Radical The Digital UK Grocery Shopper 2010

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THE RADICAL COMPANY: THE UK DIGITAL GROCERY MARKET 2010

, shopping will be series of links and connectivity when a collective dialogue takes
place in all places and at all times, between shopper, retailer and brand whenever and wherever
the shopper wants this to take place.
(Source: Graham Thomas 2005 when the first work began on expanding tesco.com outside of a
single web platform into mobile and other devices.)

Radical Company
a: 43/45 Camden Road. London. NW1 9LR
a: 10100 Santa Monica Boulevard. Los Angeles. CA. 90067
a: 9 Ann Siang Road. Singapore. 069690
t: +44 (0) 845 658 5909
Contact: john.white@radicalcompany.com
www.radicalcompany.com

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1. The Future
More grocery shopping will take place through digital channels albeit from a base of currently
representing only 4-‐5% of total grocery sales.
Share of total grocery spend shows that online has continued to grow during 2010 with Tesco
showing greatest growth. Currently Tesco on-‐line is worth £1.2bn, grew by 16.1% year-‐on-‐year fiscal
2010 vs. 2009, and captures some 50%+ of online sales. (Source: Tesco)

Ocado in their company presentations predict a x10 growth for the next ten years.

Home Delivery Share of Till Roll Grocers
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
Apr222007
May202007
Jun172007
Jul152007
Aug122007
Sep092007
Oct072007
Nov042007
Dec022007
Dec302007
Jan272008
Feb242008
Mar232008
Apr202008
May182008
Jun152008
Jul132008
Aug102008
Sep072008
Oct052008
Nov022008
Nov302008
Dec282008
Jan252009
Feb222009
Mar222009
Apr192009
May172009
Jun142009
Jul122009
Aug092009
Sep062009
Oct042009
Nov012009
Nov292009
Dec272009
Jan242010
Feb212010
Mar212010
Weekly 3 Point Centred Moving Average
Share(Expenditure)
Tesco Internet Asda Internet Sainsbury's Internet Waitrose+Ocado Internet

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IGD forecasts that £7.2bn will be spent on food and grocery shopping online by 2014, almost double
off-‐line growth.

(Sources: IGD/TNS)
Fundamentally, growth will come through the often unsaid issue that grocery shopping in-‐store is
seen, by and large, as a drudge. It is a task that people want to do with the minimum of fuss -‐ though
many issues still exist and the off-‐line shopper experiences a series of stress points
OFFLINE SHOPPER JOURNEY STRESS HOTSPOTS

0
5
10
15
20
25
30
35
40
45
50
2007 2008 2010 2013 2014 2025
1.8% 2.3%
4.0%
9.5%
12.0%
40.0%
Total Online Grocery Sales (% of off-‐line)

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Other factors that will drive growth include:
-‐
-‐ the potential success of Amazon grocery, currently in test (though there is little indication in the US
that a similar offering is driving conversion to online grocery shopping)
-‐ the opportunity for the discounters to enter the market e.g. Lidl and Aldi
-‐ some strong growth seen among pure-‐play retailers, e.g. Zooplus in the pet supplies sector (see
chart over page)
-‐ further changes in demographics that will likely drive more shoppers into on-‐line for their main-‐
shop (and, as an aside, there will be an increase in convenience stores for in-‐between top-‐up shops).
-‐ Gen Y shoppers are approaching grocery-‐buying age, and are comfortable doing so online
-‐ but the middle-‐aged as they grow older are also more comfortable shopping on-‐line
-‐ widespread broadband access, making on-‐line grocery shopping easier, more stable and quicker
-‐ greater choice through more products (the long-‐tail) and the need for more information on issues
such as health, ingredients and provenance
-‐ the desire for customisation and digital platforms allow e-‐retailers to personalise the shopping
experience
-‐ price comparison, free delivery, increasing car costs will all make on-‐line more attractive

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GROWTH OF ZOOPLUS ACROSS EUROPE AND
PREDICTIVE GROWTH SHOWS OPPORTUNITY FOR
SPECIALISTS
)
300m mid-term
goal
NB: Pets at Home just announced (all) sales up by 15.7%
Source: Zooplus
Finally there is the expansion of grocery shopping across mobile platforms thereby offering further
opportunities to shop or capture needs and indulgencies through instant lists.
On mobile, currently 5% of all Ocado orders are through the mobile phone. (Source: Ocado). Tesco
report that close to 1.5m Tesco apps have been downloaded.

