ByClaire Rosling
03/08/2011
4 min read

Online grocery shopping

“Could the rise of internet grocery shopping affect supermarket dominance?”

Online grocery sales will nearly double by 2015 to 9.5bn. Based on IGD predictions, online will account for 5.4% share of the UK grocery retail market in 2015.

Before we say how this trend could affect supermarkets, let’s look at how they have got to the incredibly strong position they are in. Back in 2007 the Telegraph reported that £1 in every 7 spent in uk shops is spent in Tesco. The bi-line of “Every little helps” starts to take on a new meaning when you see figures like this. This statistic shows us just how big the supermarkets have become whilst smaller local retailers fall by the wayside. The unrivalled buying power and convenience of supermarkets makes them so attractive to shoppers that the smaller outfits have found it difficult to compete.

ipad image with abel and cole screen grab

The success of supermarkets has been down to several key USPs (unique selling points) over the traditional independent. These USPs are cost, variety, free and easy parking and the convenience of having all your grocery needs under one roof.

diagram displaying supermarket usp's

We all know how busy our lives have become. Supermarkets have capitalised on this and provided a solution that makes shopping with them a much more attractive option.
Now lets look at how the rise of online grocery shopping could affect the above supermarket success factors.

How are the above USPs affected?

Variety – One of the major benefits of online shopping is the ability to shop around whilst sitting in front of the computer. This is one of the main reasons for the success of shops like amazon where the selection of books is far greater than any high street bookshop.
Cost – Independents may not be able to rival the supermarkets economies of scale but having an online shop removes the need for expensive overheads like large warehouse style shops and big staff costs. This should go some way to reducing the cost advantage supermarkets have over independents.
Free and easy parking – The internet removes any need to use the car as deliveries are made by the supplier, thus making this USP of supermarkets redundant.
Single location under one roof – What could be more convenient than sitting at home and ordering your weekly shop from the comfort of your sofa.

Online grocery shopping does provide other benefits over and above what the traditional supermarket has to offer. You can save your weekly shop in your account, giving you even easier shopping experience. Deliveries are made to your door thus meaning that people with car access can get their weekly shop easier. You can rate and review items giving you a more informed shopping experience.

The drawbacks of online

One downside to online shopping is you can’t physically browse the food. I personally am the sort of person that likes to squeeze my peaches to see how firm they are, in a man from del monte fashion. This sort of shopping habit is not possible, however such a minor issue probably won’t put off the average shopper, aslong as what is delivered is good quality. Other benefits that are lost are personal contact with the retailers and their specialist knowledge. However this sort of benefit was lost long ago when we moved away from the independent retailer to supermarkets. Last time I asked the fishmonger in my local large supermarket chain what was in season and sustainably caught, he looked at me as though I had asked him to explain Newton’s third law of motion. Such specialised knowledge of the produce is lost in large retailers so this physical benefit does not bear much credence.

The current big players

Supermarkets have of course realised the potential of online shopping and all the major supermarkets now provide this service. Data provided by ConsumerIntelligence suggests that Tesco is currently leading the market, with a 32% share of online shoppers. Asda follows with 30%, then Sainsburys, Ocado and Waitrose Deliver making up the rest.

diagram showing market share of online grocery shopping

The opportunity for independents and local

So you may ask yourself how the rise of online grocery shopping will affect their supremacy in this sector. The dominance of supermarkets has in part been down to its strategic land purchasing and amazing purchasing power. All supermarkets have had the buying power to buy up large areas of land to situate their massive shops. This sort of buying power is something a small retailer could never achieve. However, the internet removes the need to buy land in prime shopping locations. Also the investment needed to build and run a massive warehouse style shop is reduced massively as creating an online shop can be achieved at a mere fraction of the cost.

The internet has another edge in that it can network and bring together several food retailers under the same roof. Imagine if a group of local retailers and farmers got together and created an online local food shop. This sort of co-operation could pose a serious threat to a larger supermarket in its catchment area. As long as they competed to a certain degree on cost then they have essentially removed any of the USPs that the supermarkets originally had. What the internet does is provide the potential to level the playing field and remove the Supermarkets USPs over smaller retailers.

Supermarkets are likely to still have an edge when it comes to cost due to their purchasing power and economies of scale. However, I believe that this will eventually change. As the cost of moving food around and flying it in from other countries rises due to oil prices the local farmer and supplier will slowly start to become a lot more cost competitive. Buying direct from the farmer or a more local retailer could become mainstream as it removes much of the transport costs as well as the cut that the supermarket would take. This cost saving could reduce the cost advantage that the supermarket has. The growing popularity of veg box schemes indicates this with companies like Riverford organics continually expanding its network of franchised suppliers and becoming a well known national brand.

The rise of online shopping for groceries is an opportunity for local producers and retailers to regain their foothold in the grocery market. The question as to whether Supermarket dominance will be threatened is how much this opportunity is capitalised on and how it is implemented.