As Iceland Foods begins trialling an online grocery service eight years after shelving its initial digital offer, Retail Week looks at the implications of its re-entrance into the market.

Why now?

Iceland was the first UK food retailer to launch a nationwide online shopping service in 1999, but founder Malcolm Walker said “maintaining it was not a priority when I was faced with the challenge of turning around a near bankrupt company on my return to the business in 2005” after a four year absence. “Now the time is right to re-launch the service, building on our well-established and smoothly running home delivery infrastructure with an easy-to-use website that sets new standards for customer friendliness,” Walker said. With Morrisons poised to enter the online grocery market next year and Tesco, Asda, Sainsbury’s, Waitrose and Ocado all vying for position, having an online offer is increasingly expected by customers and competition is tough. John Nevens, founder of grocery consultant Bridgethorne, says: “This is a good move from a retailer that were one of the first to look at online grocery. It means they are serious about offering choice.”

How will it work for customers?

The frozen food specialist is offering free next day delivery up to 10pm the previous day subject to a minimum spend of £25. Customers registering on the Iceland online shopping website at http://groceries.iceland.co.uk are able to choose from the full range available at their local store if it is already participating in the trial or to register their interest for when the service is extended to their area. The grocer offers payment via MasterCard, Visa and, in a food retail first, Paypal, allowing shoppers to pay without entering their card details.

How will it work for Iceland?

The retailer will pick the orders from 25 trial stores in the North West, North East, London and the South West before the store opens and keep the orders at the right temperature until the customer’s selected delivery slot. It has invested £250,000 in a new Centre of Excellence at its head office in Deeside to train drivers, store managers and in-store pickers in online delivery. It has created an Iceland Driver Academy Programme to ensure high service levels produced in store are replicated by drivers. The retailer has also invested in replacing its 1,300-strong delivery fleet with new Mercedes-Benz Sprinter vans, 300 of which will be introduced this year.

Is there customer demand?

Iceland’s established free home delivery service for in store purchases over £25 is extremely popular, with 180,000 deliveries made each week suggesting the new service will be popular. This existing infrastructure, which has proved popular as many Iceland stores feature limited parking on high streets frequented by shoppers without cars, gives Iceland the fleet and experience to introduce online grocery delivery rapidly and test the water. Iceland said the initial results have been “very encouraging” and director of delivered sales John Mackie said it has been “exceeding our expectations for the number and size of orders we have received, and for the proportion of new customers to Iceland the service is attracting”. With many frozen food items bulky or liable to rapidly defrost, the flexibility of getting frozen goods delivered is likely to appeal to shoppers.

Will it be profitable?

The profitability of online grocery has been a key question as the major grocers have looked to win shoppers in the channel by offering increasingly flexible, but potentially costly, delivery options. The use of Iceland’s existing fleet of vehicles allows Iceland to pilot the launch with low overheads. Free home delivery has proved a key footfall driver in store and the £25 minimum spend allows Iceland to ensure it can keep a handle on healthy margins with a deal its customers are used to. However, its pick from a local store model will initially prove limiting for new shoppers who may be looking to order from an area when there isn’t an Iceland store. Mackie says that the retailer will look to integrate its Bonus Card rewards into the website later this year and launch a transactional app next year. Nevens adds: “Given the pace of change, you don’t want to be a late adopter in meeting shoppers needs in areas such as mobile. The speed of reaction for all retailers will be key, as will be points of difference.”

How will it affect the competition?

Initially the impact is unlikely to be large on the major grocers, not least because Iceland’s direct competition on the high street includes discounters Aldi, Lidl and pound shops as well as the major grocers. Moreover, Iceland’s niche in frozen food will attract shoppers looking specifically for its range which contrasts significantly with, for example, Tesco, which offers everything from frozen peas to garden furniture and clothing on its website. However, long-term Iceland’s mix of exclusive own label, low prices and strong service levels could well make online a significant channel.