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scan bar codes and add
them to their shopping list. This could be done in-‐
on an ad for example. All of this encouraging further and extended purchases.

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2. Characteristic of on-‐line versus off-‐line
GENERAL DIFFERENCES / SIMILARITIES ON-LINE OFF-LINE
GROCERY
© Kantar Retail 2010
P|Nestle Purina UK|1119|1119000a|GT(lh)
37
Measure Online Offline
Numbers Smaller Larger
Demographics Younger/Older
Families
More affluent
Everyone
Shopper Missions Main Shop All Shops
Basket Size £90-125 Average is less but
so is main shop
average
Shopper Needs Same Same
Time to Shop (Main
Shop)
25-40 mins 70-90 mins

GROCERY
38
Price Comparison Possible Limited but on way
with mobile
SKUs Unlimited Limited
Interactive Yes Limited but on way
with mobile
Trade Promotions Virtual and greater
possibilities
Becoming more
confusing
Pricing Flexible Inflexible

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GROCERY
39
Shopping Vision Binocular Peripheral
Impulse Less More
Purchase Decisions Predetermined Less

(Source: Radical)

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3. Grocery Retailer Objectives
Putting aside that few retailers have made a profit from on-‐line grocery shopping, overall retailers
should be seeking the following benefits:
Increased revenue through increased penetration, improved browser-‐to-‐buyer conversion,
bigger basket size and (possibly) cross-‐
Increased loyalty (visit frequency and basket-‐size) by improving the individual customer
experience online
Maximised media and affiliate sales opportunity by delivering advertising messages to the
right audience at the right time, and by keeping customers on the site for longer. This
achieved through
More selling
Better selling
Improved ad inventory placements
Enhanced targeting
Enhanced reporting & analysis
Key Strategies to increase revenues per visit include:
Grocery cross-‐sell area in aisles
products
Non-‐food cross-‐sell area in aisles
Alternatives & compliments within product information
Ranking of products within categories (aisles, search results) so that the most relevant come
first rather than alphabetical order
Prioritisation of promotions within featured space to drive participation
Targeted communications on key landing pages (branding messages, trade driving messages)
to help move shoppers through the site
However the single biggest driver of growth will be personalisation...

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THREE STREAMS OF PERSONALISATION
Targeted promotions / events
Targeted banner ads
Targeted content (e.g. My Local Retailer)
Filtered range: only show what is relevant to
my needs
Personalised product recommendations
Personalised ranking of search results
Customised look & feel eg. My Home Page
Customised functionality eg. My Virtual Home,
My Virtual Model
Wish lists
We know you, regardless of channel of contact
(online, mobile, store, driver, call centre
centralised and coordinated communication)
Thumbs up/down: did you enjoy the products we
recommended?
Show a summary of my recent purchases, viewed
items, etc.
What do customers need? How do we deliver this?
Make your messages
relevant to my
interests and needs
Help me deal with
choice overload
Allow me to tailor
how I shop, and
how I interact with
retailer
Remember me
the next time I
visit on and
offline
1. Predictive:
Behavioural
targeting
2. Reactive: User
driven customisation
3. Proactive: CRM

