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UK Online Grocery 2020 by Quarter 2017-2020

  • ID: 5125043
  • Report
  • June 2020
  • Region: United Kingdom
  • 71 Pages
  • ResearchFarm Ltd
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FEATURED COMPANIES

  • Aldi
  • Asda
  • Deliveroo
  • Lidl
  • Ocado
  • Tesco
  • MORE

When analysing the structure of the online grocery sector, a couple of things immediately stand out. Only three retailers (Tesco, Sainsbury’s, Asda) have a near-national presence for online grocery deliveries. As a concentrated market, only four retailers (Tesco, Sainsbury’s, Ocado, Asda) have national shares materially above 5%. While Ocado is a relatively strong operator overall, with a national share similar to Asda, its presence is limited to certain parts of the UK.

The market leader Tesco is now the first retailer in the UK to fulfil one million online grocery orders in a week - due to the impetus from the COVID-19 outbreak. In 2019 Tesco had a market share of 30.7% in online grocery in the UK, followed by second-placed Asda (17.6%), Ocado (15.3%), Sainsbury’s (14.4%), Morrisons (4.5%) and Waitrose (3.0%). Other players accounted for 14.5% of the sector. We believe the market was worth around £11bn in 2019.

The pureplay Ocado, probably the most interesting business in the competitor set will see some disruption in 2020, as the business switches over from Waitrose supply to source M&S products for Ocado, with M&S in effect buying out Ocado over time. Ocado is anyway well on its way to pivot from being an online grocery pioneer to more of a tech player and solution provider to other grocers across the globe.

Within the big four of online grocery retailing, serving very different shopper demographics, Asda and Ocado are the fastest growing players.

The fastest-growing retailer in the 2015-19 period was Morrisons growing by 241% from a smaller base, followed by Asda (49.5%), just outperforming Ocado with 48%. Conversely, the slowest growing retailer was Waitrose, basically treading water, as the retailer had reset its online business at the beginning of the period resulting in substantial declines in sales.

Morrisons is making its unique strengths count, its vertical integration assets for the supply deal for Amazon and using Ocado as a service provider, a set up relatively capital-light (at least in comparison to setting up an online grocery operation from scratch). Picking from stores enables the retailer to quickly scale up its coverage and having two service providers can help to reach different prospective shopper segments (Amazon Prime shoppers and others).

Much of the competition in the UK online grocery market actually happened around delivery charges, as product pricing is set on a national scale and the same across channels (with the exception of the convenience store estate where prices are a bit higher). In-store prices in the UK have been closely monitored by the players, all under pressure from Aldi and Lidl. This has meant that one lever for raising online grocery profitability have been delivery charges and the players have adapted (raised) these charges from 2017 on. This resulted broadly speaking in lower growth levels and lower average basket sizes.

Coupled with delivery slots is the move to much more rapid and faster delivery speeds. In the UK the move to urban fulfilment and robots is well underway with Tesco starting to use micro fulfilment centres in urban store locations and Ocado also offering a speedy option, called Zoom. The important factor is the relatively central location of these warehouses and depots to be able to offer last mile drive times to shoppers that can come in under 1 or 2 hours. While Asda is looking to offer much speedier click and collect, a good fit for its shopper demographic, Sainsbury’s is using electric bicycles for its Chop Chop service. Ocado apart, all the grocers pick from their stores to varying degrees, with CFC more prevalent in the greater London catchment. This means most retailers could - if the demand is there - widen their speedy delivery options pretty easily by utilising pick from the store.

According to Kantar, 99.4% of online shoppers in the UK also bought groceries in-store. But, equally, about three-quarters of online delivery spend was by customers who responded in a survey that they had bought all, nearly all or most of their groceries online.

In the UK online shoppers used on average slightly more than two different online grocery retailers in 2019 (one alternative on top of their main destination shop). In 2019 the average online basket across the sector was £76.30, which rose by £6 in March 2020 alone. In 2019 Ocado had the biggest average basket with £103.83, followed by Waitrose (£97.25), Tesco and Sainsbury’s. The smallest average basket in 2019 at £72.29 was Morrisons’, skewed by PrimeNow and being the cheapest online grocer overall (Amazon influence), with Asda slightly higher at $74.13, reflecting the socio-economic background of its core shopper segments.

Pre-COVID the number of shopping trips or frequency was pretty stable across the retailers. The online grocer with the highest visits per quarter in 2019 was Ocado with 5.4 trips over a 3 month calendar period, followed by Asda and Morrisons with 5.3 and 5.2 respectively. Waitrose shoppers were the least frequent shoppers with 3.5 trips per 3 month period in 2019. This reflects the fact that Waitrose shoppers can easily substitute with Ocado, as the product ranges are similar. This will be an interesting indicator to watch when Ocado changes over to M&S supply later in the year.

