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After years of tentative developments and speculation, it is now official, online shopping has come of age in Europe.
Already, 37% of Europeans shop online, spending on average €483 per year and, more significantly, e-commerce has enjoyed robust growth during the downturn.
This average figure masks the huge popularity of online shopping in countries like UK, France and Germany where more than 50% of internet users have made online purchases in the last year. In the Nordic countries (Denmark, Sweden, Norway, Finland and Iceland) the proportion of internet users who bought products and services online already stood at 91% in 2008, an indication of what to expect in future years.
Although issues around broadband penetration, trust or the delivery networks have hindered the widespread adoption of online shopping in countries like Italy or Spain, online shopping is also now growing very fast in these markets.
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Source: Kelkoo study conducted by Centre for Retail research, February 2010 |
In this context, the EU Commission has identified e-commerce as a major priority and has an ambition to bring the percentage of online shoppers in Europe from the current 37% to 50% by 2015.
Online grocery shopping: From niche to mainstream?
One could argue that online grocery shopping has primarily remained a niche format due to the limited number of players. But as more food retailers around the world go online, usage is likely to increase exponentially, especially as the younger generation sees online shopping as natural.
Tomorrow’s web applications will also significantly improve the online shopping experience - making it easier and more intuitive. Mobile ordering combined with integrated solutions within the home are also likely to make online grocery shopping more prevalent.
In the UK
But the first critical step is the development of an online offer. Today the UK is by far the most advanced market and all the leading players are actively developing and advertising their services. Penetration is increasing and online is now a growth pillar for Tesco, Asda and Sainsbury’s.
Ocado, which floated this summer, is also expanding its operations beyond the M25 with the acquisition of a 2.4 acre site in Avonmouth, Bristol. The new site will be used as a distribution spoke and will extend Ocado’s reach to a further one million homes in Bath, Bristol, Cardiff and surrounding areas.
In addition, Ocado is developing a second automated DC (CFC) which will allow it to expand across central and northern England. This new Customer Fulfilment Centre (CFC) should be operational by the end of 2012. In the meantime, Ocado has allocated a capex spend of c.£80m to improve capacity and efficiency at CFC1. This will increase capacity in stages from the current 105,000 orders per week to 180,000.
Developments in continental Europe
Beyond the UK, things are also heating up in continental Europe. In France, the leading brick and mortar retailers have all subscribed to the ‘click and collect’ option which enables customers to select online and collect their groceries direct at the shop.
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| Carrefour has supplemented its standalone online business with a new 'click and collect' service | |
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Carrefour – which until recently had a standalone home delivery service – has also opted to supplement this service with a ‘click & collect’ option in 173 of its stores.
For French retailers, this is about offering the service that customers expect and competitors are providing. They also hope that the drive-thru concept will help invigorate traffic for larger grocery formats – providing a convenient solution for shoppers who do not want to walk to store for heavy / dry goods but still want to come into the store to select their fresh products at the counters.
Increasingly, delivery and pick-up will co-exist for added convenience and we are likely to see a surge in trials and new services being launched across Europe.
In Germany, Rewe Group and Metro Group are both developing their business models with trials going ahead imminently, with the latter recently launching a pilot drive-in facility for a new Real hypermarket concept. The trial allows customers to place their order online and then collect from the store in Altwarmbüchen, Isernhagen as early as two hours after ordering. In Spain, Eroski is also steadily extending its geographical reach.
Exporting online know-how overseas
However, one of the most interesting announcements recently has been that of Philip Clarke - who will take over from Sir Terry Leahy at the helm of Tesco next year – and was quoted as saying he wanted to expand Tesco's online offer around the world.
Clarke confirmed Tesco would start trading over the internet in Poland next year, followed by Prague and Shanghai.
Tesco which is currently the leading online grocery retailer with sales of circa £2bn in 2010 in the UK, already trades in other international markets. It has a successful online business in Korea and Ireland, its first and third-biggest international markets respectively.
The BRIC opportunity
Recent data from China supports this new credo. Online retail sales in China surged during the first half of 2010, continuing the strong growth seen in recent years. Sales for the first semester jumped up 105% to 211.8bn yuan ($31.3bn), according to a report by e-commerce giant Alibaba.
In 2009, internet retail sales amounted to 250bn yuan in China, accounting for over 2% of the country's total. China boasts 400 million internet users, and one-third of them are online shoppers.
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Tesco is currently considering the online opportunity in the Chinese market |
Tesco is not the only player attracted by the online opportunity in China, albeit at this stage it is the only global grocery player considering it.
Just a few months ago, regional online giants Rakuten and Baidu launched a new e-shopping mall in China. The new site, called ‘Lekutian’, will receive the e-commerce expertise of Japanese giant Rakuten and will benefit from the marketing reach of Baidu, China's largest internet search engine.
The two firms plan to invest $50m over the next three years. The new venture already has about 2,000 registered merchants, including many well-known local brands. Lekutian will pit itself directly against current market leader Taobao.com, owned by the Alibaba Group, which currently accounts for about 75% of all e-commerce transactions in China.
India is also an interesting market. Online is currently still underdeveloped but the absence of legacy systems means the country can fast-forward with the introduction of 4G planned for 2011. This quantum leap in conjunction with the smartphone revolution could add another 250 million connected mobile users to the existing 600 million (March 2010). According to Bijou Kurien, CEO Lifestyle, Reliance Ltd, who spoke at the 2nd European Online Retail Conference held in Berlin last month, the online retail opportunity will reach 235 million users by 2015 and could achieve revenues of €10bn.
These staggering statistics explain why the Future Group recently revealed its ambitions for growth through online shopping. The group has launched a dedicated e-commerce unit, called ‘Future Bazaar’. It expects to generate Rs.30bn (€480m) within five years with an average gross margin of 10-12% from the venture.
Founder and CEO Kishore Biyani noted, “The idea is to sell goods at a much lower cost on this platform than we can sell through our physical stores. We want to revolutionise digital commerce in retail in India. We will be offering the cheapest deals online, which will be 5-10% cheaper here”.
Connectivity and social media
Although it will take time to build online grocery services in international markets, the online revolution is already here for supermarket operators.
As shopper connectivity increases, grocery retailers are using integrated campaigns that sit across more than one form of media to create additional brand touch points.
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Food Lion uses Facebook to offer promotions to its fans |
Food Lion has over 41,000 fans on its Facebook page with a Twitter feed also linked to the profile. Under a ‘Savings’ tab, users can link through to Food Lion’s special offers, store locator and coupon download sites. Campaigns (e.g. savings on own brand goods) run simultaneously through Facebook and the group website, although exclusive offers for Facebook users are in use.
Increasingly, this type of social commerce is becoming an integral part of the marketing strategies of grocery retailers – blurring the boundaries between online and offline.
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