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4. Understanding the Digital Shopper
Today, cross-‐platform experiences demonstrate the integral nature of shopping wherever it takes
place:
THE SHOPPING EXPERIENCE: INTERNET PLAYS INTEGRAL PART OF
THE PROCESS
54
Discovery
The shopper often takes an iterative path to
making their purchase decision.
PurchaseTrigger
There are several circumstances or
situations that initiate a shopping
experience.
Decision to purchase online or off is
made once the criteria (best price,
most convenient,etc.) has been
fulfilled.
Passions
Product Service
Life event
Offline
Online &
Offline
Discovery path
Necessities
Social
events
Lifestyle
enhancement
Forums
Content
sitesAuctions/
Classifieds
Sponsored
sites
Pop ups
Email
Banners
Friends/
Family
Read
reviews
Store visit
Advertising
TV
Radio Print
Price
comparison
sites
Advertising
Coupons/
Discount
deals
Word of
mouth
Search
Website
Purchase
criteria
fulfilled
Online

SIGNIFICANT BEHAVOURAL DIFFERENCES
-‐ e-‐shopping is a fundamentally different experience from off-‐line shopping. This affects shopper
behaviours and purchase patterns.
-‐ the shopper journey is critically different on-‐line than off-‐line and there is a different relationship
between the shopper and the retailer.
-‐ e-‐ -‐line but continue to use off-‐line
shopping for other shopper missions. However the on-‐ -‐line

MORE HABITUAL
-‐ as the on-‐line sh
this throws up challenges when wanting to increase basket-‐size both in terms of value and the
number of unique products.

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-‐ purchase decisions are significantly more likely t
are a key mechanism to help the on-‐line journey. There is less willingness to try new brands online or
to switch, cross-‐trade or upscale.
-‐ grocery e-‐retail favours market-‐leaders; it favours habitual purchases.
OPPORTUNITY TO DRIVE LOYALTY
-‐ e-‐retail shoppers are more loyal to a single retailer than they are in the bricks and mortar world. In
the UK off-‐line shoppers on average shop at 2.7 grocery retailers; in e-‐retail it is 1.3. However, on-‐
line and off-‐line loyalty is different: on-‐line loyalty is currently driven by absence of negatives and
lack of retailer choice than off-‐line where loyalty is a more considered choice.
-‐ -‐ visitors spend on average between 45-‐70 minutes on a site and will visit between 25-‐
50+ pages dependent on the number of unique items they buy.
-‐ Loyalty varies significantly; one large grocery retailer only has 15% of shoppers returning in 2009;
another has 65%+.

BUT SHOPPER NEEDS REMAIN THE SAME...
Variety Seekers: enjoy rich
content and peripheral
purchases 10%
Browsers: Prepared to seek
information but will
considered (will be
experimental) 30%
In and Out: wants to shop as
quickly as possible (the least
likely to x-shop and stretch
basket) 60%
THREE KEY TYPOLOGIES OF ONLINE SHOPPER
43

(Source: Radical)

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On average some 40-‐70 grocery items are being ordered in a typical main basket shop with a value
that may exceed £120. If this done outside of using a favourites, this may take upwards of an hour
and is perceived as being laborious by customers. And this main-‐shop happens on average once
every ten days.
Variety Seekers: shop form the broadest range of sources and are likely to undertake pre-‐planning
before embarking on shopping mission. Will be the most valuable shoppers and the ones where new
applications have considerable opportunity.
Browsers: Have a loose plan and will seek inspiration in-‐store; navigation essential for them.
They have the smallest average
basket size and are the segment that need to be laddered.

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A typical shopper experiences a series of highs and lows during the shopping experience (as they do
when shopping in the bricks and mortar world). The retailer should be ensuring that the highs are
enhanced and the lows eliminated.
EMOTIONAL HIGHS & LOWS: GROCERY SHOPPING
-4
-3
-2
-1
0
1
2
3
4
0 2 4 6 8 10 12

This should focus on the four key needs that shoppers consistently play back as being crucial to the
shopping experience

SHOPPER NEEDS THE SAME 4 EVERYWHERE whether on-‐ or off-‐line
-‐ . Wherever shoppers shop the number one need is to be able to find the
products that they are looking for.
-‐ Having filled their basket they want to minimise queue and check-‐out time and other stress hot-‐
spots
-‐ However during their shopper journey it is critical to make it easy for customers to pick up bargains
-‐ And finally, to inspire customers to buy outside their everyday repertoire as most on-‐line grocery
-‐
But above all else: make the experience better than shopping in-‐store.

