Sales of groceries through e-commerce platforms reached $48bn in the 12 months to June 2016, according to a new report by Kantar Worldpanel.
The third annual Future of E-commerce in FMCG study shows that e-commerce now accounts for 4.4% of global FMCG sales – 6.9% in the UK. While the e-commerce channel is growing rapidly within FMCG, the global market as a whole grew by just 1.6% during the same period. In the UK the gap is even wider: while e-commerce has grown by 8.3%, the overall FMCG market has remained flat.
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Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said: “By 2025 we expect online FMCG in the UK to be worth $14 billion with a market share of 12%: almost double its current share. This year’s sales increase of 8.3% is encouraging, but falls well below the double digit growth we’ve seen in previous years. Higher minimum delivery charges have dissuaded some shoppers, but the UK has also reached a stage where most people who wish to shop online are already doing so, meaning growth has slowed.
“We know that two thirds of shopping trips currently contain too few items to meet the minimum spend online, meaning consumers have no choice but to favour bricks and mortar for much of their shopping. Until retailers work out how to offer these smaller baskets – and do so profitably – online, we’re unlikely to see growth pick up again.
“Retailers are certainly beginning to think creatively to meet the challenge. Amazon Fresh now offers two hour delivery in parts of London; Sainsbury’s is currently trialling a one-hour delivery service via mobile app Chop Chop and Morrisons recently signed a new deal with Ocado to extend the geographical reach of its deliveries.”
Stéphane Roger, global shopper and retail director at Kantar Worldpanel, said: “FMCG growth is slowing, but our data shows that people are looking for more convenience, which can be met by shopping online. Grocery e-commerce, although currently small, with only one in four people shopping online, is growing fast. We forecast it will grow to 9% of the market and be worth $150bn by 2025. With new entrants such as Amazon expanding rapidly, the industry is facing a shake-up.
“Although online sales have the potential to cannibalise in-store sales, it is vital that retailers act quickly to develop a strong e-commerce presence. The retailer that goes online first in each market can enjoy a far higher market share – this can be a difference of at least 40% in France and up to three times more in the UK. In this report we’ve looked at how retailers and brands are finding ways to work across all channels.”
Key findings from the report include:
Global hotspots: a puzzle of performance
E-commerce growth is not equal around the world and is not explained by connectivity. It might not be surprising that digitally developed South Korea is the world’s largest online FMCG market by value share (16.6%). In the USA however, only 1.4% of groceries are bought online. China is the market which saw the biggest growth in the past 12 months – up 47%. Europe has a relatively low adoption of e-commerce in all countries except the UK, with a 6.9% share of the market, and France with 5.3%. France is a unique e-commerce market where online success is mainly through the Drive model, whereby the ordered shop is collected from the store. Adoption across Latin America is currently very low with the exception of Argentina at 1%.
Online generates more loyalty
Once shoppers have begun shopping online they are more likely to continue doing so. Among this group in the UK, almost a quarter (23.3%) of all spend is through e-commerce, resulting in fewer trips to physical stores.
Impulse needs encouraging
Comparative research across the UK, France and China has shown that one year after starting to shop online spent less. Shoppers in the UK, for example, spent 2.4% less overall, due to making fewer impulse purchases. Brands need to work on driving impulse purchasing online – for example by making suggestions for complementary products.
Online shopping baskets are usually bigger
Shoppers generally spend more per trip online than they do offline, so potentially this could be a lucrative group to win. In the UK for example, the average shop online is $59 compared to $15 in-store.
Brands that make it onto online shopping lists are more likely to stay there
Kantar Worldpanel data shows that 55% of online shoppers use the same shopping list from one purchase to the next. Brands need to focus their efforts on getting onto that list.