Online is becoming an increasingly intense battleground in grocery as The Co-op reveals plans to grab a share of the £6.1bn market.

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Tesco

Tesco

Tesco

Existing online operations Tesco is the UK’s largest online grocer with an estimated turnover of more than £3bn. Tesco.com launched in 1996 and the retailer’s scale and experience enabled it to power ahead of rivals, building a network of dark stores, apps and international online operations to generate custom.

Tesco will invest £500m of its capital spend in technology this year.

The retailer switched its dotcom deliveries to central London customers from its Enfield dark store to its Gallions Reach Extra in August.  

Those who have headed its digital operations include big industry names such as John Browett, Laura Wade-Gery and incumbent multichannel director Robin Terrell. In June, Tesco promoted Michael Comish, the founder and chief executive of its Blinkbox video-on-demand service to the new role of group digital officer.

Panmure Gordon analyst Philip Dorgan says: “Tesco’s dominance meant it could swallow the start-up costs. It stole a march because other competitors lacked scale and couldn’t experiment in the way that Tesco did.”

Online ambitions The retailer is in the process of rolling out online grocery to its 14 international markets.

It has also opened a dedicated office in Shoreditch to develop apps to take advantage of smartphone adoption.

Tesco will launch new services Blinkboxmusic and Blinkboxbooks later this year.

Services include Grocery drive-thru click-and-collect, online area dedicated to easy food options aimed at commuters, Delivery Saver loyalty pass, favourites remembered in baskets.

Sainsbury’s

Sainsbury's

Sainsbury’s

Existing online operations Sainsbury’s last year overtook Asda to become the second largest online grocer, reporting annual sales of nearly £1bn. It digital initiatives include Mobile Scan & Go
smartphone shopping and books and film download acquisitions, but Sainsbury’s is largely viewed as behind the competition when it comes to online innovation.

“Sainsbury’s has bought in some capability and expertise but its multichannel offer still lacks the coherence and seamlessness that has been created by Tesco,” says Kantar retail director Bryan Roberts.

“There seems to be a very real gap in terms of pioneering attitude and disruptive innovation that will require more of a cultural shift to narrow.”

Online ambitions The grocer is to plough a sizeable chunk of a £1.1bn pot slated for investment into digital. That includes replatforming its online grocery operation, a core systems upgrade across the business and the development of mobile technology to support rapid growth in the channel.

Services include Home delivery, recipe finder, Nectar bonuses.

Morrisons

Morrisons

Morrisons

Existing online operations Limited. The retailer aims to make up lost ground because the online grocery channel continues to grow rapidly.

Chief executive Dalton Philips says the lessons it has taken from a 10% stake in New York etailer Fresh Direct have been valuable. It also invested £70m in baby products retailer Kiddicare in 2011. Last year it launched transactional wine site Morrisons Cellar.

Online ambitions Philips has promised to launch an online grocery business by January 2014, and has struck a deal with Ocado in order to do so.

Earlier this year Morrisons abandoned plans to launch a tie-up with homewares specialist Lakeland online.

Morrisons is expected to launch an online offer for Nutmeg, its clothing line, next year.

Services include Morrisons Cellar wine website.

Asda

Asda

Asda

Existing online operations Asda has loudly championed the benefits of online shopping. Its core shopper base of busy mothers have rapidly adopted spending on-the-go, whether at the school gates or while commuting.

The grocer said last month it will invest £700m in initiatives including same-day collection for food orders and expanding its drive-thru click-and-collect service.

Online ambitions Asda plans to expand its collection options and is considering opening pick up points at train stations and in park-and-ride areas to target commuters. It is also rolling out international sites for its George fashion brand and is likely to further leverage expertise developed at owner Walmart.

It has hired strategy consultant McKinsey to help plan its future amid the fast pace of change in ecommerce, as its online grocery sales top £1bn.

Asda expects 75% of its customers to shop across bricks and clicks this Christmas - this would be up from 57% over Christmas 2012.

Services include Grocery drive-thru click-and-collect, non-store collection points, Asda Price Guarantee comparison app, online travel and money services.

Waitrose

Waitrose

Waitrose

Existing online operations The retailer launched a standalone online grocery offer in 2001 and linked with Ocado in 2002. Its offer has grown and since 2011 Waitrose has delivered inside the M25.

Waitrose’s online sales rose nearly 50% in the first quarter to April 27, and the retailer is benefiting from shoppers collecting John Lewis orders at its stores.

Online ambitions Rapid online sales have left Waitrose on the hunt for more dark stores in addition to its existing warehouse in Acton. Expansion may be be sped up now that a deal has been signed between Morrisons and Ocado.

Managing director Mark Price has told Retail Week: “If and when an agreement is made between Morrisons and Ocado our legal team will examine it closely to check for any breaches of contract.”

