The underlying grocery market in the UK is substantial, while shopping online for weekly groceries is becoming increasingly important for consumers, evidenced by the online growth figures reported across the industry. With our clear focus as the UK's sole online only operator in this market, we are well placed to benefit from this growing market trend.
Grocery is the largest by far of all retail segments, estimated by IGD to be £163 billion in the UK alone in 2012, and representing over half of all retail spending. Over 65% came through so called "big box" format stores – supermarkets, superstores and hypermarkets, with the remainder from discounters, convenience stores and other smaller traditional retailers (grocers, newsagents, forecourts), and online.
Various market estimates suggest that c4-5% of grocery spending was ordered online in 2012, with online widely recognised as the industry's fastest growing segment. All leading grocery retailers are developing their online strategies, and IGD estimates that the five year CAGR in online grocery will be nearly 15% through to 2017.
Growth in grocery has traditionally been driven by the opening of new store space, either through extension of existing stores or the opening of new shops. This has created a "space race" model for growth which is dependent on increasing expensive real estate and growing customer footfall.
There is no single strategy for online retailing. In the grocery sector, different approaches are being adopted, with traditional operators largely using existing store-based fulfilment with some starting to adopt so called dark stores (small manual warehouses with a turnover similar to a typical supermarket store dedicated only to servicing online orders with no direct physical customers). By contrast, Ocado uses only a centralised picking model in a warehouse, over 20 times larger than a store, which enables us to remove significant costs from the traditional grocery supply chain.
Segmentation in UK grocery market showing growing online trend