Nielsen UK: ‘Significant barriers’ have fallen for fresh produce purchases online

November 06 , 2018

From the pages of Produce Business UK

Whether it be leading supermarkets with omni-channel retail or major e-commerce players like Ocado and AmazonFresh, the UK is at the vanguard of online grocery shopping in the developed world. Fresh produce still has some catching up to do, but Nielsen UK’s head of retailer and business insight, Mike Watkins, highlights some key developments that have positioned the category for growth.

Mike Watkins at Nielsen UK says ‘younger shoppers are more inclined to by fresh online. It’s a lifestyle thing.’

According to Nielsen Homescan research for the 52 weeks to 31 September 2018, 7.3 percent of Great Britain’s fast-moving consumer goods (FMCG) were purchased online, making it a £7 billion market.

Watkins says the group predicts online grocery will rise to 10 percent of the grocery market in the next three years, as the fastest-growing retail channel “outside of the discounters Aldi and Lidl.”

For the moment, around 4 in 10 British shoppers make grocery purchases online. But how do fresh fruit and vegetables fit into the equation?

In terms of the percentage of overall sales purchased online, fresh produce is only lagging by less than a percentage point.

Watkins says the Nielsen Homescan research shows 6.4 percent of fruit and vegetable sales in Great Britain are made online, with a value of £720 million annually, and almost a third (28 percent) of shoppers are now buying fresh produce over the internet.

“The thing about fruit and vegetables is there’s no longer any significant barrier to stop shoppers buying those products online,” he tells PBUK.

“When online was growing very fast five years ago and shoppers weren’t used to buying fresh produce online, they bought less as a proportion of their online shopping basket. While fresh isn’t a destination category, it’s very much part of the online shopping basket as it would be if you went to a store.”

And the outlook is strong because, according to Watkins, the produce offering is starting to fit with three key drivers for online purchase intent.

“It’s the convenience of shopping online, it’s the range of products available and it’s the ability to ask good prices,” he says. “You do have the ability today in the UK to get the same depth of range in fruit and veg online as you can often get in the store.

“That’s a challenge for the supply chain and the retailer because if there’s one challenge that shoppers find online it’s the issue of substitution, which clearly in any fresh food is going to be more of a challenge.”

In the case of fruits and vegetables, this is even more of an issue because of seasonality, but the buying trends for younger generations – from Generation X through to Z — bode well for the sector.

“Here’s a really important point. We know from our Homescan research that the younger shoppers are much more demanding of good quality, but they’re also much more willing to accept substitution,” says Watkins. “They learn to shop differently. And more importantly perhaps, younger shoppers are more inclined to by fresh online. It’s a lifestyle thing.”

Finding and building systems to support online fresh produce growth

Watkins emphasises all the major UK supermarkets have been pioneers in developing the category, as well as Ocado and more recently AmazonFresh.

In the company’s half year report, Ocado chief executive officer Tim Steiner said the online retailer was in the midst of a “transformational period” with its proprietary technology offering an end-to-end operating solution to meet consumer needs.

In the first six months of the year the group signed three international partnerships for its Ocado Smart Platform (OSP) with Sobeys (Canada), ICA (Sweden) and Kroger (US). This adds to existing partnerships with Groupe Casino (France), Bonpreu (Spain) and Morrisons (UK).

“The success of our technology platform continues to be demonstrated by our UK retail business, where Ocado continues to outpace our competition in terms of our service offering and our growth,” Steiner said.

“We have just opened our latest state-of-the-art Customer Fulfillment Centre, which, once at full capacity, will be the largest automated warehouse for online grocery retail in the world and will showcase the scalability, adaptability and efficiency of our platform.”

Ocado’s technological innovation is a response to many hurdles that continue to exist in e-commerce for fresh food, with two main problems being the cost of fulfillment and the challenge of providing frequent deliveries in an efficient way.

“They [Ocado] say in their trading statement that the average spend is over £100, and within that there’s rather a high proportion of fruits and vegetables. So Ocado specifically look to offer depth of range which is very important in fresh foods,” says Watkins.

“The next stepping point which includes fresh is for retailers to find a way of delivering smaller baskets more often, profitably.

“If fresh is part of your meal occasion at night, shoppers will have to pay more for that in the future in my view because it becomes very expensive for any retailer, whether it be Tesco, Amazon or Ocado, to fulfil that.”

