Comment: Why The Co-op will struggle to make online grocery work

With few shoppers using its stores for a full grocery shop, and uncompetitive pricing, The Co-op will struggle to take market share from the main online grocery players.

Undoubtedly, there is potential from online grocery – Verdict forecasts growth of 14.5% in 2013 – however this doesn’t necessarily mean anyone is capable of making their mark.

The Co-operative has failed over the past few years to capitalise on the growth of the convenience market since its acquisition of Somerfield. Since 2009, the food and grocery market has grown by 13.2% mainly driven by convenience and online; however over the same period we estimate The Co-op’s food and grocery sales have declined 1.2%. There are several reasons behind this, notably poor quality on fresh, low availability and high prices.

If The Co-op is unable to make the most of a growing market in which it has an extremely strong foothold – what chance does it have online?

An issue for The Co-op is the mission of its customers. Many of them go to The Co-op just to pick up the odd ingredient, or for a top-up shop to get them through the next couple of days. Shoppers rarely use it for a full grocery shop as reflected by its low average basket size. These customers are unlikely to use the retailer online – placing small orders is not as convenient for the shopper as visiting the store. Neither is it profitable or worthwhile for the retailer.

This leaves the remainder of shoppers at The Co-op who actually use it for their main grocery shop. This, according to Verdict’s How Britain Shops survey, is just 3.2% of all grocery shoppers – heavily skewed towards the elderly less mobile shoppers for whom The Co-op may well be the only store they have access to. Furthermore, 44% of these shoppers would shop somewhere else if they had the chance. Not a recipe for online success.

Consumers use online for several reasons, but rarely for the distress purchase or a top-up shop. There is little unique that the retailer can offer other than its convenience through locations and opening hours. Online levels the playing field in these respects, thus exposing The Co-op’s failings in price, range, quality and service. These need to be remedied before the retailer attempts to battle the likes of Tesco, Sainsbury’s, Ocado and even Waitrose head on.

Andrew Stevens is senior retail analyst at Verdict