Shore Capital analyst Clive Black says: “While Ocado states that any agreement with Morrisons would not be a conflict with Waitrose, we see the mood of Mr Price and co as being deadly serious.”

Separately, the retailer is piloting a drive-thru grocery click-and-collect service in the car parks of five stores from which shoppers can collect from at a designated time. It already allows customers to pick up food ordered on its website at 157 of its 290 stores. Waitrose will bolster its multichannel prowess next year with the launch of temperature-controlled delivery lockers for click-and-collect customers in-store and at remote locations.

Services include Waitrose Entertaining party service, Waitrosegarden.com, grocery click-and-collect at stores.

Ocado

Ocado

Ocado

Existing online operations The etailer’s model of automated picking has been criticised because it has so far failed to deliver a full-year pre-tax profit. Waitrose supplies Ocado with own-label and branded goods and there is a cap on the proportion of Ocado own-brand products it can sell to limit competition with Waitrose.

Online ambitions Ocado has long had to make its business case in the public domain as its model and profitability are constantly scrutinised. Shore Capital analyst Clive Black has said that the discussions with Morrisons to aid the latter’s online grocery launch had “a soap opera feel” and that “it is just another episode in a series that we deem to have a very poor storyline”. He warns: “If Ocado did lose its Waitrose tie-up we expect 75% to 80% of its sales to disappear too.”

Ocado and Waitrose’s contract expires in 2020 but there is a break clause in 2017.

Chief executive Tim Steiner also has ambitions to license its picking technology to retailers around the globe. In the UK, he plans to broaden its supermarket range to that of a hypermarket with a wide selection of non-food products before launching a number of dedicated specialist websites, including baby, health and beauty, toys, homewares and kitchen and home and garden sites. Its first non-food site, a transactional pet website called Fetch, launched in June.

Services include Ocado Smart Pass loyalty offer, Ocado Reserved repeated delivery slot booking service.

Marks & Spencer

Marks and Spencer

Marks and Spencer

Existing online operations Marks & Spencer has a strong online general merchandise offer but has yet to take the plunge with food. Its party food service, Food to Order, is popular online.

Online ambitions While general merchandise sales have been poor, taking M&S’s successful food business online could give the retailer a boost.

Tristan Rogers, chief executive of M&S technology supplier ConcretePlatform, says: “Food has been M&S’s saviour in recent years, so it is not something that needs fixing. Online food is an expensive business, whether you take the Ocado route, with the massive upfront investment, or whether you go for the pick-from-store route, which adds labour costs.”

Services include Free next-day delivery to store, Lunch To Go corporate catering service, Food to Order party food.

Co-operative group

The Co-operative

The Co-operative

Existing online operations The Co-operative does not have an online food business. However, it does have transactional sites for its pharmacy, electricals and travel offers.

Online ambitions: The Co-op Group is to finally offer online shopping, with the launch of the first of four trials before Christmas. The trials, each testing a different delivery model, will be used to find out which is the most profitable.

Steve Murrells, chief executive of its food business, told Retail Week: “The trials allow us to understand how we can create an online food offer that is incremental and is not as profit eroding.” He also said click-and-collect would be key. The Co-op has an existing tie-up with Amazon, which has installed its lockers in the grocer’s stores.

Services include Free 60-minute delivery slots on electricals, 90-minute delivery from store.

Iceland

Iceland

Iceland

Existing online operations The frozen food specialist has re-entered the online grocery market after eight years away. Founder Malcolm Walker scrapped the profitable operation in favour of focusing on its core business in 2005 when he returned to the retailer and was faced with the challenge of “turning around a near bankrupt company”. But he has said now is the right time to return to the channel given its popularity.

Iceland is using its home-delivery vehicle network to fulfil picked-from-store orders as part of the trial.

John Nevens, founder of grocery consultant Bridgethorne, says: “This is a good move from a retailer that was one of the first to look at online grocery. It means it is serious about offering choice.”

Online ambitions Director of delivered sales John Mackie told Retail Week a national roll-out and integration of its Bonus Card loyalty programme is planned later this year. He also revealed the retailer has agreed a partnership to sell Appliances Online owner DRL’s products via its groceries site.

Services include PayPal payment, free delivery with over £25 spend.

Proportion of grocery shopping done online

 

Online grocery retailers’ market shares 2012

 

Who else could enter the market?

There are a number of players still to show their hand in online grocery and there is plenty of growth - industry body the IGD expects online grocery sales to double from £5.6bn in 2012 to £11.1bn by 2017.

Discounters Aldi and Lidl are among the fastest-growing UK retailers but their low-cost models may prohibit them entering the rapidly growing channel.

Global etail giant Amazon is understood to be closely analysing the fresh food market and could instantly become a major player given its scale. It already sells ambient goods.

On a smaller scale, organic vegetable box retailers including Abel & Cole and Riverford continue to grow and the former was acquired by William Jackson Food Group last year.

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