Digital Sales Boost UK’s Grocery Sector

By Chanel Smith EMEA Editor (@PYMNTS_EMEA)

Unlike various consumers across Europe who choose to stick with shopping in stores for groceries, the majority of British consumers would rather shop for food online.

According to IDG Research, the UK’s grocery sector is expected to increase by 21.3 percent in the next five years and reach a value worth £205.9 billion. And while the total British grocery market will flourish, IDG stresses that one category in particular will increase more rapidly: the digital grocery sector, which is expected to grow 123.7 percent by 2018). The future growth of digital grocery sales will be primarily propelled by new market entrants, increased convenience (such as delivery) and more payment options for customers.

The UK market for online food retail is the most developed in the world, and it includes big name retailers such as Tesco, Asda (owned by Walmart), Sainsbury’s, and Ocado. A study released by ATKearney revealed that the number one reason consumers like to buy food online is because of the convenience of home delivery. UK grocers are making huge investments into upgrading delivery options for shoppers, trying to make them more convenient and flexible. Instead of having customers wait around for an order to be delivered, retailers such as Tesco and Asda are building their click and collect services and adding new pick-up locations. IDG reports that between the two companies, 500 new click and collect sites will be up and running in various locations across the UK by the end of 2013.

Some retailers are even expanding their suppliers and resources behind the channels to help increase accessibility and productivity. For example, Tesco announced in August 2013 that it was planning to add to its current list of “dark stores.”

A few years back Tesco revealed it was building a network it called “dark stores.” According to The Telegraph, these dark stores had the same layout as a normal Tesco store, but were not open to customers. These stores were exclusive to Tesco staff members who were virtually shopping for online customers. Instead of British shoppers walking up and down the isles, Tesco employees were pushing the carts and executing online orders received from customers, prepping them for delivery.

The number of entrants into the market will also have significant impact on growth. Morrisons, one of the top four most prominent grocery retailers in the UK, is finally entering the digital sector. The company’s online debut is expected as early as January 2014. IDG indicates that Morrisons’ entrance, along with the Co-Operative’s trial service expected before Christmas, are two examples of programs that seem to be reigniting a consumer interest in the online grocery channel.

The Internet has transformed grocery retail, giving retailers the ability to increase sales and revenue through the growth of digital channels. However, as more retailers join the market, the harder it will be for companies to differentiate from competitors and defend market share. Advanced technology, such as smartphones and tablets, are becoming more pervasive and grocers will need to integrate these devices to further enhance the customer shopping experience.

To read the IDG report click here.