Acknowledging the UK as “the country with the world’s most competitive market for online supermarkets”, Nikkei Business (2 February) devoted a page of its issue on distribution to examining the rapid growth in this sector.
As a result of looming labour shortages as well as pressure to boost efficiency and cut fixed costs, Japan is keen to acquire foreign knowhow.
In the UK, experts generally agree that year-on-year growth in the number of Internet supermarkets was 10%–15% in 2014 for total sales of £8,100mn, and accounted for 5.5% of the total market for food.
During last year’s Christmas shopping season, retailer Sainsbury’s (J Sainsbury plc)—the UK’s third-largest supermarket chain in terms of revenue—announced a 30% rise in online sales in 2013.
Tesco PLC is generally acknowledged as having introduced the idea of online supermarkets to Britain in 2000. Other similar chains are said to have held back, mostly out of concern that distribution costs would be higher.
But, according to Professor Fiona Ellis-Chadwick of Loughborough University, the fear of losing out prevailed.
“They realised that if they didn’t jump in, rivals would make off with their customers”, she told Nikkei Business.
According to retail research agency and consultant Conlumino, five major supermarket chains, including Tesco and ASDA, account for some 90% of online supermarket sales. The former alone accounts for annual sales of £3,000mn, nearly 40% of Tesco’s total revenue.
Most players have taken a negative view of net sales, mainly because the profit margin on food items is generally low and operations face additional costs for delivery, payment collection and other related activities.
The quest for greater efficiency led to the creation of dark stores: facilities that, not open to the public, house goods used to fill online orders.
There are moves to convert more regular outlets to dark stores but, as these facilities alone are not expected to markedly improve profits, another service stage was devised.
“Click and collect” merchandise collection points are situated at such locations as underground and train stations, and car parks.
These facilities pare down delivery costs, since customers pick up the goods at their convenience, eliminating the problem of their being absent from home when the delivery agent arrives.
According to predictions by Mike Watkins, head of retailer and business insight at Nielsen UK, were the number of orders picked up by customers at shops or collection points to rise to the point where they exceed home deliveries, it might mark the start of major improvements in profitability.