The Internet grocery market is an extension of the home-shopping philosophy and a sector with considerable long-term potential.
Both retailers and customers derive benefits from the practice.
Online shopping enables customers to view a wide range of products, to compare prices and to arrange delivery at a convenient time.
It provides retailers with a new channel through which to sell their products, to display a wide range of items to customers, and to develop their share of a fast-growing sector of the market.The online grocery sector continues to be dominated by the major supermarket chains, namely Tesco, Sainsbury's, ASDA and Waitrose; Tesco (via its Tesco.com service) is the clear market leader.
Ocado, a warehouse-based online grocery retailer that is partly owned by the John Lewis Partnership, also has a leading position in the market.The online grocery market is still very much in its growth phase, and many of the leading suppliers — as well as the niche online grocers — continue to report record sales and orders.
The buoyancy of the market has encouraged companies such as Sainsbury's and ASDA to increase the coverage area of their delivery services, as well as the range of products they offer online.
The area of geographical coverage provided by Ocado is also steadily increasing.For major retailers considering becoming involved in the Internet grocery market, there are some formidable barriers to entry.
These include high start-up costs, efficient stock-picking and replenishment systems, comprehensive delivery networks and user-friendly website design.
The profitability or otherwise of offering an online service is a deciding factor, and even some of the leading food-sector retailers have questioned whether meaningful returns can be made.
However, demand for online grocery services is growing at such a pace that the major multiples not involved in the sector may well be at a competitive disadvantage to those that are.The development of the online grocery market continues to rely on the companies currently involved, as new, major entrants are somewhat of a rarity.
For example, Morrisons (the UK's fourth-largest supermarket chain by market share) has yet to develop an online sales presence and so has Somerfield (the UK's fifth-largest supermarket chain).
The Co-operative Group, the Musgrave Group (which operates the Budgens and Londis fascias), and leading discount stores such as Aldi and Lidl have also refrained from becoming involved.Efficient stock control and high product-substitution rates are among the other major issues faced by online grocers.
Online customers order from a stock list that is updated periodically, but — as the number of items ordered in an online grocery shop can be high, and as not all products will be in stock — suppliers often include a replacement or `substitute' product rather than leave the customer with no product at all.
A high substitution level can mean that the delivered selection looks very different from the ordered basket and, as such, consumers do not welcome high substitution rates.
Much of the current emphasis is based on reducing the level of substitutions to a minimum acceptable figure.The UK has Europe's second-highest and the world's fifth-highest number of broadband subscriptions.
These higher consumer usage rates of broadband have enabled the UK to become a leading centre for online sales in general, and for online sales of grocery products in particular.
At the present time, the UK is considered to have one of the world's most developed Internet grocery industries.Exclusive research commissioned for this report showed that 15.9% of respondents purchased groceries via the Internet at least once in a year, with 3.2% making online purchases at least once a week and 2.7% making them two or three times a month.
The largest proportion, 4.5%, purchased groceries online one or two times a year.
The research findings also suggested that fewer than one in five respondents who purchased groceries online bought at least three-quarters of their monthly groceries in this way.Key Note forecasts that, over the next 5 years (to 2011), the UK Internet grocery market will continue to show strong growth and will account for an increasing — although still relatively small — share of retail sales through stores that predominantly sell food.
Between 2007 and 2011, the value of the Internet grocery market is expected to rise by more than four-fifths compared with the figure for 2006.