Online Grocery Sales Will Keep Growing

Online retailers are currently seeing their fastest growth in the UK in over a decade, according to the e- Retail Sales Index. About one fifth of families in the UK shop online for their food and groceries, compared to less than 10% in Europe and the rest of the world, and all signs point to e-commerce gaining market share against traditional grocery shopping.

In the last year, Ocado has seen its share price rise by over 600%. Ocado is different in the sense that it has no physical stores, but sells branded products and some Waitrose own-brand items. In its most recent results, Ocado recorded sales growth of 15.2% y-o-y for H113, representing GBP383mn, and increased its average orders per week by 13.4% y-o-y to 139,000. Its number of active customers also rose, and with 360,000 users, representing 0.6% of the UK population, the firm has plenty of room and ability to grow.

Though Ocado has no physical stores, the company has recently signed an agreement with the fourth largest supermarket in the UK, Morrisons, to deliver its food. But the big players of Tesco, Asda and Sainsbury's all have their own online business, with their online grocery sales growing fast. More firms are jumping onto the bandwagon, with Marks & Spencer launching a new online butcher and fishmonger last week. In FY2013, Tesco recorded online grocery sales growth of 12.8%, a faster pace than its in-store sales. The company has attributed much of this growth to its Click & Collect scheme, where customers can order what they want online, and then go into the store to collect their groceries. Indeed, Tesco is one of the driving forces behind the online grocery sector, largely down to its iconic Clubcard initiative. Andrew Miles, Tesco's online food marketing director, believes that the Clubcard is 'the key thing' for the supermarket's online shopping evolution, as it allowed the company to 'understand how customers are shopping through the channels and how customers are evolving.' By monitoring customers' purchases through Clubcard, Tesco now believes that the 'shopper journey is not linear or predictive, it's iterative.' This understanding has given Tesco customers the option of saving their regular weekly shop on their computer, so that time is saved and consumers are more likely to return to Tesco.com. Figures from IGD ShopperVista, a specialist retail market research firm, suggest that this is the main reason people do their grocery shop online.

Phenomenal Gains
Rebased Share Price (23/10/2013=100)

Online retailers are currently seeing their fastest growth in the UK in over a decade, according to the e- Retail Sales Index. About one fifth of families in the UK shop online for their food and groceries, compared to less than 10% in Europe and the rest of the world, and all signs point to e-commerce gaining market share against traditional grocery shopping.

In the last year, Ocado has seen its share price rise by over 600%. Ocado is different in the sense that it has no physical stores, but sells branded products and some Waitrose own-brand items. In its most recent results, Ocado recorded sales growth of 15.2% y-o-y for H113, representing GBP383mn, and increased its average orders per week by 13.4% y-o-y to 139,000. Its number of active customers also rose, and with 360,000 users, representing 0.6% of the UK population, the firm has plenty of room and ability to grow.

Phenomenal Gains
Rebased Share Price (23/10/2013=100)

Though Ocado has no physical stores, the company has recently signed an agreement with the fourth largest supermarket in the UK, Morrisons, to deliver its food. But the big players of Tesco, Asda and Sainsbury's all have their own online business, with their online grocery sales growing fast. More firms are jumping onto the bandwagon, with Marks & Spencer launching a new online butcher and fishmonger last week. In FY2013, Tesco recorded online grocery sales growth of 12.8%, a faster pace than its in-store sales. The company has attributed much of this growth to its Click & Collect scheme, where customers can order what they want online, and then go into the store to collect their groceries. Indeed, Tesco is one of the driving forces behind the online grocery sector, largely down to its iconic Clubcard initiative. Andrew Miles, Tesco's online food marketing director, believes that the Clubcard is 'the key thing' for the supermarket's online shopping evolution, as it allowed the company to 'understand how customers are shopping through the channels and how customers are evolving.' By monitoring customers' purchases through Clubcard, Tesco now believes that the 'shopper journey is not linear or predictive, it's iterative.' This understanding has given Tesco customers the option of saving their regular weekly shop on their computer, so that time is saved and consumers are more likely to return to Tesco.com. Figures from IGD ShopperVista, a specialist retail market research firm, suggest that this is the main reason people do their grocery shop online.

As new generations become more comfortable with technology, the market is likely to grow. IGD ShopperVista believes that online grocery shopping sales in the UK will more than double in size to be worth GBP14.6bn in 2018, from its current value of GBP6.5bn. One technology that is underrepresented in the market is mobile phone usage; IGD estimates that only about 2.5% of people complete an online shop per month, despite 70% of the population owning a smartphone or tablet. This is likely to grow in size, but not to the extent that home computer grocery shopping has developed.

The UK leads the way in terms of online retail. A new study from the EU has shown that 82% of British internet users regularly shop online, which is the highest of the EU member states and the US. In Italy, for example, this figure stands at only 29%. But online grocery shopping in Europe is similarly gaining pace. France's Carrefour, the second largest grocery chain in the world, has over 200 grocery pick-up points in France, Belgium and Spain, where shoppers can make their order online and then pick up later. One region which hasn't adapted to online grocery shopping in the same way as the UK is the US. In the Dotcom boom of the late 1990s, some companies were established with both the home delivery and pay-and-collect business models. Despite great amounts of backing, the most famous, Webvan, went defunct in 2001. Recently, however, retail giant Amazon has entered into the US online grocery sector, hoping that their experience and great distribution network will help increase the market. Currently, online sales make up only 3.3% of the US grocery market, but this is likely to greatly increase over the next decade.

As grocery shoppers become more tech-savvy and 'generation Y' enters into the market, online grocery sales will represent more of the total sector. In the UK this is already the case, as the country's distribution network allows for quick access, and a large proportion of the population are technologically literate. But growth in this area is at its fastest pace in over a decade, and as more avenues to technology open up and time constraints continue to be an issue, there is no sign of a slowdown in online grocery shopping.

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Sector: Food & Drink
Geography: United Kingdom
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