Giants Vie for Supremacy in UK Online Grocery Market

The summer of 2010 is emerging as a time of major moves in the UK’s online grocery sector.

In early July, Amazon UK surprised many observers by entering this market, offering 22,000 popular grocery items and household goods. Delivery options include those already familiar to Amazon customers, such as express, super saver and evening rates. Amazon Prime, which provides unlimited free one-day delivery for an annual fee of £49 ($77), can also be used for the grocery service.

Amazon’s move is a clear signal that the internet grocery business is ripe for growth. Another sign is the proliferation of mobile apps and website improvements from leading players. In fact, mobile platforms look set to be a crucial battleground for grocery retailers, as smartphone use continues to rise in the UK.

At the end of July, Waitrose unveiled a new iPhone app and mobile site. The app is free, and can be downloaded to the iPod Touch and iPad as well as the iPhone. The mobile website will showcase in-store offers, and recipes from two celebrity chefs, Delia Smith and Heston Blumenthal, who are already associated with the Waitrose brand. Both app and website incorporate location-based technology enabling users to find convenient stores.

Not to be outdone, the retail giant Tesco—which saw £136 million ($217 million) in profit from online sales last year—announced on August 4 that its first fully transactional mobile app would launch on Nokia’s Ovi Store within a week. Registered members of Tesco.com will be able to browse a full list of goods available in store, and update their shopping lists.

As of May 2010, groceries had barely registered on the radar of most mobile phone users in the UK. A YouGov poll for Brandbank found that just 17% of smartphone users said they were likely to buy groceries via their handsets—compared to 26% who said they were likely to purchase clothing or accessories, and 53% who said they were likely to buy CDs, computer games or other physical entertainment products.

But grocery buying via mobile has enormous potential in the UK. The country’s leading grocers hope to boost take-up of their new services with highly visible promotion and word-of-mouth, and clearly expect significant growth in the number of mobile buyers during the next year. As Nic Howell of nma magazine commented on August 5: “When mobile becomes a story about the weekly shop, rather than trendy people becoming mayors of their favorite Soho bars, then it gets interesting.” In turn, mobile purchase of groceries should reinforce ecommerce as a growing habit among UK consumers.

For a current overview of online shopping and buying in the UK, see the eMarketer report “UK B2C Ecommerce: Consolidating the Gains.”