Spends & Trends: E-tail. Hindsight, insight and foresight in grocery e-commerce. from Scotland Food & Drink s INSIGHTS team.

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1 Spends & Trends: E-tail Hindsight, insight and foresight in grocery e-commerce. from Scotland Food & Drink s INSIGHTS team November 2013

2 Spends & Trends: E-tail Hindsight, insight and foresight in grocery e-commerce. Trend Sources: IGD, Mintel, Scottish Enterprise, Future Foundation, Kantar Retail, Boston Consulting, Financial Times, Forrester Research. Intro Intro 3 E-market 4 E-shoppers E-learning Future Going to market is a human behaviour dating back 10,000 years to the early history of ancient Persian civilization but today the world is in major transition as digital technology disrupts shoppers expectations regarding how they interact with the world around them; a world in which computing is no longer locked up in devices but embedded in everything, pervasive and persistent, sensitive to the presence of people and objects. In this evolving e-commerce landscape, the companies that are thriving most are the ones who best understand their customers and potential customers, constantly monitoring feedback, analysing sales data and updating their products and services accordingly. The company that manages to make that connection with its shoppers is rewarded with permission to have a fuller relationship than traditional, mainstream bricks-and-mortar retailers ever did. E-tail, the new report from Scotland Food & Drink s INSIGHTS team, with support from Scottish Enterprise, unbundles some of the myriad trends and opportunities in the burgeoning e-commerce grocery market, from multiple retailers to selling direct. Read on and discover how to cell, cell, cell! And if you d like to explore grocery shopper, category or market insights or forecasts in more detail just let us know via the contact details in this report. Andrew Niven INSIGHTS Manager 3

3 E-market E-commerce in the UK Mintel estimates that overall online, retail e-commerce sales in the UK were 28.9 billion in 2012 (excluding B2B and paid-for downloads). The UK leads Europe in terms of online grocery shopping: 19% did this in the UK in In France, the figure was 7%, in Germany 9%, in Spain 4% and in Italy just 1%. After 15.2% annual growth in 2012, it expects online retail sales to increase by 14.2% in Grocery IGD reports shoppers using the online grocery channel have increased by 14% since November 10 and forecasts that online grocery sales will almost double over the next five years to 11.1bn. This will be driven by more households shopping online via e and m commerce as apps for phones and tablets improve and increase. Tesco is the leading multi-channel operator (41% of adults shopped online with Tesco in the last 12 months), followed by Argos (35%) and Asda (26%). The spontaneous spirit of mobile and tablet devices is not only connecting people with other people but also increasingly with consumer products and services. This on-the -go connectivity is changing the way we make decisions and defining us by our location. Mobile Grocery shopping in Britain is on the cusp of a mobile revolution, with smartphone penetration now at 43% among grocery shoppers and rising, and the rapid development of grocery apps. Smartphone shopping is likely to be used for adding items onto shopping lists, rather than as the only online interface used. This could change as tablet ownership and applications increase. The appeal of smartphone shopping is highly generational, with 57% of under 35s already doing it or keen to do so, compared to only 21% of 55+ year olds. This reflects the relative smartphone penetration level by age. Tablet Tablet computers were originally favoured by tech-savvy early adopters and ownership continues to be skewed to high earners and the under 45s. But penetration levels are rising fast. In January % of households owned a tablet and by April 2013 the figure had reached 35%. In future we will see more of us shopping on the move and this will dovetail with greater investment in teched-out stores offering services like Wi-Fi, remote payment technology, RFID microchips in garments, tablet-equipped staff, and customer browsing and ordering points. Retail Choices of E-shoppers (last 12 months) Online from home Amazon ebay Tesco Argos Asda Sainsbury From smartphone or tablet out and about 4 Source: Mintel % 70% 60% 50% 40% 30% 20% 10% 0% Marks & Spencer Click and Collect A quarter of current online shoppers are interested in picking up online orders from a store for a reduced service charge, and more than one in ten of non-users could be attracted to the channel year olds are most enthusiastic, rising to 33% compared to 7% of those over 55. These shoppers are attracted by the added control and reduced fee the model provides versus delivery. Following initial success, Tesco and Asda are expanding their click and collect services for grocery shopping. Amazon has launched a service allowing shoppers to collect orders from one of almost 5,000 UK convenience stores and newsagents. In Q tens of thousands of Chinese online shoppers pre-ordered 60 tons of US cherries directly from the source after a promotion on Tmall.

4 E-shoppers 32% of shoppers with children under five have bought groceries online in the past month. Who shops online for groceries? Whilst there are as many niches of shoppers as there are online food and drink brands, the big volume, regular spenders, who are driving the growth of e-commerce in grocery are shopping with the multiple retailers. Nearly half of all online shoppers are now buying (some) groceries online, up from 37% in May Mums are the most likely to shop online for groceries, particularly those with pre-school children. 32% of shoppers with children under five have bought groceries online in the past month, 23% among other families, 17% among those without children in the home. The online grocery channel attracts shoppers from a broad socio-economic spectrum of shoppers; 20% of both ABC1 shoppers and C2DE shoppers claim to have shopped online in the past month. Londoners are also more likely to be online food and drink buyers, possibly due to lower levels of car ownership and the more established presence of Ocado in the capital. Up to 25% compared to 19% across the rest of the country. For marketers trying to calibrate their digital-traditional marketing mix, it s useful to know that most traditional channels remain valuable. Mums are diversifying their sources, now favouring online channels, but abandoning few. We re well past the digital tipping point, with mums spending more time engaged online looking at resources to learn about food (48%) than they do looking at offline sources like cookbooks and magazines (16%). In addition to recipes, mums browse restaurant reviews (15%) and food blogs (16%) online. What Shoppers want from online grocery Given that working mums are the primary audience it s hardly surprising that the convenience of online grocery shopping is attractive, with over half claiming it helps them save time. 79% seek sites that are easy to access, browse and buy. Delivery reliability, convenient slot availability and competitive charges are key drivers of choice. Click and collect or drive through collection is of interest to a quarter of online shoppers. Half of shoppers want savings, through price reductions and personalised promotions and to be advised of cheaper alternatives. Currently, a quarter (27%) want sites to feel like a virtual store to ease the experience. Poor perceptions of product quality and freshness remain a barrier for 4 in 10 shoppers. Many find that shopping online saves them money. Fuel costs are reduced and many believe they buy fewer items on impulse when online as the temptation is easier to resist. Online shoppers want to feel in control and able to identify the specific products and ranges that are relevant to them. Enhancing this experience could encourage more browsing and impulse. It saves me a lot of money because I m not as distracted by everything around me as I am when in the shop. I spend up to 80 online compared to 100 if I physically go round the store. Online Grocery Shopper, IGD Research. Even within the multiple grocery environment e-commerce shoppers are more likely to be interested in Ethical shopping Premium product ranges Healthy eating 6 7

