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Vertical Focus: Food retail | Features | New Media Age
Vertical Focus: Food retail 28 May 2009 | By Nicola Smith With a maturing online market, food retailers are trying out various digital channels to differentiate themselves from rivals and stand out to price-savvy customers quick facts UK shoppers spent £1bn more on groceries online between April 2008 and April 2009 than in the previous 12 months. Online sales of groceries a......

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Vertical Focus: Food retail

28 May 2009 | By Nicola Smith

With a maturing online market, food retailers are trying out various digital channels to differentiate themselves from rivals and stand out to price-savvy customers

quick facts

  • UK shoppers spent £1bn more on groceries online between April 2008 and April 2009 than in the previous 12 months.
  • Online sales of groceries at Asda, Ocado, Sainsbury’s and Tesco grew 35% to £2.9bn in the year to March 2009.
  • The fastest-growing online retailer is Asda, which claims that web-based deliveries were up 60% in the year to March 2009.
  • The Tell Asda online survey of customers’ in-store experience has attracted more than 150,000 respondents since it went live in January this year.

UK shoppers spent £1bn more on groceries online between April 2008 and April 2009 than in the previous year, with online sales of groceries at Asda, Ocado, Sainsbury’s and Tesco growing 35% to £2.9bn in the year to March 2009, according to research company TNS. But which of the big players will capitalise most on this increased appetite for home delivery?

The TNS report said the fastest-growing online retailer was Asda, which claimed that web-based deliveries were up 60%. Second fastest-growing was Ocado, with Sainsbury’s third and Tesco bottom of the basket. In addition, Tesco’s share of the overall UK market dropped to 30.6% in the 12 weeks to 19 April, from 31.1% during the same period in 2008. So is there a shift taking place in the hierarchy of the food retail sector and will the overall winners in the UK grocery market be those that can harness the increasing number of online shoppers?

Tesco was the first supermarket to offer an online food delivery service when it launched Tesco.com in 1998. Since then it has steadily diversified its online range into non-food products and services. The retailer’s longawaited overhaul of Tesco.com has not yet appeared, but it remains the most visited food retail site in the UK, with 6.8m unique visitors in January 2009, according to ComScore, although this is more than 2m fewer than the site received in January 2008.

Asda sits in second place in ComScore’s rankings by unique visitors, with 2.4m, up slightly on the same month in 2008, but its growth is supported by the fact that it’s currently the UK’s most active major food retailer when it comes to harnessing digital. The supermarket has been involved in a number of online initiatives including launching an online customer panel, a channel on YouTube and establishing a presence on Twitter. “It’s a case of looking at what channels are popular, what people have already adopted and where they’re carrying out their main online activity,” says Chris Dalrymple, online marketing manager at Asda. “It’s about finding new ways to talk to the customer and share our message.”

Other retailers are slightly more cautious about online, preferring to watch and wait before they make the leap. Waitrose is still “looking into the possibility” of using channels such as YouTube and Twitter, while Spar wants to ensure it has its basic digital offering right before it begins its foray into anything too leading edge. “There’s a bit of a journey to go on from where we are today,” says Adam Margolin, marketing controller at Spar UK. “We have a half-decent digital offering but it hasn’t had a huge amount of investment over the last couple of years and it needs a bit of love and care.”

Hunting for bargains

One of the key drivers in the online food retail space is the economic downturn, which is focusing consumer minds on cost when choosing supermarkets and brands. This has fuelled the popularity of price-comparison sites, with 34% of consumers planning to use these more in 2009, according to new media age’s own Online Shopping Survey 2009 (nma 8 January 2009).

“Convenience and price remain driving factors when it comes to deciding where to shop,” says Malcolm Pinkerton, senior analyst at retail research company Verdict, who cites price-comparison sites as an example of greater customer empowerment. “Tesco and Asda have used them to show how competitive they are on price,” he adds. “It has led to a certain degree of increased price competitiveness as it has put pricing information in the hands of consumers. Tesco and Asda’s current ad campaigns are testament to this.”

