize on shoppers' increasing demand for "click and collect" grocery options.

E-commerce has revolutionized trade in books, music, clothes and electronics in the last decade, but food has proved a tough segment to crack. Grocery represents almost 40 percent of retail sales, but providing a profitable internet option for a high-volume, low-margin business with products that must be chilled is more complex and pricey than for non-perishables.

Even Amazon has only made tentative steps into grocery, although it is now preparing to expand its "Fresh" business to 20 urban areas in 2014. If trials in Los Angeles and San Francisco work it says it may expand outside the United States, though has not specified where.

That's an alarming prospect for other grocery retailers already struggling with falling store sales as austerity drives, rising prices and wage stagnation hit shoppers.

So they are looking more closely at shopping habits and preparing to build in flexibility to boost their brands and profits. Busy customers often now prefer to collect an order, avoiding a delivery fee, than wait at home. A GMI survey commissioned by Mintel showed 39 percent of online shoppers in Britain and 33 percent in France collected goods in-store in the last 12 months. Mintel data shows young, affluent consumers - retailers' favorites - are most keen on click and collect.

Retailers are experimenting with different pick-up models, from "drive-thrus" adjoining existing stores that are popular in France, to refrigerated lockers at petrol stations and new warehouses dedicated to online known as "dark" stores. Click and collect also means they can spend less on home delivery, often prohibitively expensive outside densely-populated urban areas.

Food and consumer goods research group IGD predicts "drive-thru" will propel French online grocery sales to 10.6 billion euros ($13.98 billion) by 2016 from 6.7 billion in 2013, while it sees home delivery push UK online grocery to 11.4 billion euros in 2016 from 7.4 billion in 2013.

Stephen Mader, analyst at Kantar Retail, said retailers are moving "aggressively" to grab as much online share as possible.

"They are throwing caution to the wind in terms of profitability," Mader said, adding that once they had built scale: "They will need to pay more attention to how much money it generates."

Retailers are investing most in the easy-win of drive-thrus bolted on to existing stores, from which staff pick online orders, rather than warehouses with automated order selection, which are costly but set to be more efficient in the long run.

Europe's top retailers Tesco and Carrefour are building hundreds of collection points at stores, as well as a handful of online-only warehouses, but as neither breaks out numbers for online grocery profitability it is hard to see whether the method is working yet. Tesco, Europe's biggest online grocer, where e-commerce accounted for almost 5 percent of sales in 2012-13, says the business is profitable but experts believe that is because it does not account for the cost of having staff pick up online orders at stores.

"Picking from store is the easiest but it is disruptive to inventory forecasting. It is a short-term solution. I see a dedicated supply chain (for drive-thrus). Although it is capital intensive, it is a much more scalable solution," said Mader.

BRICKS AND CLICKS

So far France has moved fastest to capitalize on the trend. It now has 20 percent of the population already using drive-thru collection for groceries ordered online.

Leclerc, the market leader with 352 so-called "Drive"s, saw first-half sales in that segment jump 68 percent to 720 million euros, compared with overall French sales growth of 4.7 percent to 15.9 billion. The retailer estimates a Drive poaches a quarter of its sales from its own stores - but the rest comes from rivals' stores.

Carrefour is hurrying to catch up, building 283 Drives since 2010 and contributing to a boom that research firm Editions Dauvers says resulted in 920 new pick-up points being built in France over the last year, bringing the total to 2,278 by June.

The potential for growth is huge. In Britain, which has Europe's highest rate of grocery e-commerce, only 19 percent of people ordered food online in 2012. In Germany and France that figure was 9 percent and 7 percent respectively.

In Germany, "click and collect" is popular for electrical goods from Metro AG's Media-Saturn chain, but the country's dominant discounters, Lidl and Aldi, already operating on razor-thin margins, have not embraced e-commerce for grocery.

While e-commerce is marginal in southern Europe, where hard-pressed shoppers prefer local stores and markets, Carrefour has opened five Drives in Spain and one in Italy. The concept could also do well in the tech-friendly Nordics and the Netherlands.

Tesco has led the way with click and collect in Britain. Two-thirds of its non-food online orders are collected at 1,500 collection points. While most food is still home delivered, it plans some 300 grocery pick-up points by mid-2014. But it acknowledges online is taking longer than expected to make money. Though it did not break out costs, it said it wanted "a profitable, scalable model" before accelerating growth.

