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United Kingdom Food and Drink Report Q2 2008
Business Monitor International, May 2008, Pages: 82
The United Kingdom Food Drink Report provides independent forecasts and competitive intelligence on United Kingdom's food and drink industry.
Executive Summary:
The battle between the UK’s online grocery retailers fired up in 2008 after upmarket retailer Ocado, a partner of the John Lewis Group launched an advertising campaign saying it could match market leader Tesco’s prices on all household brands. Tesco responded with its own campaign that refuted these claims and invited consumers to check on an independent price-comparison website. Tesco claimed that it sold 2,500 products at prices lower than Ocado and threatened to make a complaint to the advertising standards authority if Ocado did not withdraw the advert. The spat highlights the growing importance that UK’s retailers are placing on their online presence with the online channel now contributing a significant amount of revenue to three out of the big four supermarket operators.
Ocado is in a newly confident mood after the firm’s directors revealed that 2008 was expected to be the first year that the firm operated at a profit. Founded eight years ago, the firm has posted losses every year since it was created. Uniquely, the company operates out of a huge warehouse, the size of seven football pitches, and therefore has higher fixed costs than its rivals, such as Tesco and J. Sainsbury, which use instore pickers to fulfil their online orders. Ocado has had to invest huge sums – and operate at a loss for eight years – to get this model to a point where it is about to break even.
However the unique approach means the company is able to offer narrower delivery slots and a low number of products ever out of stock.
The company is regularly ranked as the best online supermarket by consumer magazines and its unusual logistical approach perhaps marks it out as the biggest threat to the market leading Tesco, which would face having to invest huge amounts of money and time to develop a similar service.
Tesco is currently by far the biggest online grocery retailer, processing around 300,000 orders every week, however, rumours have emerged that the division performed relatively poorly in 2007 and lost ground to its rivals. One firm which may have picked up Tesco’s customers is J. Sainsbury, which operates the UK's second-largest online grocery business. J. Sainsbury has reported that its online sales rose by 40% in 2007 and that it is now processing 90,000 orders per week. Wal-Mart owned Asda is also investing heavily in its online presence, however so far the firm has concentrated on selling non-food items and its online grocery business still lags far behind those offered by Tesco, Sainsbury and Ocado.
The only one of the big four retailers that does not have a significant online presence is Wm Morrison and the firm’s Chief Executive has stated that the Morrison would wait at least 18 months before deciding whether to take the business online – a long time when the market is expanding so quickly and a decision that BMI believes the firm may end up regretting.
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