6 key takeaways from our new report on online grocery in the uk

This week RESEARCHFARM publishes a new report looking at the UK Online grocery sector and its future development.

Which retailer has seen its first ever y-o-y decline in online grocery turnover? Who has lost customers? An unthinkable event in online grocery only a couple of years ago. How big of a threat is Amazon? How successful will 1/2 hour deliveries be? As basket sizes in general and convenience/top up shopping become more of the norm, is ultra fast delivery the right answer? Which logistics and fulfillment model is most economical? Will it be centralised (semi) automated fulfillment centres, dedicated dark stores or in store picking? What is the future outlook and the forecast for each of the retailers?

Here are 6 key takeaways from the study:

1) The star performer is Ocado. The company’s growth is a result of its economic model, a pureplay without a b&m legacy. The retailer is also the logistics leader, even before the fully automated Hive DC has become operational. The other reason for Ocado’s growth is multichannel players reduced vouchering and promotions to fight Aldi/Lidl/deflation. Ocado also has the most loyal shoppers. We are looking ahead with interest to Ocado’s Instacart clone.

2) Asda’s click & collect/drive proposition is the best fit to the Asda shopper. It is a great fit to the retailer’s relatively low average basket size and to Asda shoppers trying to save on delivery fees. On the flipside, Asda is missing the trend to 1 hour delivery and the wider pick up trend has lost steam, as structurally the UK isn’t France (the land of drives).

3) Sainsbury’s neither has vouchering/CRM under control (hence the pull back) nor is in-store picking model the right one. Sainsbury’s cost are simply too high. With in store fulfilment the company pays replenishment fees for stores, only to pay online grocery staff later on, to pick the same products off a shelf. This adds an unnecessary step, which also takes a lot of time. In online grocery Sainsbury’s future performance will likely go sideways.

4) The most disappointing player is Waitrose, having managed to lose online grocery customers and sales. The retailer will have to make a decision soon whether to continue its supply deal with Ocado, and actually whether online grocery makes sense for Waitrose in principle. That said, the Waitrose shopper is very much an online shopper, but in the meantime much better served by Ocado.

5) Morrisons as a late adopter will be interesting to watch. The retailer will be keen to avoid the mistakes of the first movers. Morrisons are much more innovative than the competition. The supply deal with Amazon will become crucial. Whole Foods buying power in the UK is simply not on the same level as in the USA. Morrisons on the other hand is vertically integrated and among the UK’s biggest agricultural producers.

6) Super fast delivery (such as Amazon Prime Now/Instacart etc) are economically even harder to make work than conventional online grocery. That said the offer is so specifically targeted at the more affluent, convenience shopper, that there should be more price elasticity. It remains to be seen how big the segment will become in future.

In principle Amazon Grocery will be determined by the success of two key factors – the 3P marketplace and selection, meaning the integration of local bakers, butchers, craft beer manufacturers etc and crucially prime. If prime gets leveraged in the right way, then growth for Amazon could be off the charts.)

Find out more about our latest report