Wal-Mart's Asda, the UK's No 2, will offer grocery pick-up in 200 outlets by the year end, including from stores and lockers at its petrol stations. It is also trialing vans serving commuter car parks for delivery of online orders.

Collection trends can give supermarkets an advantage on pure online retailers because of their store network, warehouses and logistics, especially if they combine sales of grocery with higher-margin general merchandise and own-label goods. And a customer coming to collect will sometimes browse in-store.

"A dollar spent online doesn't necessarily mean a dollar less for the high street," said Kandar's Mader. "Smart retailers can take advantage of e-commerce to extend their brand and grow their overall share of the pie."

($1 = 0.7582 euros)

(Additional reporting by James Davey in London, Sarah Morris in Madrid, Isla Binnie in Milan, Victoria Bryan in Frankfurt, Robert-Jan Bartunek in Brussels; Editing by Sophie Walker)

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BG Group sees profits drop

While the UK-listed player’s overall revenue rose 1% year on year to $4.9 billion, a 7% drop in income in the upstream segment to $1.43 billion led to the group reporting 5% lower operating profit of $2.15 billion.

The company was left with a net profit of $1.18 billion versus $1.23 billion a year earlier – though this was still up on its own forecast of $1.1 billion.

While BG Group benefited from higher realised gas prices during the period, this was offset by a 3% decrease in production volumes to 59.3 million barrels of oil equivalent – partly due to the earlier shut-in of the Elgin-Franklin gas condensate field off the UK – and fewer liquefied natural gas shipments.

The Total-operated Elgin-Franklin platform restarted production in  March after being shut in due to a gas leak but partner BG Group said it is not expected to recover to pre-shutdown levels until 2015 as new infill wells will need to be drilled.

The company did though bring on stream the Everest East expansion project off the UK.

Its first-quarter output was further fuelled by start-up of the second floating production, storage and offloading vessel, Cidade de Sao Paulo, at the Sapinhoa field off Brazil on time and on budget, with output currently running at around 25,000 boepd.

This took total output from two FPSOs in the Santos basin to 140,000 boepd last month, with the Cidade de Sao Vicente floater currently carrying out an extended well test at the Sapinhoa North prospect that is expected to produce 15,000 barrels per day of oil over the six-month period of the test.

A third FPSO is on track for start-up at the Lula field in the second quarter, with two more such units – out of a total of 15 floaters being built – destined for the Sapinhoa and Iracema fields and due for start-up in 2014.

Elsewhere, BG Group has recently delivered success with drillstem tests at its Jodari and Mzia gas discoveries in Block 1 off Tanzania and is currently drilling an exploration well with drillship Deepsea Metro 1 at the Ngisi-1 prospect in Block 4, with a subsequent appraisal planned at the Chewa find.

Chief executive Chris Finlayson said, despite the results dip, the company had “delivered on key milestones for the first quarter, while also making progress with our project execution programme”.

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Statoil sees profits slide

Statoil posted a net profit Nkr6.4 billion ($1.1 billion) for the three months to 31 March, down from a net income of Nkr15.4 billion during the same period last year.

The fall in profits came as revenue dropped 22% to Nkr47.9 billion in the first quarter, compared to Nkr61.8 billion during the first quarter of 2012.

Oslo-listed Statoil’s share price took a battering as the market showed its disappointment over the weak result, falling more than 3% to Nkr136, having dropped over the past year by almost 7% from an earlier high of Nkr155.

Analyst Henrik Madsen of Swedbank First Securities said the company’s adjusted earnings before interest and tax of Nkr42.2 billion – a drop of 28% on the previous year - were 10% below the firm's own estimate and 11% short of consensus.

Revenue was hit by a 15% decline in production which averaged about 1.3 million barrels of oil equivalent per day during the first quarter of the year.

Statoil said the majority of the fall in production was attributable to its lower ownership share in the Kvitebjorn field compared to a year ago, as well as natural decline at its mature fields.

Statoil noted that the terrorist attack at the In Amenas facility in Algeria earlier this year, which cost nearly 80 lives, resulted in a roughly 13,600 boepd decrease in overall production.

Also hitting output were compressor challenges at Troll and prolonged shutdown at Snohvit, off Norway.

