UK primed for e-tail growth

New research marks the British out as Europe’s most willing online shoppers. How is the grocery industry responding to our positive attitude?

Increased consumer exposure to the Internet is central to the success of the dot-com revolution. The number of households online across Europe doubled in size during 1999 from 12.5 million to 25.3 million.

Datamonitor’s new research into e-tailing – online retailing – has established the UK as one of the most developed European online markets. Some 21 per cent of UK households at the end of 1999 were Internet enabled, with consumers spending an average of 12.3 hours online each month. These figures are set to grow with the onset of free access, increased publicity and improvements in content.

While the growth of Internet access from the home and office may be central to the medium’s development as a commerce tool, consumers’ online behaviour is equally important. The report has highlighted four stages in online buying, from searching for product information to actually submitting payment online.

Datamonitor’s research finds far more Internet users willing to order online in the UK and Germany than in France, Italy or Spain. German consumers, however, are less willing to pay online than their French, Italian or British counterparts.

Attitudes in the UK to online purchasing create favourable market conditions for retailers and manufacturers to use the Internet as an e-commerce tool. As a result the “bricks and mortar” retailers are rushing to create an online presence to target the UK’s increasingly convenience-driven consumer.

The grocery market is dominated by traditional players such as Tesco, Sainsbury, Iceland and Waitrose. Those without a “bricks and mortar” presence tend to focus on niche markets such as organics, where the Freshfood Company is a recognised online organic supermarket.

The more developed US market has given rise to a number of pure “clicks and mortar” grocery companies, including WebVan, HomeGrocer and Peapod.

Tesco, which launched its service early last year as an 11-store pilot, has now introduced online shopping to 100 outlets, attracting 250,000 customers. By the end of this year, it plans to run the service from 300 stores. Its claim to be the leading global grocery e-tailer is based on a predicted annual turnover of &£125m.

In the UK, traditional retailers have driven the growth of online consumer expenditure through their brand strenth. Consumers who are wary of giving credit card details over the Net are more likely to give them to a familiar company which they trust.

This may explain the absence of purely Internet-based companies in the UK mainstream grocery market. In addition, the recent shake-out of the US e-tail market led to the failings of companies such as Peapod being publicised. Peapod was rescued by Dutch retail giant Royal Ahold, which claimed its US subsidiaries would convert storage areas into Peapod fulfilment centres.

These events cast doubt on the ability of Internet start-ups to survive without the massive capital, sophisticated distribution networks and customer relationship abilities of traditional retailers.

Three models characterise the UK e-tail sector. The store-picking model, adopted by Tesco, is a cost efficient and low-risk strategy whereby existing outlets are used for the online operations, requiring a lower level of capital investment. But this model has been criticised because store-pickers have to compete with in-store shoppers for products, and also have to make product substitution decisions themselves.

The depot system used by Asda has a higher launch cost and leads to difficulties in integrating systems, but is trumpeted in the US as the winning approach. Moreover, this approach does not compromise the core “bricks and mortar” business.

The drop ship model, used primarily by pure Internet providers such as the Freshfood Company, is a stockless retailing model that incorporates just-in-time order fulfilment to minimise wastage.

As Internet access becomes increasingly available from a variety of devices such as mobile telephones and interactive television, online buying will increase. M-commerce and interactive TV penetration across Europe will provide retailers with further platforms from which to market their ever-increasing range of goods and services.

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