But IGD said food manufacturers need to ensure efficient supply chains, competitive prices and delivery fees to take a slice of a market worth £4.8bn at the end of 2010, where this figure could rise to £9.9bn by the end of 2015.
Virtual selling space
James Trust, senior business analyst, IGD, told FoodManufacture.co.uk that ‘push’ and ‘pull’ factors are driving online sales: “Direct-to-consumer websites, for example, provide a solution to some of the most commonly found barriers suppliers face when dealing with bricks-and-mortar stores.
“These include space constraints and the rise of private label, while allowing brand owners to engage more widely and build a stronger dialogue with consumers.”
Trust co-authored IGD’s recent report ‘Online grocery retailing – building capacity for a digital future’, which found that 27% of UK food firms (from a pool of 169 manufacturers and retailers surveyed) would consider building their own e-stores.
The report also revealed that online sales grew 21.4% in 2010 (this includes direct sales and those via third-party sites such as Amazon.co.uk and Ocado.com) and continue to grow at a faster rate than any other sector in the grocery market.
Competitive pricing
However, Trust said suppliers face a number of challenges establishing their own e-stores, despite 43% predicting that online streams will generate 10% of their revenue by 2015. Only 18% currently earn this turnover percentage online.
“These include setting up an efficient, cost-effective home delivery supply chain, and ensuring that the delivery fee and overall pricing are competitive,” he added.
“Deciding on which brands and categories to sell online also remains a growing issue for many.”
As we reported earlier this week, Amazon.co.uk’s grocery delivery charges are a sticking point for some suppliers, and IGD said the removal of these costs was the single most important factor for 59% of shoppers (out of 1,000 surveyed in October)
Brand building tools
Trust also said that direct-to-consumer websites are increasingly being utilised as shopper marketing and brand-building tools, providing firms with valuable insights about what works best in the digital arena, rather than simply a pure revenue stream.
“The best example of this is Proctor & Gamble’s eStore site in the US,” he said. “This aims to gather new ‘best working’ methods so that they can be applied to programmes already in place with its biggest retail accounts in the US, both in the online and bricks-and-mortar channels.”
Ocado's maiden annual report, published in late March, saw the online grocery retailer post 29% sales growth to £551.1m in the year to November 28 2010.
Ceo Tim Steiner said that in 2010 Ocado (which has a 10-year supply agreement with Waitrose) launched its own private-label range and improved interfaces for mobile platforms, which have accounted for 12% of checkouts since the New Year.
Ocado picks an average of 55 items per order across a 20,000+ SKU product range, many of which have a limited shelf life and require handling and storage across chilled, ambient and frozen temperature regimes.