Jonny Steel, marketing insights manager at Mysupermarket, an independent comparison site which launched in October 2006, has seen the same impact now that shoppers can compare prices with one click. “Supermarkets are having to be even more competitive on price, especially on identical branded products, because no one wants to pay more for something they can buy elsewhere for less. The past six months have seen even more promotions, economy and discount ranges being launched so that all the supermarkets can claim, in their own way, that they offer shoppers value for money.”

For Asda, a brand synonymous with the value end of the food retail market, the growth in comparison sites has been a boon. “It’s a key tool for us to illustrate our prices,” says Dalrymple. “It’s a great opportunity for us to show customers in a very clear way that Asda is cheaper on so many products every week. Online shoppers tend to be price-savvy so the ability for them to be able to compare us to competitors is only a good thing — it puts price at the forefront, and everyday low prices is what we do here.”

Sophisticated shoppers

But price isn’t the only factor driving the online food retail market. As consumers become more sophisticated online they’re also becoming more demanding. Ocado, which is part-owned by the John Lewis Partnership and delivers own-brand items as well as Waitrose groceries, recently introduced a use-by-date guarantee on its website and receipts. Mysupermarket’s Steel says, “Shoppers were complaining that when they bought fresh food online they didn’t know how long it would last.” Jon Rudoe, head of retail at Ocado, says, “Unlike our competitors, we distribute groceries from a central depot so that allows us to fuse our supply chain and digital operations most effectively. We’re unique in being able to show customers the lifespan of the food they order.”

Mysupermarket has also responded to consumer demand, basing its website around the need for a more authentic shopping experience, which has set something of a trend. “Asda is relaunching its website to display products side by side, like in a store,” says Steel. “We found that shoppers identify products by sight rather than by reading the name. That’s why we use large images, making it quick and easy to find what you’re looking for. Other sites are starting to follow suit.”

Ocado has also harnessed technology to second-guess the shopping lists of busy shoppers. “We’ve developed algorithms that populate shoppers’ baskets based on what they’ve previously bought,” says Rudoe. “The site can distinguish between items people need regularly, like bread and milk, and monthly, like dishwasher tablets. Such unique innovation gives our customers even more control of the weekly shopping experience. Ocado also communicates with customers by automated text message for total peace of mind.”

Waitrose has used digital to engage consumers directly in its product development, launching its online club My Waitrose in February last year. It claims to be the first supermarket to invite customers to help shape the future of its food business. “My Waitrose gives customers access to the development of new products and to the experts and food producers who create them,” said a Waitrose spokeswoman. Customers will be rewarded with monthly special offers to taste and critique new and existing products. “The objectives are to increase customer loyalty by bringing the expertise of our staff online and rewarding customers with more than just loyalty points.”

The supermarket also launched an online interactive recipe magazine in January, which is emailed to more than 4m current and potential customers. “The digital format of Waitrose Seasons Live enables us to tailor the magazine content to reach wider audiences,” said the spokeswoman.

“For example, we have one version aimed at men.” Tesco is planning to integrate its Clubcard data with third-party advertising when its website relaunches, in an effort to boost online sales by ensuring ads and promotions are individually targeted (nma 4 December 2008). The initiative is also intended to boost ad revenue.

But Asda, currently migrating customers to its newlook site, appears to be most active in leveraging digital to create a dialogue with customers. In addition to its YouTube channel, Saving You Money TV, which airs thrifty tips and suggestions generated by Asda customers, it plans to launch in the summer an online forum to increase dialogue and loyalty. It also has an online panel of 10,000 customers called Pulse of the Nation (operated by TNS), as well as its Tell Asda online survey which lets customers share experiences of their local store. Tell Asda has seen more than 150,000 customers take part since it went live in January. “Asda has a wide-ranging customer base and that’s one of our biggest challenges,” says Dalrymple. “Digital is a great way of talking to all these customers and letting them talk to us, whether on Twitter or by composing a video on YouTube. Right to reply is really important.”

