Not every shopper enjoys the ‘fun’ of shopping, especially when it involves a trip to the supermarket. It is this group (people who cannot or prefer not to visit the supermarket but who must buy) that is the target of online grocery-delivery services. It is a growing sector. According to the IGD (2011c), 3.2 per cent of all UK grocery shopping is online, and this is forecast to rise to 5.4 per cent by 2015. In 2010 we spent £4.8 billion online with grocery retailers (although that includes large non-grocery items sold through Tesco Direct, for example), and by 2015 that will be very close to £10 billion.
The reasons why home shopping should be popular are clear: increasingly busy lives with extended working hours; the increasing number of people at work, especially women; the feeling that people have better things to do with their free time such as ‘real’
leisure pursuits; and growing acceptance of home delivery in a range of sectors such as books, pizza, flowers, etc. All of this, combined with the increasing use of the internet, sets the scene for significant growth in home grocery shopping. The IGD’s (2011b)
research suggests that the people most likely to buy groceries online are typically younger, and the presence of children in a household has a lot to do with it; those families with younger infants or with kids at home during the school holidays are more likely to do online grocery shopping. Mintel’s (2010b) research found that in 2009, just 7 per cent claim to be using online food retailers/supermarkets ‘regularly’ and a further 17 per cent use them ‘occasionally’.
The competition doesn’t just come from established grocery retail chains. In 2010, Amazon, already well-respected as an online retailer of non-food items, introduced grocery items into its mix. Grocery industry analysts and competitors weren’t too impressed. One criticism is that it doesn’t offer the same convenience and level of service as the mainstream online grocery retailers. As one analyst put it, ‘In terms of food shopping, when you compare the website to other online offers, it is not functional at all. They are not offering a time slot for their deliveries, which is ridiculous as many consumers will not want to put up with that’ (as quoted by The Grocer, 2010). In addition, some goods are supplied from Amazon, and others come directly from suppliers, so potentially for one order, the shopper could be receiving a number of different deliveries on different days. This also raises the issue of delivery charges. The good news is that goods supplied from Amazon itself can qualify for free delivery, but those that come direct from the supplier carry the supplier’s own delivery charge. This can lead to some bizarre anomalies. A bulk pack of 164 Pampers nappies can be delivered free, but 200 g of root ginger (retailing at 80p) costs £7.85 to deliver, while a 200g pack of Thai Kale (retailing at £3.99) costs £1.13 in delivery. Some savings could be made by buying multiple items from the same supplier, but looking at the page displaying all the choices within each category, it isn’t always obvious who the supplier is, and on the whole, none of this is very customer-friendly. Where the Amazon grocery store might have more appeal is in the ranges of foreign brands and ingredients that are less easy to find in the UK.
By far the dominant force in online grocery retailing, however, is Tesco. Its annual online grocery sales are around £2 billion and in January 2011 alone, it generated nearly 7 million unique visitors, making it the fourth most visited retail website in the UK behind Amazon, Argos and Apple (ComScore, 2011). Overall, Tesco has more than three times as many unique users as Sainsbury’s. It has 1.2 million online grocery shoppers and handles an average of 350,000 transactions per week. Sainsbury’s, in contrast, handles around 130,000.
You don’t have to have a major retail name to be a successful player in the online grocery market. Ocado, which began in 2002, entered early on into a partnership with Waitrose which at that time didn’t have its own home delivery service. Since then, Ocado has become synonymous in many consumers’ minds with Waitrose as they assume that it’s ‘the same thing’
even though it’s independent. Now, however, Waitrose is investing heavily in its own online service and a tenyear agreement not to compete with Ocado within the M25 area has come to an end. To help differentiate itself from Waitrose, Ocado has entered into an agreement with French supermarket chain Carrefour to distribute its Reflets de France range, and has increased its own brand range to 350 items.

Questions 

1 What are the advantages and disadvantages of store picking compared with an Ocado-style centralised distribution warehouse model for order fulfilment?
2 What do you think Tesco can gain from the development of dark stores?
3 Why do you think online shopping still accounts for such a relatively low proportion of total grocery sales? What role can m-commerce or s-commerce play in its further development?
4 Develop a short presentation to the senior management of Amazon analysing its current online grocery provision and making justified recommendations for improvement.