According to a recent report from Mintel (https://www.bbc.co.uk/news/business-47900669) the proportion of people buying groceries online in the UK fell from 49% in 2016 to 45% in 2018. While online remains one of the fastest growing channels in value terms, driven by existing customers spending more, growth has slowed significantly as supermarkets struggle to attract new customers.
This may help explain the decision by Tesco, still by far the UK’s largest online grocer, to de-emphasise its online business, in order to reduce the negative margin impact. Tesco’s online grocery sales rose by just 2.8% in the last quarter, compared to continued double-digit retail sales growth at online specialist Ocado. Tesco may feel that the potential market share losses may not be that significant if the online grocery market as a whole is already approaching saturation.
Not surprisingly, a preference for choosing fresh products in person was by far the most commonly cited reason (73%) preventing people from buying groceries online, with excessive delivery charges (24%) a distant second. Despite the fact that most people once they’ve started ordering their groceries online quickly get over their previous preference for buying fresh food in person (Ocado’s fresh food penetration is nearly 50% - higher than many of its store-based competitors), getting people to give it a try is becoming increasingly difficult in the UK.
Such signs that growth may be stalling in a market where online’s share is high relative to the rest of Europe and the US but still accounts for just 7% of the total grocery market, has significant strategic implications for those playing catch-up. This includes the likes of Amazon, Walmart, and Kroger, which are already engaged in an online space race, as well as all those considering how best to deal with the crossfire. It also supports the accelerated development of hybrid store concepts such as Alibaba’s Hema and Alert Innovation’s Novastore (https://www.alertinnovation.com/novastore), which uses robots to pick packaged goods, leaving customers to choose their own fresh food.