Online Grocery Shopping - Being Realistic About Growth Prospects

The Institute of Grocery Distribution has just updated its 5year growth forecast for the UK grocery market., and predicts a slower rate of growth than in the last 5 years, down from 19.5% to 16.3%.

It remains, though, exceedingly bullish about the prospects for online, convinced that sales will more than double by 2019, an average increase of nearly 18% per annum.

What will power this growth, they say, is the roll out of grocery click and collect to more locations, greater competition to raise standards since Morrisons entry ( a tribute to the strategy that Morrisons have adopted), lower delivery charges, and more delivery subscription schemes.

The projections seem optimistic.

For starters, growth rates in online grocery shopping are falling. Ocado, which is an online only retailer reported growth slowing from plus 18% in the first quarter to plus 12.6% in the second. They also reported a modest reduction in the value of an average order, down from £117.99 to £117.53. Sainsbury’s online sales growth has dropped to 10% in the last quarter. Tesco’s Philip Clarke indicated at a recent conference that their online sales at Christmas were growing at around 10%.

Secondly, the projection seems to ignore the various forms of competition that online faces.

There is internal competition as parent supermarkets invest in making their bricks and mortar stores more attractive places to shop.

There is competition from discounters who continue to see growth accelerate, and who, if they can pull off the trick of offering ever more up market food with rock bottom prices may exceed the near doubling of sales forecasted by IGD.

And the trend towards convenience store shopping shows no signs of stopping.

Thus the shopper is being offered an ever more attractive selection of ways to buy their groceries.

As they ponder the best way of feeding themselves and their family they will be working out what best suits them at a particular time. It may be they want to browse the shelves in a supermarket and see immediately the quality of what they want to buy. It could be that they want the lowest price possible, or maybe a trip to the local convenience store for speed. Or it could be that tapping a shopping list into their smart phone is the easiest way to shop.

In this increasingly multi channel world, online shopping can only grow at the high rates projected if the numbers of people shopping that way doubles (and they spend roughly what is being spent now), or the same number shop online as now and double their spend, or some combination of both. All of which looks stretching.

This is not to suggest that offering shoppers the opportunity to shop on line is a waste of time, for clearly it has its attractions.

Rather it is to suggest that any forward projections, particularly if they involve heavy financial investment, should take a realistic view of likely sales growth.