The online grocery market will double in five years, according to a leading industry analyst. IGD says that the number of British shoppers who have bought groceries online rose by 63 per cent in the past year and it estimates that the market will be worth £7.2 billion by 2014.
The forecast will provide succour to an industry that has struggled to break even despite its rapid growth, with companies failing to achieve the required sales volumes to be profitable. Ocado, the online supermarket, has not posted a pre-tax profit since it started operations in 2002.
Joanne Denney-Finch, the IGD chief executive, said: “People increasingly are mixing the channels they use for their weekly or monthly shop. Many are choosing to visit their local store on a regular basis, while purchasing a number of bulk items, like tinned foods and toiletries, online less frequently.
“The future of grocery shopping is multichannel, with people shopping in different ways and using various outlets — whether convenience stores, online or hypermarkets.”
While internet retail has grown rapidly in recent years, less than 5 per cent of groceries are bought online. About 61 per cent of shoppers said that removing delivery charges would be a key factor that would encourage them to spend more on groceries online.
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Ocado’s growth accelerated throughout last year, despite non-food online retailers seeing growth tail off. Most supermarkets fulfil online orders by using store pickers, who gather the items from a bricks-and-mortar store before delivery. In contrast, Ocado runs a centralised system from its distribution centre in Hatfield, Hertfordshire. It has a contract to deliver Waitrose goods until 2013.
The big supermarkets tried to adopt centralised models but abandoned them in the past decade because they lacked the scale to be efficient. Ocado maintains that its centralised model will prove more efficient than the supermarkets’ store-picking approach once it achieves a critical mass.
The drawback is that it is impossible to cover the entire country with a hub-and-spoke system: Tesco boasts of 98 per cent coverage, thanks to its extensive store network.
Gradually, some supermarkets are moving back towards a more centralised system. J Sainsbury recently added non-food to its online offering, which it will fulfil from a single non-food distribution centre.
Asda has built a store solely for fulfilling online orders in Morley, a densely populated corner of its West Yorkshire heartland. The store is set out like a normal supermarket — to make it easier for shelf-pickers — but is not open to the public. It is effectively a small warehouse, adjacent to an existing store, for fulfilling internet deliveries.
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Asda found that, to expand internet orders to allow customers more delivery slots outside working hours, it had to relieve pressure on nearby supermarkets to avoid pickers being tied up during peak in-store shopping hours.
It estimates that the “virtual store” will double the number of online customers it can reach in the region and said that the initiative had helped it to introduce a 10pm cut-off for next day deliveries.
Tesco has two such “dark stores”, in Kent and Croydon, South London.
In France, where internet penetration of retail is lower and delivery fees are considered prohibitive, supermarkets are focusing on a “drive-through” grocery system, in which customers order online and pick up at the store, saving them the task of walking around the supermarket.