The internet has already had a profound impact on how people shop for groceries, becoming both an established sales channel and a key information source for shoppers.

Until recently its growth has been driven by increasing access to fixed broadband connections, but these are now being eclipsed by smartphones which are beginning to revolutionise how shoppers, retailers and suppliers engage with one another.

Smartphones matter in grocery because they make it so much easier for shoppers to make an online purchase than other types of mobile. Recent research indicates that 47% of smartphone owners in the UK are actively seeking to buy products online using their handset (Source: Brandbank 2010 mCommerce report). However, the impact of smartphones spreads far further than simply placing online orders. 40% of smartphone owners now use their mobile to read product reviews, and 36% use them to find out additional product information from retailer websites.

	The Nectar app gives shoppers a handheld link to Sainsbury's and a range of other retailers

IGD’s own ShopperVista research in October 2010 found that 2% of main grocery shoppers already used their mobile to make on the spot price comparisons while a further 16% could see themselves using the technology in the future. In addition, around one in fourteen shoppers would like to use a mobile phone to link up with other shoppers to benefit from bulk discounts and a further one in ten could imagine doing so in future.
 

Further growth in smartphone ownership

While smartphone ownership in the UK has increased hugely since the launch of the iPhone in November 2007 - the UK now has the highest number of smartphone owners in Europe (12.8 million) - there is still ample scope for further growth. Three factors will underpin expanding smartphone penetration going forward:

• Communication of smartphone benefits will be an important driver. ‘Word of mouth’ by enthusiastic smartphone owners is likely to be at least as influential as communications from handset manufacturers and mobile networks or retailers. As with mobile ownership and broadband connections, it will take time to win over smartphone sceptics in older and less affluent demographics, and those with more sedentary lifestyles.
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• App development - 2010 may well be looked back on by technological historians as the year smartphones entered the mass market with the rollout of apps by leading grocers - enabling online shopping, helping shoppers with store navigation, linking to loyalty schemes and offering special promotions. Nonetheless all of these apps still have much scope for further development, and there is plenty of potential for innovation.
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• Price – Though the cost of buying and operating a smartphone remains substantially higher than the now very cheap pay-as-you-go mobile packages, this will fall as the device moves through its product lifecycle, opening up the technology to more customers and driving penetration.
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Retailers reap rewards of app investment

Retailers that have invested in developing apps have already experienced strong rates of consumer uptake for the new technology and their success seems certain to encourage further innovation in the sector.

Ocado now receives more than 12% of its orders through smartphones following the launch of the latest version of its ‘Ocado on the Go’ transactional app in February 2010.

Ocado and Tesco are just two of the many retailers to have launched mobile apps

Among other retailers, Tesco launched the UK’s first transactional barcode scanner app in October 2010 enabling shoppers to scan items at any time and add them to their shopping list. M&S meanwhile reported that 1.2 million customers used its transactional mobile website in the four months following its launch in May 2010.

Apps to drive in-store traffic - Sainsbury’s offers an iPhone app allowing shoppers to find out about promotions in-store and gain exclusive Nectar bonus point offers and Sainsbury’s news. Though Morrisons has yet to launch a transactional website, it too has developed a presence in this area with an app that allows shoppers to track current promotions and special offers and add them to a shopping list that can be used in-store.

Asda’s iPhone app now plays a key role in the retailer’s digital strategy by allowing shoppers to validate its Asda Price Guarantee. This commits Asda to being at least 10% cheaper than its main competitors with the retailer refunding the difference if items bought were less than 10% cheaper. The app enables shoppers to input receipt details, compare the cost of their shop with competitors and receive a refund if applicable.
 

Mobile to become the new wallet for the UK consumer

In their brief life, smartphones have primarily been used for browsing, shopping online, and accessing product information to date, but looking ahead they will be increasingly used as payment tools.

In 2011 Orange will begin rolling out the UK’s first mobile payment system in partnership with Barclaycard, using NFC (Near Field Communication) technology. The system will enable shoppers to use their mobile phone rather than a contactless credit or debit card to make payments. Initially the system will be limited to transactions of less than £15, suggesting that it will primarily be used by convenience shoppers, but the restriction could well rise if security concerns can be allayed.

Another innovation that will add momentum to the smartphone revolution is the launch of photographic product recognition apps. The Google Shopper app already enables users to order and pay for products they photograph from a retailer of choice in the US and is set to be launched in Europe in summer 2011.

Linked to their use as payment tools, smartphones will also be used to incorporate loyalty cards. Already Tesco’s iPhone app has a feature to display a barcode that can be scanned at the checkout instead of your Clubcard.
 

	Barcode scanning can help shoppers access useful product and promotional information

Smartphones set to improve the speed and efficiency of the in-store shop

Smartphones have the potential to influence purchasing decisions by providing consumers with much greater information at the point of product selection. By scanning the product or a shelf edge label in-store, shoppers will increasingly be able to access much more information than can be displayed and potentially receive customised offers pitched at them personally. Retailers and suppliers should ensure they have the right balance of technical and creative skills in house to take full advantage of this technology to enhance the shopping experience and make brands more engaging.

Consumers’ enthusiasm for smartphones makes it worthwhile for retailers to invest in a much more technogically advanced store. In future, smartphones could help navigate shoppers buying one product to other items that might interest them in-store. The technology also means shoppers could scan and pay for their purchases without using a physical checkout. Such a development would not only reduce store operating costs but allow retailers to use checkout space for displaying an expanded product offer.
 

Smartphones to become a key feedback channel

Smartphones also make it easier for shoppers to provide feedback on their purchases, behaviour which can be incentivised by retailers and suppliers alike, particularly through social networking sites. Retailers and suppliers will need to take care to respond quickly and effectively to customer comments, while also taking full advantage of this communication channel to steer strategy, particularly for new product development.
 

More information:

	Online Grocery Retailing: Building Capability for a Digital Future	Out now
	How is the digital revolution transforming the food and grocery industry? This complete 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.

	ShopperVista - IGD's new shopper research service
	IGD ShopperVista is a monthly analysis of British grocery shopper sentiment. We’re talking to shoppers 365 days a year, 12,000 annually, to provide you with insight on their attitudes, motivators and barriers to food and grocery shopping. Find out more about the insight it provides and the benefits it can bring your business here.

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Nick Gladding joined IGD’s market intelligence team as is a senior business analyst in 2011 and brings a wealth of experience to his new role.

Prior to joining IGD, Nick was a lead analyst with responsibility for steering the development of retail content for the grocery, home, online and retail location sectors. He managed a consumer research programme, launched new forecasting products and helped establish global retail research operations in India. In addition to producing reports, briefings and customised research, Nick has presented at conferences and industry events.