Originally published on June 27, 2000 and brought to you today as a time capsule.
European Web shoppers will spend more money online for groceries than their American counterparts by 2003, according to a study released Monday by Forrester Research.
Titled “Online Grocers Diversify,” the report predicts that Web grocery shopping in Europe will be US$51 billion — or five percent of Europe’s total grocery sales — by 2005.
Forrester believes that this trend means the balance of power in the crucial grocery market will shift to a few leading players who will “radically diversify online.”
The United States is already seeing a consolidation in its online grocery market, with Monday’s announcement of the $1.2 billion acquisition of HomeGrocer by Webvan.
Webvan also recently announced that it is diversifying its product offerings to include electronics in its growing inventory of non-grocery items.
Strong Will Survive
Currently, Europe’s food retailers are experimenting with selling online by serving small groups of customers out of existing stores, according to Matthew Nordan, senior analyst for Forrester Research.
Online sales in Europe at present account for only 0.1 percent of total grocery sales. However, that figure will soon change, according to retailers interviewed by Forrester who expect to see online sales grow 20-fold in the next two years alone.
Nordan said, “Online sales will become the food retail industry’s key battleground: Those that dominate will diversify to overcome industry turmoil, while those that don’t will struggle.”
Those that do survive will apparently be well-positioned retailers who use the Net to reinvent their businesses. According to Forrester, these companies will use online sales to both strengthen their existing competitive positions and decrease their dependence on cutthroat grocery products by diversifying into non-food products and online services.
“Only a few food retailers will be able to execute this diversification strategy on their own: those with an early-to-market online presence, a powerful, elastic brand, and a demonstrated commitment to online sales,” Nordan said.
Although late entries to the online food market will be at a disadvantage, Nordan said they could retaliate by “offering better value, hiring logistics knowledge, and partnering with stronger brands for breadth.”
One key to survival for all online grocers is convenience. Like their counterparts across the pond, Europeans are willing to pay for the privilege of not having to go grocery shopping.
Nordan said, “They gladly trade picking their own fruit for free time: Even though Tesco customers wait up to a week fora delivery slot and see 13 percent of each order filled incorrectly, 90 percent recommend the service to others.” Tesco is a leading UK grocer.
Those that shop online tend to be young, well-educated urbanites, who earn 50 percent more than offline shoppers, according to Forrester’s survey of 35,000 European households. Forty percent of these online shoppers have kids at home.
Spurred by aggressive plays from grocers Tesco and Iceland, online grocery spending in the UK drove a $93 million market last year — more than the rest of Western Europe combined. Forrester is predicting that 7 percent of the United Kingdom’s grocery sales will go online by 2005.
The Nordic countries are expected to follow closely with 6 percent of grocery sales taking place online. France and Germany will account for more than 3 percent of sales online in 2005, the survey predicts.
Forrester says that culture factors and low technology penetration will constrict growth in Southern Europe.
Food for Thought
For the report, Forrester interviewed executives at 40 food retailers evenly balanced across Western Europe. Five were online pure-plays; the remaining 35 were traditional brick-and-mortar food retailers with an average of 868 stores each.
Of these companies, 54 percent already sell online or are running pilots, and 77 percent will sell online by the end of the year.