There’s no doubt the Covid-19 crisis has accelerated the move towards online, though capacity constraints kept growth below what could have been. There are more new online grocery shoppers in 2020 than in the previous five years, with online now making up 11.5% of grocery sales (according to Kantar). That equates to nearly one in five British households having ordered groceries online in the past four weeks.

Half a million new shoppers were added to the online grocery sector in Q2 2020, and 7,890,000 extra orders generated while spending at the major grocers rose by 43% or just under £1bn in Q2 2019. Looking ahead, we believe the sector will be worth £14.3bn at YE 2020, with the growth of 30% due to the influence of Coronavirus.

Note: Product cover images may vary from those shown
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FEATURED COMPANIES

  • Aldi
  • Asda
  • Deliveroo
  • Lidl
  • Ocado
  • Tesco
  • MORE

1. Executive Summary

2. Tesco

  • Quarterly Sales, Growth, Q1 2017-Q4 2020f (£m)
  • Sales - Annual historical and forecast of sizes 2015 - 2020f (£bn), Analysis
  • Number of orders, quarterly trend Q1 2017-Q4 2020f
  • Orders - Annual historical and forecast of sizes 2015 - 2020f, Analysis
  • Number of customers, quarterly trend Q1 2017 - Q4 2020f
  • Average Basket spend, Frequency 2015-2020f
  • Tesco Outlook

3. Asda

  • Quarterly Sales, Growth, Q1 2017-Q4 2020f (£m)
  • Sales - Annual historical and forecast of sizes 2015 - 2020f (£bn), Analysis
  • Number of orders, quarterly trend Q1 2017-Q4 2020f
  • Orders - Annual historical and forecast of sizes 2015 - 2020f, Analysis
  • Number of customers, quarterly trend Q1 2017 - Q4 2020f
  • Average Basket spend, Frequency 2015-2020f
  • Asda Outlook

4. Ocado

  • Quarterly Sales, Growth, Q1 2017-Q4 2020f (£m)
  • Sales - Annual historical and forecast of sizes 2015 - 2020f (£bn), Analysis
  • Number of orders, quarterly trend Q1 2017-Q4 2020f
  • Orders - Annual historical and forecast of sizes 2015 - 2020f, Analysis
  • Number of customers, quarterly trend Q1 2017 - Q4 2020f
  • Average Basket spend, Frequency 2015-2020f
  • Ocado Outlook

5. Sainsbury’s

  • Quarterly Sales, Growth, Q1 2017-Q4 2020f (£m)
  • Sales - Annual historical and forecast of sizes 2015 - 2020f (£bn), Analysis
  • Number of orders, quarterly trend Q1 2017-Q4 2020f
  • Orders - Annual historical and forecast of sizes 2015 - 2020f, Analysis
  • Number of customers, quarterly trend Q1 2017 - Q4 2020f
  • Average Basket spend, Frequency 2015-2020f
  • Sainsbury’s Outlook

6. Morrisons

  • Quarterly Sales, Growth, Q1 2017-Q4 2020f (£m)
  • Sales - Annual historical and forecast of sizes 2015 - 2020f (£bn), Analysis
  • Number of orders, quarterly trend Q1 2017-Q4 2020f
  • Orders - Annual historical and forecast of sizes 2015 - 2020f, Analysis
  • Number of customers, quarterly trend Q1 2017 - Q4 2020f
  • Average Basket spend, Frequency 2015-2020f
  • Morrisons Outlook

7. Waitrose

  • Quarterly Sales, Growth, Q1 2017-Q4 2020f (£m)
  • Sales - Annual historical and forecast of sizes 2015 - 2020f (£bn), Analysis
  • Number of orders, quarterly trend Q1 2017-Q4 2020f
  • Orders - Annual historical and forecast of sizes 2015 - 2020f, Analysis
  • Number of customers, quarterly trend Q1 2017 - Q4 2020f
  • Average Basket spend, Frequency 2015-2020f
  • Waitrose Outlook

8. Other players

  • Aldi - Partnering with Deliveroo
  • Amazon - From PrimeNow to Go stores to a new Ultra Fast Fresh service
  • Co-op - Trials and starship
  • Co-op - Covid response
  • Iceland - Pre Covid investments into the Food Warehouse
  • Iceland - Ramping up in store picking to increase orders five fold
  • Lidl - about to start a UK online proposition this year?

9. Outlook

  • UK Online Grocery as a template for other markets? Boom in click & collect and contactless deliveries
  • Lidl - about to start a UK online proposition this year? p68 Outlook
  • UK Online Grocery as a template for other markets? Boom in click & collect, contactless deliveries
  • Will the demand surge result in better scale effects to make online grocery profitable?

10. Sources

Note: Product cover images may vary from those shown
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  • Aldi
  • Amazon
  • Asda
  • Co-op
  • Deliveroo
  • Iceland
  • Lidl
  • Morrisons
  • Ocado
  • Sainsbury’s
  • Tesco
  • Waitrose
Note: Product cover images may vary from those shown
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