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Guide

© IGD 2013

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This guide is from IGD’s Retail Analysis service – your online source of insight on retailers, markets, channels and trends in the food, grocery and consumer goods industry Resources include retailer and country profiles, trends and channels analysis, daily news, store visits and photos, and an interactive database of figures and forecasts Our easy-to-use insights will help you: • Develop stronger business plans based on robust data and analysis

• Identify growth opportunities in current and future markets

• Stay up-to-date on key trends shaping the industry

• Better understand the future direction of leading retailers

• Implement sales and marketing initiatives inspired by examples of innovation and best practice

Hello and welcome

© IGD 2013

This guide will help you understand…

1. What leading global retailers think about digital

2. The scale and potential growth of grocery eCommerce across Europe

3. The drivers of grocery eCommerce growth and the different models of execution

4. Latest developments from some key retailers across Europe

5. What’s happening in Europe’s largest online grocery market

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What are global leaders saying about digital?

Our expectation is that pick up points can be more profitable than home

delivery

Grocery delivery is not new for us. We know what it is and we know how to do it. It requires

market density – enough customers. It requires basket density – meaning you have to

put enough items in that basket to make it work. And it requires route density, meaning you’ve got to put enough orders into a truck

We consider [the Morrisons agreement] to be a strong

validation of Ocado’s operating model, providing a solution for the challenges faced by grocery retailers

worldwide as the online channel continues to increase in importance

We’re expanding our digital presence in all of our markets this year. One of the most exciting things is that our digital innovation is being driven and refined by the demands of our Asian markets

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European online grocery market forecasts

Source: IGD Research

W Europe Online Grocery Market Sizes 2012-2016f (€bn ex VAT)

Which markets will have the highest online grocery penetration in

2016? 6.3% UK

4.3% France

4.3% Luxembourg

4.1% Netherlands

1.3% Austria

1.7% Germany

• We see online grocery doubling in many European

markets over the next five years. If multichannel capabilities are scaled, especially around click and collect, our estimates could be conservative

• As the cost of picking online orders is higher than customers shopping in-store AND the channel grows, retailers will need to find a better economic model for online grocery

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European market development – models & drivers What are the challenges and opportunities? How will the business model develop?

DRIVE

THROUGH

DELIVER

TO HOME

PARTIALLY

AUTOMATED PICK

WAREHOUSE FULLY

AUTOMATED

What are the future trends and implications?

Educating shoppers • From a shopper perspective, barriers to online grocery

shopping are low, with improved website experiences - such as fresh guarantees – improving ease and speed of shop

Infrastructure • Challenges vary depending on the fulfilment model.

Legislation around collection units could alter the growth trajectory of click and collect

Anywhere, anytime shopping • Getting mobile right for a multi-item basket shop –

understanding how people shop will be a major challenge as mobile is already part of the journey

Market competition • New entrants and different models of distribution – e.g.

monthly subscription – will disrupt traditional grocers • Population density will be a key determinant across Europe when retailers

weigh up click and collect (Drive) against home delivery

• Drive will likely dominate given its lower cost, although in densely populated cities, deliver to home is likely to remain a viable option

• Picking efficiency gains will be essential as the market scales. The degree of automation and centralisation will vary by retailer

• In advanced online markets, namely the UK and France, the opportunity to develop bespoke products just for online will challenge manufacturers to innovate like never before. Products that meet shopper needs that don’t work in store could revolutionise consumer goods

• Developments in France point to a hybrid future model. For example, Auchan’s Drive attached to a fresh food emporium (Arcimbo), and Leclerc’s central warehouse that delivers to three separate collection points, show how traditional formats are changing to reflect changing shopper habits

PICK

STORE

High levels of consumer acceptance

Few businesses have integrated online into a seamless multichannel offer

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European market development – retailers Format development: Auchan & Leclerc

Mobile innovation: MySupermarket

Click and Collect: Ahold

Market entry: Morrisons

iTunes review

Ability to browse by shelf and product is a great addition to the search and

barcode scanner

• Morrisons’ agreement with Ocado to start grocery online sales in 2014 is a first for several reasons:

1. Shopper acceptance for online is higher than ever before

2. Morrisons is turning on instant capacity to deliver significant volumes from day 1

3. Morrisons has an existing shopper base to talk to and encourage to shop online

• Mobile is a mainstream way of shopping for groceries, yet few businesses have developed a solution that enables quick, easy shopping for a 50 item basket

• MySupermarket’s new app is high up the download chart and focuses on visual navigation and makes finding deals easy

• Auchan has developed a fresh food emporium located next to a Drive, a good example of ‘bricks and clicks’ working in tandem

• Meanwhile, also in France, Leclerc has set up a central unit that picks grocery shopping for three remote collection points, located at high traffic destinations

• An expanding network of pick up points and lockers are advancing Albert Heijn’s ‘buy anywhere, collect anywhere’ credentials in NL

• Shoppers who purchase before midday can collect after 1800, with spend typically between €75 and €100

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UK: Europe’s largest online grocery market

What are manufacturers’ priorities over the next 3 years

in terms of online trading?

Source: IGD Online Trading Capability Survey

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Understanding the shopper online

Developing an effective internal structure

Building category management skills

4 Developing marketing solutions for entire shopper journey

5 Developing tools to understand the financial impact of online

6 Understanding the supply chain impact

What’s changed in our market size forecast?

• We have upped our growth projections; anticipating the market will increase around 2.2x for the 5 years to 2018, versus our prior estimate of 2x to 2017

• There are two primary drivers: first we think the rapid adoption of click and collect services will drive a degree of incremental sales. If retailers accelerate plans to deploy pick up points to standalone locations and shopper acceptance levels are high, our estimate could turn out to be too conservative. Second, we have modelled an incremental sales increase from Morrisons’ entry over the period on the basis that more players means a degree more channel sales

• Increasingly important will be combining online into multichannel plans and understanding how shoppers behave across all channels – do you have plans to follow families and find out how they are shopping?

UK Online Grocery Market Size 2012-2018f (£bn inc VAT)

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Insights from

UK: technology helping to drive online growth

ShopperVista Online Channel Focus, past month online grocery shoppers, Jul’13

• Click & collect is already an established sub-channel within UK online grocery retailing − Almost one in five (18%) online grocery shoppers claim

to have used a Click & Collect service in the last month

• However, Click & Collect shoppers are still at the experimental stage - 5% only using this type of online grocery service

• Those using Click & Collect can be expected to increase over the coming year, with 15% of online grocery shoppers intending to use the service more in the future

• Some are already using a smart device as they shop online for groceries ‒ Almost three in ten (28%) claim to have recently

shopped online using a smartphone or tablet and a fifth (20%) use both a smart device and a PC/laptop for online grocery shopping

• Tablet shoppers are more likely to conduct their whole grocery shop on their device – 79% compared to 57% among smartphone shoppers

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Next steps

Please contact us to find out if your company subscribes or to request a free, no-obligation trial:

E: retailanalysis@igd.com

T: +44 (0) 1923 851 956

W: retailanalysis.igd.com

The insights on Retail Analysis will help you stay up-to-date on the latest trends and developments in high-growth retail channels. So for channel intelligence that will help your business succeed, look no further…

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