Online Food Retailing in Europe: Rough Seas Ahead

Berlin. (l2) The UK has long been a leader in online grocery, with e-commerce sales set to account for 6.9 percent of fast-moving consumer goods (FMCGs) in 2016.(1) But other European countries look to be catching up. French grocers and hypermarkets have suffered less pressure from discounters than other European markets, leaving established players more capital to invest in their online businesses. As such, French grocers have added nearly two thousand drive-through pick-up points for online grocery orders across the country over the past two years.(2) France is the fastest-growing European market for FMCG, and 25 percent of French consumers say they intend to try online grocery over the next 12 months, up from 13 percent that cite having used an e-grocery service at least once in the preceding 12 months.(3,4)

However, Germany’s market has the most potential, knows L2 Inc., a global business intelligence firm. With an established market for catalogue businesses shifting to e-commerce and a deep-seated discounting culture in grocery, Germany has created a bulls-eye target for Amazon, which has aggressively rolled out new services in the country over the past year. Germany boasts a consumer base eager to buy groceries online, with 36 percent of German consumers intending to buy groceries through e-commerce in the coming year, up from 10 percent this past year.(5)

Shark in the Water

The looming threat of Amazon entering the grocery sector in Germany, and ultimately France, is driving the urgency of moving the hypermarket concept online. Amazon is already the top online retailer in Europe with sales of 21 billion EUR in 2015, which beats the next best sellers, Otto Group and Tesco, by three and five times, respectively.(6) Amazon entered grocery in the UK in June 2016 with the launch of Amazon Fresh in London and now offers Prime Now same-day delivery in London and Paris. Amazon started to rolling out new products and services in Europe in tandem with North America, rather than one to two years delayed, evidenced by the October 2016 launch of Amazon Music Unlimited and the most recent Dot speakers, which came out at the same time in the US, UK, and Germany. This spells trouble for hypermarkets and specialist retailers alike, as rumours of Amazon’s entry into convenience stores intensify going into 2017.(7)

Rough Seas Ahead

Not every brand is equipped to survive the transition, as tough times on the UK high street have shown. The war against discounters and the cost of building out e-commerce businesses that are often loss-making has eroded profit margins across the UK grocery sector. Tesco was the only brick-and-mortar grocer in the UK to report growth in underlying profit margin from 2014 to 2015, as Asda, Morrisons, Sainsbury’s, and Waitrose each saw a dip in profits.(8) Many are floundering with how to address the squeeze, too, as Morrisons has done one deal with the devil after another, first outsourcing all of its online grocery fulfilment to Ocado and now doing the same with Amazon Fresh, offering itself as an incubator for direct competitors. Meanwhile, digital skills take time to develop, and robust e-commerce businesses take time to build, meaning the already steep uphill climb will be even more difficult for some retailers to face.

Digital IQ Index: Must-read for Retail Business

The first annual Digital IQ Index: Retail Europe 2016 attempts to quantify the digital competencies of 58 European Retailers operating in the UK, France, Germany, Italy, and Spain across the three segments Hypermarket, Grocery and Non-Grocery. L2 research’s aim is to provide a robust tool to diagnose digital strengths and weaknesses, helping managers achieve greater return on incremental investment. A must-read for the retail business in Europe.

1. «Global e-commerce grocery market has grown 15 percent to 48 billion», Kantar Worldpanel, 2016-09-29.
2. «France Retail Overview», Deborah Weinswig, Fung Global Retail + Technology, 2016-09-01.
3. «Global e-commerce grocery market has grown 15 percent to 48 billion», Kantar Worldpanel, 2016-09-29.
4. «Are Groceries the Next Big Driver of Global eCommerce?» Morgan Stanley, 2016-01-22.
5. Ibid.
6. «Europe 500», Internet Retailer, 2016 edition.
7. «Here’s Why Amazon Might Be Opening ‘Convenience Stores’», Forbes, 2016-10-14.
8. «Deep Dive: Online Grocery Series: The UK – A Battle for Profitability», Deborah Weinswig, Fung Global Retail + Technology Group, 2016-10-13.