Compounding the effects of the fall in overall production was a drop in prices compared to the first quarter of 2012.

Statoil achieved an average liquids price of $103.5 per barrel during the first quarter of the year, down 7% on the $111.5 per barrel average during the same period last year.

Averaged invoiced gas prices were also down 11% year-on-year, with the company achieving an average price of Nkr2.01 per standard cubic metre.

Statoil noted that the divestment of its fuel and retail segment in the second quarter of last year also contributed to the year-on-year decline in revenue in the first quarter of 2013.

These factors were partly offset by the ramp up of new fields and an overall rise in international production.

"Statoil delivered record international production,with an increase of 6% mainly due to start-up and ramp-up of fields,” Statoil chief executive Helge Lund said.

“We started production from new [Norwegian Continental Shelf] fields, including four fast-track projects, and continued our exploration success by making a new high impact discovery in Tanzania."

The company has previously stated that it expects output this year to be down on 2012 but is aiming to increase production to 2.5 million boepd by 2020 as it brings on a wave of new projects from 2014.

Statoil also warned that it expected planned maintenance to have a negative effect on production during the current quarter of about 40,000 boepd.

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Upstream costs drag down Murphy profits

Murphy's income for the three months to March, including discontinued operations, came to $360.6 million.

That is above the $290.1 million earned in the same period a year earlier. Income from discontinued operations for the quarter contributed $152.6 million to the company's bottom line however, compared to just $8.6 million a year earlier.

That puts Murphy's income from continuing operations in the quarter at $208 million, down from $281.5 million in 2012.

Income was hit by higher expenses for exploration, administration, financing and income taxes, Murphy said.

Murphy's profit was driven by a strong domestic performance, particularly from the Eagle Ford shale of Texas. Unfortunately for Murphy, difficulties in the rest of the world more than offset those gains.

Canada was not kind to Murphy, due to "extremely weak" heavy oil prices, dry hole costs associated with poor wells in the Muskwa shale of Alberta, lower sales volumes and prices and higher extraction costs.

Murphy also had a rough quarter in Malaysia due to sales volumes and prices from at natural gas fields offshore Sarawak that were "significantly lower than the prior year".

Well workover costs of $11.3 million in the Republic of the Congo also weighed, as did unsuccessful drilling costs for a shallow-water well in Cameroon and geophysical expenses for exploration licenses in Australia, Cameroon and Indonesia.

The production story proved a bit more positive for Murphy. The company produced 126,888 barrels per day of crude, condensate and gas liquids, an increase of 18% over the 2012 period. Almost all of that came from the Eagle Ford.

Natural gas sales were down to about 450 million cubic feet per day, about 14% less than the 525 MMcfd sold in the 2012 period. The drop was primarily due to lower production in the Tupper area of Western Canada and lower sales volume from gas fields offshore Sarawak, Malaysia, primarily due to planned maintenance at the company's gas receiving facility.

Downstream operations were also a bright spot for Murphy, at least in the US, where Murphy made a profit of $29.4 million, compared to a loss of $7.2 million in 2012.

Murphy is spinning off its downstream unit into a separate listed entity. The spin off is expected to be complete in the second half of the year.

View the original article here

Statoil sees profits slide

Statoil posted a net profit Nkr6.4 billion ($1.1 billion) for the three months to 31 March, down from a net income of Nkr15.4 billion during the same period last year.

The fall in profits came as revenue dropped 22% to Nkr47.9 billion in the first quarter, compared to Nkr61.8 billion during the first quarter of 2012.

Oslo-listed Statoil’s share price took a battering as the market showed its disappointment over the weak result, falling more than 3% to Nkr136, having dropped over the past year by almost 7% from an earlier high of Nkr155.

Analyst Henrik Madsen of Swedbank First Securities said the company’s adjusted earnings before interest and tax of Nkr42.2 billion – a drop of 28% on the previous year - were 10% below the firm's own estimate and 11% short of consensus.

Revenue was hit by a 15% decline in production which averaged about 1.3 million barrels of oil equivalent per day during the first quarter of the year.

Statoil said the majority of the fall in production was attributable to its lower ownership share in the Kvitebjorn field compared to a year ago, as well as natural decline at its mature fields.

Statoil noted that the terrorist attack at the In Amenas facility in Algeria earlier this year, which cost nearly 80 lives, resulted in a roughly 13,600 boepd decrease in overall production.

