Christmas sales figures announced in recent weeks were mixed, but generally positive—Tesco, Morrisons, and Waitrose were up, Sainsbury’s flat and ASDA down. In 2017 competition in the UK grocery sector promises to be as intense as ever, with new entrants such as AmazonFresh getting up to speed, as well as uncertainty and inflation brought on by Brexit likely to impact family budgets, while discounters continue to grab market share.
Online Sales Offer Future Growth For Grocery in the UK
Amongst all the uncertainty, online grocery sales continue to represent a growth area for the major supermarket chains and a key point of differentiation between them and the discounters – for the time being at least. The UK probably has the most mature online grocery market in the Europe. Recent figures show that nearly half (48%) of UK grocery shoppers buy at least some of their groceries online, while more than one in ten do all their grocery shopping online.
For the most part, traditional retailers such as Tesco, Asda and Sainsbury’s still dominate the online channel aided by their national footprint and sheer size. Together, these three own over two-thirds of the online grocery market. But Ocado’s ongoing presence and the launch of AmazonFresh in June 2016 will keep things interesting in the coming months.
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eCommerce Opportunities and Challenges for the Grocery Category
The growth of the digital channel presents opportunities and challenges for brands as they adapt their products, sales, distribution, and marketing to a world more focused on eCommerce and omnichannel. With home delivery, click and collect, and other fulfillment and product discovery options on the rise, how do brands shift from managing product availability for brick and mortar or ecommerce-only models to an omnichannel model? Those these changes increase pressure on inventory management and escalate the complexity of supply chain logistics (cold chain, for example) the expectation is that increased shopper engagement and stickiness will increase brand preference and loyalty, as well as basket size and ultimately, profitability.
Despite the challenges, brands and manufacturers that have focused on the ecommerce are reaping the rewards with increased market share and deeper shopper engagement. Industry insiders even believe the thorny issue of online profitability can be solved—even with the undertaking of delivering in a world where shoppers expect increased convenience combined with lower prices. A survey of attendees at IGD’s Online and Digital Summit last October, suggested that 55% see online grocery achieving similar profitability levels to brick and mortar in the near future, and 25% agreed with the statement that profits could be higher than traditional channels.
What Brands Should Do To Respond to the Changing Dynamic in Grocery
The growth of the digital channel means that success for fast moving consumer goods (FMCG) manufacturers is increasingly dependent on their products’ availability and representation in the online channel. The brands and FMCG manufacturers we see as most successful are those that have taken a structured approach to the online channel focusing on first achieving some quick wins that provide a kick-start to longer-term plans for success.
Build a Solid the Business Case
- Remember when building your business case for investment in eCommerce channel support, your return on investment should include more than just online revenue. The argument for investment will also include the significant impact online presence and performance has on in-store sales, as well as protecting valuable brand equity and future-proofing the organization.
Design the eCommerce Strategy that’s Right for You
- Your eCommerce strategy will depend on where your organisation and categories are in terms of eCommerce maturity. For some organisations, the eCommerce strategy focuses on protecting brand equity, building brand presence and educating the consumer. For others the strategy is more about impact on omnichannel and offline sales. Another might be about concentrating more on eCommerce revenue from pure-plays and online retailers. Choose the strategy most suited to you brands and organisation.
Develop new Capabilities
All too often in FMCG manufacturers, one person is handed the eCommerce brief and told to figure it out. However, organisations that are most successful in the channel, have done so through wider involvement from company leadership down, as well as adding new skills and capabilities. You and your organization need to learn to do things differently and adapt traditional category management, logistics and merchandising tactics for the digital channel.
Setup for Success with the Right KPIs
The key foundation of capabilities and resources needed to succeed in the online channel will include measurement and analytics. The metrics and KPIs you choose to monitor and target will depend largely on the depth and breadth of competition in your key categories. Also consider that your online objectives and targets might be different from your traditional channels. With ecommerce, product availability impacts your visibility. Ensure that your products are in-stock online, so that shoppers can easily find them and when they do are persuaded to buy in sufficient numbers to create demand from the retailer.
As competition between UK retailers moves from price to service and convenience in the coming months, the importance of the online channel isn’t going away. In fact, it’s only likely to rise as online grows as a share of overall retail, and becomes the vehicle for delivering what 2017’s consumers want.