Tasting new produce

With Verdict predicting that growth in the online food and grocery market is set to slow considerably as geographic coverage by the major players nears maturity, leading players must innovate to stay ahead, particularly those that can’t compete on price. With digital still new, it’s down to trial and error for many in the sector to see what works.

Spar Ireland trialled Bluetooth at around 20 of its stores in Dublin, sending news, information and money-off vouchers from Cadbury, Mars, Red Bull and Coca-Cola. In one store the redemption rate was reportedly 29%. It’s also something Spar UK has considered, but the convenience store chain remains unconvinced of its value. “We looked at Bluetooth but it’s not something we feel is right for us yet,” says Margolin. “First, it’s a little bit invasive — will people end up with a junk filter as with email marketing? Second, we’re not sure what we want to tell people. The majority of baskets in Spar are worth about £4 so Bluetooth marketing just isn’t relevant.”

Tesco is also testing an interactive desktop application that links directly to Tesco.com and aims to replicate a family fridge door (nma 30 October 2008). It’s designed to be a message board and communication point within the home and enables users to synchronise calendars, notes and recipes with Tesco.com, to place orders and arrange delivery without the need to open a web browser. The supermarket giant unveiled the application last October for a trial which finished at the end of March, and it’s expected to be part of a major strategic focus by Tesco to evolve its online shopping experience.

Nick Lansley, Tesco.com’s head of research & development and special projects, told new media age at the time that it would also be opening its programming interface (API) to encourage developers and brands to create their own applications for the desktop to generate an immersive web experience. He explained that the idea would be to build a developer community around the Tesco API to push the concept of creating something that’s “more than simply grocery shopping.”

While price and transparency are clearly the key drivers for major food retailers to embrace the growing number of digital opportunities to gain an edge, it’s still very much a case of trial and error. Asda seems to be building a presence on every available digital channel, while other retailers are taking a more cautious approach. With more consumers moving online to do their weekly shop, it may be that Asda’s enthusiastic approach will pay off.

Launched in 1988 to deliver potatoes doortodoor in London, Abel & Cole has grown into a nationwide organic vegetable specialist, incorporating a wholesale business as well as deliveries. The company launched online in June 1999 but it wasn’t until September 2003 that customers could create an account, set up deliveries and personalise their box contents.

Since 2003 the website has undergone four major revisions and a new version is due on 1 July. In 2005 the company was fulfilling around 15,000 deliveries a week; today it’s doing nearly 30,000 a week. About 80% of its orders are placed online.

“Greater emphasis on paid and natural search marketing has increased the number of visitors to the site significantly over the past few years,” says Jennifer Everest, web editor at Abel & Cole. Affiliate marketing and the company’s ezine have contributed too. “We’re also active within social media, such as Facebook and Twitter, and hope the launch of our blog in the summer with help us penetrate this area further.

“Apart from acquisition of customers, the website also plays a key part in customer retention, allowing them to shop weekly, modify regular orders, pick likes and dislikes, and view hundreds of recipes,” Everest adds. Functional improvements to the site and a growing product catalogue have also led to growth in online sales.

Abel & Cole also personalises the site to meet the needs of its broad range of customers. Its bakery is regionally specific, it has three different home pages depending on customer activity, and it lets people make substitutions to their fruit and vegetable boxes automatically by letting them create lists of likes and dislikes.

“Our online strategy is primarily focused on delivery of personalised content,” says Everest. “We want to give people the information they need to make a purchase, at a time that’s right for them, with a message that appeals to them, whoever they may be.” The company is currently looking at more advanced ezine content, user-generated content and is considering SMS and mobile technology.

All data sources are attributed with links to the original insight. The insight is then summarised and, where appropriate, enhanced with additional information.

MTT insight URL: http://marketingtrendtracker.com/article.aspx?id=4135

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