September 21, 2018 / 12:35 PM / a month ago

UPDATE 1-German supermarket chain REWE steps up e-commerce challenge

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COLOGNE, Sept 21 (Reuters) - Germany's second-largest supermarket chain REWE opened a new logistics centre on Friday to serve its fast-growing online groceries business as e-commerce competition hots up in the retail food retail sector.

REWE, along with bigger rival Edeka, had been cited by analysts as a possible German customer for Britain's Ocado , which has been expanding internationally with a string of deals for its robotically operated e-commerce grocery warehouses.

REWE has spent about 80 million euros ($94 million) on what it described as "one of the most modern logistic centres" in Europe. The site outside Cologne is the size of more than two soccer pitches and has 38 truck loading bays.

Online grocery shopping has been slow to take off in Germany because the country has a high density of food stores and the dominant discounters, Aldi and Lidl, have been slow to embrace e-commerce.

But REWE has invested heavily in e-commerce over the past few years and Amazon has also begun delivering fresh food in Germany, its biggest market outside the United States.

REWE said its online grocery service had broken through 100 million euros of sales last year, still only a tiny fraction of the group's total sales of 58 billion euros.

Management consulting firm A.T. Kearney expects e-commerce to account for 3 percent of Germany’s grocery market by 2020, up from only 1 percent in 2016.

Unlike at REWE's existing warehouses, where employees walk up to 15km per shift to pick products from shelves, the new centre has products brought to workers by an automated shuttle system from zones kept at different temperatures.

REWE said the system is much more economical and should allow for more flexible processes, adding that it hopes eventually to be able to serve online customers with fresh meat and cheese such as that served at supermarket counters. ($1 = 0.8504 euros) (Reporting by Emma Thomasson Editing by David Goodman)

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