Online versus in-store – IRI’s senior VP on how to survive the growing retail battlefield

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Paul Hinds, senior vice-president, international retail, IRI, dissects the multi-channel opportunities in UK grocery retailing 

Hinds: online opportunities

Hinds: online opportunities

The online grocery market is becoming even more competitive with the recent launch of The Co-operative Food’s internet service and the impending arrival of Morrisons’ partnership with Ocado.

Their entrance into this crowded arena has given Tesco, Asda, Sainsbury’s, Waitrose and Ocado some food for thought.

Indeed, the online shopping battleground will have a new-look in 2014 which should benefit shoppers, if not manufacturers. Every supermarket will have to improve their customer service and devise innovative promotions to entice and retain often fickle consumers. 

Morrisons will run a pilot in a number of regions from January before a national roll-out. The company has been bulking up its executive team in preparation, with the appointment in November of former eBay marketing director Amanda Metcalfe as its first digital marketing director.

Co-operative: leveraging home delivery service

Co-operative: leveraging home delivery service

The Co-operative, which has nearly 3,000 shops, ran a number of online trials itself before Christmas and is confident it can leverage its existing home delivery service.

The Co-op had been reluctant to launch online because of the relative low basket spend among its customers compared to its rivals. Morrisons’ strategy for years had been to invest more in its physical stores but it has realised that not having an online service was limiting its growth potential.

The challenge for the likes of Tesco, which dominates online grocery shopping, and Sainsbury’s is how to retain the online customers they have worked so hard to attract.

It is likely they will have a bank of promotions ready to go as soon as Morrisons goes live. This will probably include more online promotions and new own label ranges that focus on fresh, a traditional focus for Morrisons

Yet if the two new players are more successful than expected other online grocery retailers may need to go further. They may have to find ways to improve their delivery service and ensure they minimise or even remove the bane of the online shopper: product substitutions. We may even see a permanent end to delivery charges which can annoy shoppers. 

Tesco and Sainsbury’s will be hoping their successful loyalty programmes mean they avoid losing too many internet shoppers, especially as most people use online shopping to buy their main weekly basket of groceries, where the most points can be earned. 

There is also a theory consumers who have a pleasurable online shopping experience with a particular retail brand are more amenable to its bricks and mortar stores.

Pressure is on Morrisons with online launch

Pressure is on Morrisons with online launch

Morrisons’ decision to partner with Ocado is a clever move because it means it does not have to build its own infrastructure from scratch. It also gives Ocado more options if and when its deal with Waitrose comes to an end.

The pressure is certainly on Morrisons who will be nervous that its online offer will be a success and that it can convince shoppers to give its new service a try.

It is emphasising customer service, with shoppers able to order smoothly whatever device they are using, whether PC, mobile or tablet. It is also inviting online reviews of products and offering a doorstep check where customers who are unhappy with the quality of an item delivered can refuse to accept it and receive a money back voucher. 

Clearly Morrisons is looking to engage with customers directly from the get go. Social media has enabled customers to have a loud and influential voice that can escalate service issues to the national press rapidly. Morrisons knows this is a challenge for any consumer-facing brand but they can at least ensure they give themselves the opportunity to manage their dialogue as efficiently as possible.

For all the supermarkets there should be growth from click & collect in 2014 as shoppers place more importance on convenience and speed. 

Tesco was the first supermarket to launch click & collect grocery drive-through in the UK in 2010 and it is now available in 200 Tesco stores, rising to 300 next year. This service has been extended to allow shoppers to collect their groceries from community locations such as libraries and sports centres. Such innovation should help it to retain online customers.

Click & collect will also help the supermarkets fight back against discounters such as Lidl and Aldi.

IRI Macroview data reveals there was a 1% decline in volume sales every month during the past three months within the top supermarkets. This has never happened before.

But would Lidl and Aldi ever enter the online shopping arena? Such a move cannot be ruled out, but in the short to medium term it is unlikely.

These are thriving but traditional, family-owned retail businesses whose customers are arguably less likely to shop online. Any move online by the hard discounters would certainly be brave because they would be asking their customers to shop in an entirely different way to what that have been used to.  For the moment Lidl and Aldi are committed instead to increasing their store footprint.

All retailers will need to enhance their use of data over the next 12 months to remain competitive and sustain their market share and margins. 

IRI’s European Retail Centre of Excellence is already helping them to collaborate with manufacturers using new technology and data analytics. This is essential in what remains a challenging and crowded online grocery shopping environment.