In the UK, supermarkets are regarded as having the worst outlook of any sector. Ocado, Morrisons, Marks & Spencer, and Sainsbury’s all feature in the top ten most shorted UK stocks, indicating that investors believe their stock prices will fall. The sector has responded to poor margins and declining footfall through acquisition: Sainsbury’s acquired Argos in September 2016, Tesco is buying Booker (a cash-and-carry chain), and Asda is rumoured to be eyeing B&M (a convenience retailer).
These large takeovers, however, risk distracting management from a more immediate battle for supermarket supremacy that is arguably more important for long-term survival: online shopping. The UK already has the highest penetration of e-commerce within FMCG and grocery globally, behind only South Korea and Japan. But with all major supermarkets except Lidl offering online shopping with next-day home delivery, how do you create sufficient differentiation to attract shoppers away from your competitors?
E-commerce shopping can be broken down into three core competencies:
- The online shopping experience, including on-site search, product merchandising and checkout
- Fulfilment options, such as choosing a specific time slot or enabling in-store pickup
- The delivery itself (Did the shipment arrive on time and as expected?)
L2’s benchmarking research shows a wide variation in effectiveness of the first. Waitrose, Tesco, and Sainsbury’s all offer user-friendly search and navigation features, but only Tesco complements these with strong product pages. Morrisons and Asda offer an inferior experience in both areas.
But with only 10% of European supermarkets offering same-day delivery, it is within fulfilment where new entrants see an opportunity to stand out and win share. Amazon is the player with the highest profile, having launched Amazon Pantry in 2015 and Amazon Fresh in 2016 to compete directly within the supermarket sector. Amazon Fresh now delivers same-day for orders placed before lunchtime, and Amazon Prime Now offers one-hour delivery within major UK cities.
Online-only grocery startup Etefy has also bravely entered this hyper-competitive market, offering one-hour delivery in London. Its offering has three key differences: it delivers 24/7, for free, with no minimum order value. However, given that fellow pure-player Ocado continues to operate at a loss with less aggressive fulfilment options, Etefy may struggle to turn this great consumer value proposition into profits for shareholders.
This increased competition within fulfilment has prompted two UK supermarkets to launch same-day delivery. In July 2017, Tesco announced it would roll out same-day delivery nationwide and Sainsbury’s is trialling both same-day and one-hour delivery services using Deliveroo-style cyclists.
So far there’s one obvious loser in the e-commerce battle: Morrisons. After initially partnering with Ocado for its e-commerce, Morrisons threw in the towel and became a supplier to Amazon Prime Now. Others risk falling too far behind to be able to catch up with more nimble, digitally-savvy players.