Also hitting output were compressor challenges at Troll and prolonged shutdown at Snohvit, off Norway.

Compounding the effects of the fall in overall production was a drop in prices compared to the first quarter of 2012.

Statoil achieved an average liquids price of $103.5 per barrel during the first quarter of the year, down 7% on the $111.5 per barrel average during the same period last year.

Averaged invoiced gas prices were also down 11% year-on-year, with the company achieving an average price of Nkr2.01 per standard cubic metre.

Statoil noted that the divestment of its fuel and retail segment in the second quarter of last year also contributed to the year-on-year decline in revenue in the first quarter of 2013.

These factors were partly offset by the ramp up of new fields and an overall rise in international production.

"Statoil delivered record international production,with an increase of 6% mainly due to start-up and ramp-up of fields,” Statoil chief executive Helge Lund said.

“We started production from new [Norwegian Continental Shelf] fields, including four fast-track projects, and continued our exploration success by making a new high impact discovery in Tanzania."

The company has previously stated that it expects output this year to be down on 2012 but is aiming to increase production to 2.5 million boepd by 2020 as it brings on a wave of new projects from 2014.

Statoil also warned that it expected planned maintenance to have a negative effect on production during the current quarter of about 40,000 boepd.

View the original article here

Upstream costs drag down Murphy profits

Murphy's income for the three months to March, including discontinued operations, came to $360.6 million.

That is above the $290.1 million earned in the same period a year earlier. Income from discontinued operations for the quarter contributed $152.6 million to the company's bottom line however, compared to just $8.6 million a year earlier.

That puts Murphy's income from continuing operations in the quarter at $208 million, down from $281.5 million in 2012.

Income was hit by higher expenses for exploration, administration, financing and income taxes, Murphy said.

Murphy's profit was driven by a strong domestic performance, particularly from the Eagle Ford shale of Texas. Unfortunately for Murphy, difficulties in the rest of the world more than offset those gains.

Canada was not kind to Murphy, due to "extremely weak" heavy oil prices, dry hole costs associated with poor wells in the Muskwa shale of Alberta, lower sales volumes and prices and higher extraction costs.

Murphy also had a rough quarter in Malaysia due to sales volumes and prices from at natural gas fields offshore Sarawak that were "significantly lower than the prior year".

Well workover costs of $11.3 million in the Republic of the Congo also weighed, as did unsuccessful drilling costs for a shallow-water well in Cameroon and geophysical expenses for exploration licenses in Australia, Cameroon and Indonesia.

The production story proved a bit more positive for Murphy. The company produced 126,888 barrels per day of crude, condensate and gas liquids, an increase of 18% over the 2012 period. Almost all of that came from the Eagle Ford.

Natural gas sales were down to about 450 million cubic feet per day, about 14% less than the 525 MMcfd sold in the 2012 period. The drop was primarily due to lower production in the Tupper area of Western Canada and lower sales volume from gas fields offshore Sarawak, Malaysia, primarily due to planned maintenance at the company's gas receiving facility.

Downstream operations were also a bright spot for Murphy, at least in the US, where Murphy made a profit of $29.4 million, compared to a loss of $7.2 million in 2012.

Murphy is spinning off its downstream unit into a separate listed entity. The spin off is expected to be complete in the second half of the year.

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Tenaris Q1 profits squeezed

The Italy, New York and Buenos Aires-listed company posted profits of $422.7 million in the three months to March, down from $448.2 million in the year-ago quarter.

Revenue grew 2% to $2.67 billion as the company reported strong sales in Saudi Arabia and sub-Saharan Africa.

"Over the past three quarters, drilling activity in North America has slowed down and should start to pick up by the end of the year, while in the rest of the world it should continue to increase slowly, supported by current oil and gas prices," the company said in a statement.

Sales were down of line pipe in Argentina and oil casing and tubing in Colombia, while industrial equipment was strong in Brazil.

Increased sales in Canada helped offset some of the US "lower market prices and less favorable product mix," the company said.

Tenaris expects continued strength in the Middle East throughout the rest of 2013, but also forsees delays in project execution in Brazil and weaker demand given economic issues in Europe during that time.

Shares closed down 1.15% in New York and up 1.26% in Italy on Wednesday.

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