US grocery e-commerce penetration just hit 19%. And if you can’t make money on it now, the math only gets worse from here.
That’s the uncomfortable reality at the center of our latest Confessions of Supply Chain Executives episode, where Richard McKenzie, CEO of Veloq (a division of Rohlik Group) delivered what might be the most clarifying framework I’ve heard on the decade-old question of grocery e-commerce profitability. Rohlik operates in five European countries, runs 12 fulfillment centers, grows 30 to 40 percent year-over-year, and maintains NPS scores above 90. They are not experimenting. They are executing.
What follows is a summary of what I took away from my conversation Richard.
E-Grocery Is A Vicious Cycle Nobody Wants to Admit
Most US grocers are losing somewhere between $5 and $10 per online order. The typical reaction is to pull back on investment. Which drives down volume. Which makes the economics worse. Which justifies pulling back further. McKenzie has watched this play out across multiple continents and describes it bluntly: “They’ve got themselves into a vicious cycle. They’re losing money, therefore they don’t invest in the proposition, therefore they don’t get growth, and therefore they lose more money.”
The 19% figure should snap grocers out of this spiral. It is not a COVID blip that will normalize. It is not an Amazon curiosity. It is structural. And as McKenzie noted, anyone not capturing a share of that 19% is simply watching it flow to someone else.
The Three Cost Drivers, And The One Everyone Forgets
The grocery industry has spent years debating picking costs and last mile. McKenzie agrees both are critical, but he keeps returning to a third variable that rarely gets the same attention: basket size.
His rule of thumb is $100. At $100 in basket value, a grocer has roughly $30 in margin to work with. That gives you a target of $10 for picking, $10 for delivery, and something left over to run the business. Drop below that, and no amount of operational efficiency rescues the model. It simply does not pencil.
The implication for assortment strategy is significant. McKenzie argues that Rohlik’s success is partly built on refusing to compromise range even in the name of speed. They offer around 25,000 SKUs across their markets, including fresh bakery, fresh produce, and the option to choose specific apples, precisely because breadth of range is what converts a top-up shop into a full basket. “If you’re only getting $30 and not $100, you’ll never pay for that pick and pack and deliver,” he said.
On last mile, the math comes down to aggregation. McKenzie shared a striking example: by centralizing store pick into three fulfillment hubs in a major European city, instead of operating from 30 dispersed locations, Rohlik reduced last mile costs by 40 percent. Not by changing delivery windows. Not by switching carriers. Simply by running more volume through fewer origin points, enabling better route optimization. His formula: if you’re running 20 delivery vehicles, you can fill 19 of them. If you’re running two, you’ll be lucky to fill one.
The Infrastructure Threshold Question, Finally Answered
The industry has been arguing about dark stores versus micro-fulfillment centers versus automated warehouses for years. McKenzie’s answer cuts through most of it: stop arguing about the labels and build the right-sized facility for the demand in your catchment area.
His thresholds are as useful as anything I’ve heard: roughly 500 orders per day to justify in-store automation; approximately 3,000 orders per day before a standalone fulfillment center makes economic sense. The gap between those two numbers is where most US grocers are currently operating, which means the in-store automation path, messy as it is, is often the more realistic near-term play.
The reason earlier MFC deployments failed, McKenzie argues, was not bad automation. It was bad operations. The stores did not know how to run the integrated system. The software was inadequate. The picking automation was fast; everything around it was chaos. “As we get faster and faster robotics, more and more of the cost is everything else,” he said. Managing the overhead, e.g. shift leads, coordination, integration, becomes the biggest line in the P&L precisely when operators think they have solved the problem.
The Organizational Confession
This is where the conversation flipped a narrative I have held for years, and I suspect it will do the same for many readers and listeners of my interview with Richard.
McKenzie made the case that grocery e-commerce may need to be structured as a standalone business unit, not integrated into an omnichannel reporting structure. Not because omnichannel is wrong in principle, but because grocery’s fulfillment complexity and margin structure are simply different from every other retail category.
His example was instructive: he described a grocer where the marketing team controlled the e-commerce operation’s budget. Because e-commerce was less profitable than stores, marketing withheld investment. The operation never grew. It never got efficient. The vicious cycle ran its course. The solution was not better marketing. It was organizational, i.e. creating a vertical where commercial strategy, marketing, fulfillment, and last mile all reported together, aligned around the same demand signal.
What is owned centrally? Customer loyalty. Supplier buying. Data. What lives in the e-commerce vertical? Assortment decisions, promotional strategy, demand forecasting, and operations. And critically, store managers must also be incented to want e-commerce to succeed, not fight it.
The most quietly radical thing McKenzie said in the entire interview was that when you shift volume out of stores into fulfillment centers, some stores will reveal themselves to be unprofitable on their own. “Sometimes e-commerce is hiding the unprofitability of stores,” he said. “And when you take the volume out, you’re left with a store problem.” The industry has been misattributing the diagnosis.
The Uncomfortable Bottom Line
McKenzie’s forward view is a have-and-have-nots outcome. Grocers who invest, build owned infrastructure, and create customer relationships they control will compound. Grocers who depend on Instacart or DoorDash will find those third parties gaining power, pricing authority, and ultimately first-party data that belongs to the retailer’s customer. All of which is the exact dynamic he watched play out in China between 2010 and 2019, where traditional grocers eventually ceded most of their margin to platform intermediaries.
“This is no longer an optional play,” he said. “If you’re not owning your customers and offering them a really good proposition you can deliver economically, somebody else will.”
Your Next Steps
The 19% number is not a warning. It is a deadline. The grocers who move now will set the infrastructure, the customer loyalty loops, and the operational expertise that compounds over the next five years. The ones who wait will be negotiating from a weaker position every quarter.
To start, McKenzie’s framework is straightforward: diagnose your basket size, your fulfillment cost, and your last mile cost separately. If basket size is the problem, it is a range and merchandising problem. If fulfillment cost is the problem, it is an aggregation and automation problem. If last mile is the problem, it is a volume density and hub strategy problem. Treat each as a distinct lever and then make sure the organization is structured to pull all three in the same direction.
Watch or listen to the full Confessions episode to hear Richard McKenzie’s complete framework for cracking grocery e-commerce profitability, and why the answer may require rethinking not just your supply chain, but your organizational chart.
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Be careful out there,
– Chris, Anne, and the Omni Talk team
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Omni Talk® is the retail blog for retailers, written by retailers. Chris Walton and Anne Mezzenga founded Omni Talk® in 2017 and have quickly turned it into one of the fastest growing blogs in retail.