Subscription services the “next big thing” for e-commerce

Watkins emphasises that as only 7 percent of FMCG purchases are online. That means the vast majority are still in physical stores.

“That isn’t going to go anywhere soon – what we’re seeing as the future growth of fresh food as a destination online is still to be proven,” he clarifies. “If you look at all the expenditure online, people buy lots of different products within their online shopping basket. But only 5 percent of those online baskets are 100 percent fresh.”

He says this is a broad trend in what is still a “very specific” category, where e-commerce is not yet happening instead of the bigger shop for households.

“In heavily urbanised cities or regions, be it in the UK or Korea, there’s a market for having fresh foods delivered within the area, but the number of items that people are buying is going to be a handful, so we need to look at it somewhat differently,” says Watkins.

“Similarly to alcohol and confectionery, there’s a need for theatre and in-house experience within the whole fresh environment, to be able to touch the products and see the display, which is obviously a key part.

“That’s why fresh online delivery and specifically fresh baskets are still in their infancy.”

He describes delivery packs and subscription models as “probably the next big thing in online grocery shopping”.

“That’s because if you subscribe to the benefits of having a subscription, you’re more likely to shop more often, and if you’re shopping more often, you’re more likely to buy more fresh food.”

Like the Amazon Prime subscription service that offers same-day delivery, leading UK supermarkets are also offering subscription services, generally incentivising longer subscription periods with more competitive pricing for annual deals.

Examples include Tesco’s Click+Collect Delivery Saver, Asda’s Delivery Pass and Sainsbury’s Saver Delivery Pass. Many of these plans offer consumers better pricing for mid-week delivery between Tuesday and Thursday, but what they all share is a £40 minimum spend or else the purchase includes a delivery fee.

Earlier this month (October), Waitrose took the model a step further with the announcement of a trial allowing consumers to have their online grocery purchases delivered while they’re out.

Using Yale smart-lock technology, customers give a Waitrose delivery driver the ability to enter their home with a temporary access code sent to the retailer via a secure app. The code is then sent to the driver’s device at the time the customer has booked for the delivery and is deleted once the delivery is complete.

The retailer will test demand for the “While You’re Away” service with 100 customers within the delivery area of its dotcom fulfilment centre in Coulsdon, South London. Participants in the trial will need to make minimum orders of £25 and a minimum number of six orders.

If the trial is successful, the retailer hopes to make the service available to more than 1,000 customers in spring 2019.

“There is certainly an increasing demand among our customers to make shopping with us even more convenient to fit around their busy lifestyles,” said Waitrose’s head of business development Archie Mason.

“Rather than waiting for a delivery or trying to put everything away, it gives customers more flexibility to use that time differently, including more time enjoying cooking and eating the food they’ve bought.

“The concept of ‘in-home delivery’ has started to prove popular in other countries, so we are keen to establish if there is an appetite for it in the UK.’”

Two more omni-channel trends to watch: Meal kits and sustainable packaging

Watkins highlights two other key trends that will shape the future of fresh produce sales, with implications for online, as well.

The first is meal kits, building on trends around recipes and meal delivery services.

“If you go back about 10 years in the UK, chilled ready meals in a box to put in the microwave, that was a big, growing category,” he says.

“When you look at the online space, it’s more like innovation by meal kits where you buy the product to prepare and cook yourself.

“That hits the other part of online food shopping, which is Just Eats and HelloFresh, where you’re actually buying the ingredients for the meal that creates, which is different to having it in a box and putting it in the microwave.”

He says meal kits are more orientated to higher-end, bigger expenditure demographics, but “clearly there’s a good profit margin in the industry, and that’s where the innovation is going”.

The second issue relates to the mass consumer movement against plastic waste and a need to provide more recyclable and sustainable packaging, while at the same time still protecting the product and therefore product quality.

“That’s a big topic in the UK – when you’re having product delivered to the home or from pick and collect, they still need to be packed correctly,” Watkins says. “It’s really only in the past 12 months that the supermarkets have started to take a lead role on this, so it’s all about the overall brand and the brand equity and retailer equity.

“It’s not yet specifically for online – when you shop at these retailers, you can trust them to be doing all these right things that you expect them to do.”

For more on omni-channel retailing, check out the home page for the Amsterdam Produce Summit, which features articles and speakers who be focusing on the topic at this year’s conference from 12-14 November.

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