Online grocery has been a key growth segment over recent years, albeit from a small base, and retailers have done much to build up their presence in the channel.

It nonetheless remains at an early stage in its development and there is much reason to believe it is still a huge growth opportunity.

This year, the online channel is expected to grow by 21%, taking value to £4.8bn, and IGD forecasts it will continue to outperform the rest of the grocery market in the years ahead. Indeed, the forecast for online grocery shopping is predicted to almost double in value to £9.5bn by 2015. This value includes sales from non-food arms such as Tesco Direct and Asda Direct. However, even when these sales are stripped out, we still expect to see the value rise from £4.0bn to £7.8bn by 2015.

Shoppers are also saying that they’re going to shop online for their groceries more often. IGD’s latest ShopperVista data highlights the fact that 13% of shoppers say they will do more online grocery shopping in the next 12 months, compared to 9% who said they’d use it less.

	Shoppers tell us that they will shop online for groceries more often

Furthermore, at IGD’s 2010 Convention, senior industry delegates gave a similarly positive assessment on the future of online grocery sales. When asked what proportion of food and groceries would be purchased online in the year 2020, over half of the audience felt that online share would rise to over 10% (from its current level of just 3.2%).

A number of factors will play a role in delivering this growth and they can be grouped under the following three headings:

•  Improving industry capability
•  Technological advancements
•  Changing shopper attitudes

Enhancing the online offer

Upgrades and enhancements are a feature of the online marketplace and the leading grocery players have taken significant steps forward over the last 12 months to make their internet propositions more appealing and user-friendly. For example, Ocado’s recent overhaul of its transactional website demonstrates how step changes can still be made, making products and promotions easier to find and improving the overall experience for online shoppers.

Beyond websites, operators are also expanding their skills in other areas of the online proposition. Service levels are rising through a combination of improved delivery coverage, tighter delivery slots, and better store picking processes. This includes the opening of more ‘ghost stores’ - outlets that are not open to the public but dedicated exclusively to fulfilling online orders. The roll out ‘click and collect’ services offers customers even greater flexibility in the way they shop and take delivery of their purchases. Tesco is currently trialling this service - a route to market that is already proving popular in France and has the added benefit of reducing the operators’ transportation costs.
 

The smart way to shop

There are currently over 11 million smartphone users in the UK (source: comScore MobiLens) - more than in any other European country - and this number is growing rapidly. This game-changing piece of technology is altering the way people communicate and shop, and the UK grocery industry has been quick to capitalise on its potential.

Tesco's Clubcard app

Tesco’s Clubcard is now available as an app, and so too are customers’ Nectar balances via Sainsbury’s smartphone application. In the case of Sainsbury’s, the app also acts as a store locator and delivers personalised information about points offers and Sainsbury’s promotions direct to the customer. Waitrose has recently gone further still - with its ‘Heston’s Prize Pudding’ app, the retailer has tied up the growth in social media activity with its marketing campaign for the Christmas period.
 

S-commerce - the new e-commerce?

Clearly, without sufficient consumer demand, neither the hardware nor the software being developed would get off the ground, but as IGD’s shopper research demonstrates, the demand is very much alive. Led by younger consumers, the UK population is becoming ever more technologically savvy and open to using multiple channels to fulfil its grocery needs. IGD’s latest ShopperVista data shows that 22% of those aged 18-34 will be making more use of the online channel in the next 12 months - more than any other age group.

Younger shoppers exhibit the greatest propensity to shop online, but retailers are now engaging with shoppers of all ages more frequently via social networking sites and interactive online magazines. One example of this is the Waitrose Live magazine that features embedded video recipes and product recommendations.

Beyond the UK, retailers are already combining e-commerce with the growing taste for social interaction via the internet and using tools such as foursquare to reward loyalty and drive footfall in stores. So called ‘social commerce’, or s-commerce, could have a huge impact on the way retailers interact with customers in the future.

Shoppers will continue to demand greater convenience and flexibility from grocery retailers and the online channel enables them to deliver both. Given the pace of technological development, much could change in the next five years, and even the strong growth forecasts currently being projected here could yet prove modest.
 

More information:

	UK Grocery Retail Outlook: Opportunities in 2011 and beyond Out now!
	IGD’s definitive guide to the UK grocery market and a key tool for business planning, UK Grocery Retail Outlook reviews key developments across the sector, shows where retailers are prioritising their investment and highlights the opportunities for suppliers.

	Online Grocery Retailing: Building Capability for a Digital Future Out now!
	How is the digital revolution transforming the food and grocery industry? Our forthcoming guide to succeeding in the dynamic and fast growing online grocery channel provides in-depth commentary on the UK online grocery channel’s structure, future growth potential, and key retailer and supplier initiatives.

	Online insight on the new Retail Analysis
	On the new Retail Analysis website, you can view insight related to the theme of convenience & forecourt retailing. Subscribers can access the theme here. Non-subscribers can email us here to find out how to get logged in.

	ShopperVista - IGD's brand new shopper research service
	Find out more about IGD's new online service - which tracks and provides insight on the sentiments of British shoppers every month -  and the benefits it can bring your business.

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David Shukri is a Senior Business Analyst and joined IGD’s Market Intelligence team in 2010. He brings with him several years of retail experience, having worked for Sainsbury's and Musgrave Retail Partners GB.

David is responsible for research and analysis on a variety of themes associated with the UK grocery industry, including developments within the discount and convenience channels, as well as supporting IGD’s training and development programme through his retail buying experience.