Online grocery retailing set to rise, buoyed on by ‘convenience’ factor

By Will Chu

- Last updated on GMT

Convenience has been identified as one of the primary factors in driving the growth of the online grocery market. (© iStock.com)
Convenience has been identified as one of the primary factors in driving the growth of the online grocery market. (© iStock.com)

Related tags: Supermarket

Grocery retailing that includes click-and-collect services, and smaller convenience stores, are enjoying strong growth in Western Europe, driven by convenience in the form of packaged foods and tailored delivery services that provide ready-to-cook fresh food.

The analysis of consumer behaviour is particularly evident in the UK market, where packaged food gained a 5.1% share in the packaged food retail market in 2015, up 24% compared to 2010.

It was a similar story for the fresh food market, where online sales grew 35% between 2010 and 2014 – a 4.6% share of the retail market.

Convenience has been identified as one of the primary factors in driving the growth of the online grocery market.

This observation – featured on a blog by Euromonitor - believed the younger consumer associated the concept of “convenience” food with “assistance” more than processed or ready-to-eat products.

Blog author, Elsa Laglbauer, believed this was where convenient fresh food delivery came into play, offering a solution to DIY easy home-cooking for beginners.

“There are no time-consuming activities such as grocery shopping and finding recipe ideas,”​ she said. “It is also an answer to the demand for healthier food without sacrificing on convenience.”

Budget supermarket gamble

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Budget supermarkets such as Aldi and Lidl are hesitant in following the chain supermarkets in offering online grocery retailing. (© iStock.com)

The strong performance of the UK can be explained by its strong competition in the online channel. The major UK retailers, such as Tesco, Asda, Sainsbury’s, Waitrose, Ocado and Morrisons, already offer delivery services and some of them offer an additional click-and-collect service.

Despite this demand, budget supermarkets such as Aldi and Lidl are hesitant in following the chain supermarkets in offering online grocery retailing due to the significant logistical costs and already low grocery margins.

“We have seen budget supermarkets experiment with some online grocery. Aldi has started to sell cases of wine online in the UK​,” said Michelle Grant, Head of Retailing at Euromonitor International.

“Their strategy is to be no-frills to pass cost savings along to shoppers.  Shoppers are willing to go to the stores to save money and aren’t likely to pay for the convenience of delivery anyway.”

Grant added that Lidl would experiment with e-commerce and could be willing to lose money to make online profitable in the long run. 

Online retailing in Europe

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Two major trends that were driving the fresh food market in Europe are healthier eating options and convenience.(© iStock.com)

Elsewhere in Europe, France scored second after the UK in the European market with 3.8% in 2015, doubling its 2010 figure. Germany lagged behind with 0.5%, although it grew 67% over the last five years.

For the fresh food market Germany experienced the same positive growth trend although the share of online fresh food sales reached only 0.5% in 2015.

Grant pointed to two major trends that were driving the fresh food market: healthier eating options and convenience. 

“Cook from scratch and virtual restaurants give consumers a lot of detail on the ingredients​, nutritional information and calories,”​ she explained.  “Consumers can feel good about what they are cooking and/or eating.  

Players in the fresh food industry are increasingly under threat from new start-ups that go one step further by catering to time-hungry consumers through offering ultimate convenience in the shape of cook-from-scratch delivery.

A prime example is the German start-up HelloFresh, delivering pre-planned meals to its customers in the form of fresh pre-portioned ingredients accompanied by a recipe and step-by-step cooking instructions. It aims to make cooking delicious food at home much easier.

In November, HelloFresh announced a record of delivering 6.1 million meals in seven countries across three continents. Delivery is available in the UK, the Netherlands, Austria, Australia, Germany and Belgium.

In the long-term, Grant believed the cook-from-scratch delivery service needed to remain competitive on price if it was to have any chance of prospering in the long-term.

“How much is the consumer willing to pay for this type of service?  It is a very expensive proposition, especially if you consider the portions from some of these boxes.” 

“Because the logistics is very expensive, I’m not sure that consumers are willing to pay the true cost of the service when these companies will need to raise prices to eventually make a profit.”

Grant also highlighted the high cost of customer acquisition, which may be higher than the lifetime value of the customer.  She believed if it didn’t change, the model would not be sustainable. Increasing competition would also add more pressure to margins.

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