Another good reason?

Last year witnessed an explosion of consumer action on major supermarkets’ websites and

The news that supermarket group Morrisons is clicking in to e-commerce should come as little surprise after its competitors reported a huge rise in internet shopping last year. A record £7.66bn was spent online in the UK in the ten weeks before Christmas, according to online retail trade body IMRG.

Morrisons is thought to be looking for a digital agency through the AAR to revamp its online offering and take on the likes of Ocado and Tesco.com. The company’s new chief executive Marc Bolland, who joined from Heineken in September 2006, has started a company-wide review and, although a spokesman refuses to confirm its online intentions, he says/ “The review is looking at all aspects of the business.” The spokesman adds that in recent years the retailer has focused on incorporating stores from its takeover of Safeway in 2004 into the group, but that the latest review will look at the company as a whole.

morrisons%20120x200Missing the boat?
James Roper, chief executive of IMRG, thinks Morrisons may have left it too late to go online and make an impact in the increasingly crowded market. “I don’t think the market can absorb more,” he says. “Morrisons hasn’t got the focus, the reach or the back-end support for it.”

But Mike Godliman, a director at retail and leisure consultancy Pragma, thinks the company was right not to jump on the initial bandwagon. “It will take it some time but I think it was probably right not to dive straight in, in 1999 or 2000, when people were doing that,” he says. “Morrisons didn’t have the national presence until it bought Safeway so you can’t blame it for not attempting to go online sooner.”

Tesco saw online sales soar by more than 30% in the four weeks to Christmas last year, with 1.3 million shoppers ordering groceries and gifts online. During the Christmas week, Tesco customers ordered 14 million grocery items over the internet, requiring the retailer to bring in more than 300 extra delivery vans and hundreds of additional staff to cope with demand. A similar pattern was seen at Sainsbury’s, Asda and Ocado – the online arm of Waitrose – which all added additional delivery slots.

Tesco had predicted that sales at Tesco.com were likely to top £1bn last year, making it the stand-out player among internet retailers. Of the four big grocers online, it is believed to have about 50% of the market. Godliman says: “Tesco got it right with its approach of picking goods from the stores and not from depots. It made it more reliable. Others had to make a huge investment in depots.” Roper agrees, adding: “What Ocado did was a very expensive way into the market. Tesco went in, in a small way, to test the water before going big.”

Market predictions
Ten years ago, Roper predicted the UK online shopping market would be worth £30bn by 2006. The market was worth £30.2bn last year and, according to Roper, could be worth £43bn this year. Now that the market is becoming more developed, many retailers could soon be following Ocado’s lead by building centralised distribution centres to improve efficiency.

But experts suggest it is not only the backroom distribution model that is set to change. Roper believes there will be a new model of consumerism that will see smart systems track the way people buy fast-moving consumer goods. The consumption of goods such as toothpaste or socks will be recorded and a prediction made on when they will need to be replenished.

But Godliman is not convinced. “There have been a lot of predictions, especially from the IT industry, about the future,” he says. “But I think people like shopping and that reason alone is why people in our lifetime will be going to shops and not just purchasing online. And it’s not just grocery shopping anymore. There are certain items you want to try on, to touch, to feel. A lot of the supermarkets’ success now comes from getting people stopping at one store instead of ten.”

It is not just Morrisons that has to play catch-up. Asda announced plans last year to expand its online shopping offering after admitting to misreading the take-up of the internet retail market. The company is hiring an additional 1,800 back-office staff, drivers and pickers and will roll out its online shopping service to 157 of its 310 stores by October, giving it coverage of 80% of the UK.

Whether it will be a success remains to be seen but Godliman says. “Asda’s customers are of a lower economic profile then Tesco, Sainsbury’s and Waitrose. There’s a lot of bargain hunting in Asda stores and it’s questionable if you can do that online as well as you can in store. A lot of people going to Ocado on the other hand will be on a higher economic level, paying a premium. Ocado benefits from the fact it’s not a shop and is seen as a specialist service. It is seen as better because it is a specialist in what it does.”

For now at least, there appears to be no stopping the online juggernaut and huge growth is predicted in the coming years. Godliman says: “The market has grown from zero to 3% in six years. You could make a reasonable guess it will grow to 10% in another ten years. It doesn’t seem a lot but it’s a huge amount of money.”

Roper predicts online grocery shopping could peak at 70% of the overall market by 2020. That seems an ambitious target but, with record sales last year, investment in their online presence seems like a sensible move for supermarkets.

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