5 E-learning Understand who your customers are. Maintain a database of addresses, profile geography and demographics via post codes. Listen and react to feedback. Data, Insights, Sales Whether an e-commerce food and drink business started out as a pure online seller or whether they migrated from a more traditional business, the most successful appear to have one thing in common; they understand their shoppers, and potential shoppers, better than their competition. And in the era of big data and instant feedback, where nearly everything can be measured, there s never been a better opportunity to turn data into insight and insight into sales. One often cited successful e-commerce food business is Scottish premium meat and fish supplier Donald Russell. From zero in 1996 the business has grown to over 20m profitable sales. The not-so-secret secret of its success is the way it has used traditional direct selling techniques, which according to the company themselves, entails embedding in the business an insatiable desire to secure customer feedback and data. This same desire and diligent application, using online advertising to drive online sales is behind the rise of Diet Chef, the UK s largest diet home delivery company with over 80,000 customers. Using predictive analytics based on their advertising investment (mainly TV) this Scotlandbased company can accurately forecast demand and continually tailor their offering to target new business. In London, Pocket Shop has launched the ultimate in fast grocery deliveries, promising to have bread, eggs and milk in the hands of capital customers less than an hour after they click send. Its system works by allocating online orders to one of Pocket Shop s team of 20 trained buyers around London, using a GPS-based algorithm similar to those employed by taxi-ordering smartphone apps. A text message alerts the buyers, directing them to the nearest Tesco or Sainsbury s supermarket. An app on the buyers phones then displays the customer s shopping list with instructions on the optimum way to navigate the aisles. Waitrose and Marks and Spencer will be included soon, the company claims. Success Factors In the USA a number of well-established, smaller, online grocery businesses have identified trends and common success factors that can be applied to similar businesses here. A case study of New York s Hope, Faith & Gluttony Bakery highlights a number of must haves, over and above a well-functioning e-commerce site; The foods that sell best are ones that you can t get within driving distance of wherever you live or they re something you can t easily make yourself. Gina Frieze, Venissimo Cheese Good visuals are key. You have to visually convey the deliciousness and the joy it will bring to someone. You eat with your eyes. Many online food items are purchased as gifts so the packaging needs to be attractive. Customers want to feel they are unwrapping a box of goodies. Have a good shopping cart. Make the checkout process simple. If you can t click on a product and buy it within two clicks, forget it they re gone. Know your cost of goods. Add labour, overheads, packaging and shipping costs, and factor in re-shipping costs for when things go wrong. Then add a mark-up to allow for profit without scaring away customers. Use the right packaging and shipper. Even pre-packaged shelf-stable items need to be packaged and shipped properly, with many perishable lines requiring overnight transporting. Get the word out. If nobody knows about you you ll go out of business. 8 9

6 Future The World as Computer Just as we have already moved away from wired computing, we ll see today s discrete devices transformed into interactive surfaces throughout our worlds e.g.; embedded into refrigerators, cars, and restaurant tables. Biometrics will make all our digital transactions a seamless part of our everyday lives. Personalised Curation As buying decisions become more complex shoppers will maintain individualised databases of preferences and needs to make smarter, and simplified, choices. E-commerce sites are collecting analytics data from thousands of visitors every day, and have been for years. Dynamic personalisation puts it to use, immediately and with surgical precision. When a customer visits a site, without even logging in, a shopper s persona is defined within a few interactions, and business rules are applied to produce relevant content and functionality. The End of Cash Offline, in most of the world, payment systems still rely on cash or physical credit cards. The exceptions are Japan, Korea, and parts of Africa, where digital wallets have become an established part of the commercial ecosystem. Much of the rest of the world will move in that direction as increasingly sophisticated functions and biometrics make the device not just a way of paying for products in any store, but also a way for retailers to communicate and engage. This means that when you walk into your favourite coffee shop, your wallet will open up to show you any offers, invite you to order, and confirm payment. Goodbye, POS. And goodbye, cards too. Competing on Apps Currently, around 80 % of all m-commerce purchases take place via apps. The race to secure app loyalty will propel a rapid rise in development and lead innovative retailers to persuade consumers to install their app above those of competitors. Look for more apps to get smarter through use, giving consumers reason to remain loyal. Designs on design After the effort of getting shoppers to your site, it s critical they don t bounce off before they ve bought. Emerging design techniques such as parallax scrolling, infinite scrolling, interactivity and responsive design are helping the likes of increase engagement and heighten the prospect of a sale

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