Online Grocery Shopping: A Recipe for Success

While online grocery retailing may still be in its relative infancy, the rapid growth of this sales channel in the UK is undeniable. Improved broadband internet penetration, new, easier to use online platforms and better awareness among time pressured consumers of its convenience, seems certain to make the internet an important outlet for grocery retail.

Amazon.co.uk recently announced the launch of an online grocery store in a bid to appeal to all palates through its offer of 22,000 products, which will include ready meals and popular household brands as well as ethnic, kosher and international goods. Customers will also have the option of bulk-buying items such as diapers, pasta, rice and cooking oils [1].

Marks and Spencer is also expected to indicate as early as this autumn whether it is going to start selling food online [2], while Ocado, another pureplay grocery retailer, has also attracted interest during the past few weeks as it floated with an IPO price of 180 pence [3]. Although this fell below initial targets, it showed that selling food from the web is a lucrative market to be a part of.

Verdict estimates that that the UK online food and grocery market experienced growth of 409% between 2003 and 2009, with total spend reaching £5.3bn [4].

Evidence of this can be seen in recent grocer results - Sainsbury’s online food and grocery sales reportedly increased by over 20% during the 28 weeks to October 3 2009, with a more than 15% increase in sales during the 13 weeks to January 2 2010. Ocado’s sales have increased by 21% a year since 2007.

Growing interest in online food shopping is also evident in the number of people searching for Food and Drink online. Searches through Google.co.uk are up 122% so far this year when compared to the same time period in 2008, with the most popular category being Cooking and Recipes, up 158%. This growth outperforms other key sectors, such as Apparel, Home & Garden and Consumer Electricals.



An increasing number of people have also been searching for Food and Drink through their mobile devices – these searches were up a massive 274% in June when compared to the same time last year.



So what’s next?

Verdict forecasts that the UK online food and grocery market is set to grow by a further 24.9% to £6.7bn between 2009 and 2013 [4] .

Although the year-on-year growth % will slow, this reflects the consolidation of the market as competition intensifies and more subdued food inflation over the next few years. Full coverage of the UK is also now offered by the leading players, so geographic expansion will no longer generate significant growth.

Despite this, grocery has still been predicted to be the next category benefiting from today’s booming online environment, and the UK is the most developed online grocery market globally - when comparing overall market value and per capita spending, consumers in the UK were the biggest online spenders in 2009 [4].

Due to the fierce competition between grocers, which looks set to continue, the market has recently been boosted by heavy investment, which has made significant enhancements to the usability and functionality of websites and raised the bar in terms of the value and service propositions that retailers are now offering.

The price of getting groceries delivered has dropped notably, as major online players continue to compete fiercely on price and value. This makes the service a more cost-effective option to a wider customer base and with independent sites such as mysupermarket.com comparing prices, online grocery shopping is also becoming an increasingly attractive channel for cash-strapped customers [4].

Key focus for the future ...

Barriers to purchase
A key concern that remains is around tactility, so the customer’s inability to see/touch items before purchase, particularly with perishables and fresh foods. There is also the issue of trust in others picking items on a customer’s behalf and selecting product substitutes (though this has become less of a concern over time) [4]. Freshness and long sell by dates – the same as are available in-store – will remain a major concern for many and, until resolved, is likely to impede the pace of expansion of online grocery shopping.

However, positive strides are being made in this area: some retailers now provide use by dates and guarantee delivery freshness. Ocado has introduced a fresh meat and fish counter – exactly like delis in supermarkets – to 80% of its customer base, allowing the purchase of fresh meat and fish to a customer’s specification [6].

Ocado’s unique and efficient order picking operation is also something other retailers are looking to learn from [5]; this will allow for speedier and ‘fresher’ deliveries, bringing saving benefits to retailers and providing a much improved service to shoppers.


Mobile and Multichannel
As more people use their mobile devices to search and shop, there is the potential for supermarkets to enhance the functionality, usability and convenience of buying groceries online by providing consumers with the facility to do so anytime, anywhere.

The ‘Ocado on the Go’ iPhone app launched in July 2009 and it now contributes almost 3.0% of the retailer’s sales – approximately £12m – with 5% of Ocado customers using it at some point during the order process [6]. It provides a seamless service by letting customers organise their shopping and fill their basket offline, with the order processed automatically the next time an internet connection is made, thus making it accessible at any point in time. Ocado was also the first grocery retailer to have a mobile-optimised website.

Recently, Sainsbury’s also launched a new app for the iPad and iPhone, which gives customers access to exclusive and personalised offers, whilst also allowing them to collect Nectar points. Waitrose also now has a free iPhone app, which provides users with recipes and lets them search the store for the required ingredients.

More retailers will no doubt be focusing on their own m-commerce sites in the near future and ensuring they are all transactional. As more shoppers use multiple channels to buy their groceries, with many opting to buy larger, infrequently purchased core essentials online and fresh produce from their local convenience store, these demands will need to be catered for appropriately and seamlessly by removing the barriers between order channels.

Recent examples of this can be seen through the drive concepts recently developed by grocery retailers in France [7]. These provide additional convenience to shoppers visiting their larger stores, with shoppers able place their order online and pick it up at the back of the store at a specified time. For now the focus of this initiative is on heavy item categories for easy and fast shopping, but this could be extended to entire product ranges.

Tesco announced earlier yesterday their own similar initiative in the UK, trialing the first ‘drive-through supermarket’ [8]. This will allow time poor online customers to "click and collect" by choosing their groceries online and booking a two-hour collection slot for collection.

In the US, Target has launched its first scannable mobile coupon programme as of March. This opt-in programme provides Target shoppers with a customised webpage on their mobile phones, with all offers scannable at checkout using a single barcode.


Website usability
Further improving usability and functionality of websites will continue to enhance customer service credentials and the end to end online shopping experience of the future.

Developments such as the addition of virtual assistants on groceries websites, who can understand typed queries and help customers find their way around grocery sites are already being used by retailers such as Asda, who also allow online shoppers to create a shopping list simply by typing in key details from a previous store visit receipt (such as store or transaction number). The items can then be added to an online favourites list ready to be added easily to an online shopping basket in the future.

Personalising the customer experience is also a prevalent trend, where retailers will use previous purchase history to create a basket of similar goods for customers and make suggestions on products they might like to try. Initiatives such as this have to potential to add substantial value and cater for time poor shoppers, as well as instill loyalty in what has is set to become an even fiercer competitive market.

[1] Amazon: biting off more than it can chew? Verdict Research, Ovum Knowledge Centre
[2] Ocado: should I buy the shares?
[3] Ocado shares trade 10 percent below IPO price
[4] How Britain Shops 2010, Food & Grocery, Verdict Research
[5] Keep on trucking Economist
[6] Verdict e-Retail 2010: Retailers need to think more strategically to ensure long term growth
[7] IGD RetailAnalysis, Store Visit Reports
[8] Tesco trials UK's first drive-through supermarket


Posted by Lili Papadimitriou, UK Retail Team