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This leads to some fundamental rules in building the site architecture:
Improved Navigation

Helping customers easily find specific items they are looking for
Promotions
Ensuring these are prominent, ta
Inspiration
Introducing customers to new / complementary / more suitable products
Creating a shopping environment they find engaging/enticing/welcoming
Inviting them to continue journey with other parts of e-‐retailer offering post checkout
Personalisation
Predicting customer needs, e.g. based on life stage and previous behaviours
Check-‐Out
Ensuring this is not only quick and easy but that the route to check-‐out is the fastest
possible.

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5. Creating Connectivity
and connectivity when a collective dialogue takes
place in all places and at all times, between shopper, retailer and brand whenever and wherever

Using differing platforms creates connectivity. (Though the danger
processes are created instead.) Platforms and tools are means to make the shopping process easier
across the shopper journey whether shopping takes place in-‐store or through digital platforms.
The simple process is Plan, Search, Find, Order and Delivery. As with most of this note the simplicity
belies the problem of getting this right without even including the complexity of differing segments
having differing needs and emphasis at each o f these steps.
The purpose of using mobile, 3rd
party web-‐sites and other digital platforms (in and out of home) is
to enable individuals to select tools and paths that suit them best. (And this includes e-‐mail, SMS,
call centres and so on)
This means that all processes have to be device neutral.
This also means understanding the path to conversion and at what touch-‐points it can take place:

search
e-‐
mail/SMS
retargeting affiliates

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5.1 Mobile
While all the headlines ar M-‐sites that
will most influence shopping behavioural change in the future. That shopper behaviour will change
and m-‐commerce will become important is a given if what happens in Japan is repeated in the UK.
I SHOP WITH MY MOBILE
- I shop whilst sitting with my friends
- I get extra information on products
before I buy them
- It knows where I am so tailors offers
- It knows who I am and tailors offers

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The US is ahead of the UK when using mobile coupons to drive traffic to store.

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But currently m-‐commerce sites have still to be widely adopted. Of the Top 200 UK Lifestyle Apps in
iTunes:
-‐ 53 are High Street Retailers
-‐ 30 have full M-‐Commerce Apps
-‐ but only 13 have M-‐Commerce mobile sites
-‐ and 8 have both an M-‐Commerce App and Mobile Site
(Source: O2 and Apple.)

Tesco lead the way among grocery retailers to bring shopping to the mobile phone:
-‐ Total app downloads: 1,400,000
-‐ Rising at the rate of 15,000 a day
-‐ Tesco Groceries apps in use: 350,000 (4% of o
-‐ Tesco Club Card app: 700,000
-‐ Tesco Finder app: 260,000
-‐ Product location requests average 8,000 a day peaking at five requests per second
Tesco use mobile to:
-‐ Make the online shopping experience better than in store
-‐ Inspire customers during their grocery shop
-‐ Create collaboration environments with family
-‐ Harness the power of social networking
-‐ Help customers shop quickly and easily

20

They through to
a full grocery shop,
further apps across many needs

21

5.2 Social Media
Shopping for the most part among key customers segments is collaboration:
-‐ among families and friends
-‐ and trusted sources e.g. a TV chef, magazine or through forums such as Mumsnet
This leads to the need to integrate ordering processes and tools across many platforms if this is to be
taken advantage of

Tesco and Ocado for example have strong social media links particularly on Facebook:

My Shop Assist from Tesco enables shoppers to add products to their tesco.com basket from within
Facebook. This will create opportunities is to link from brand Facebook groups directly to the Tesco
basket.

22

Brands such as P&G IAMS are already creating multiple connections across multiple platforms
enabling a single data-‐base of consumers to be built and then used.

23

6. Key Areas of Weakness
This final section looks at two areas where online grocers still need to improve their executions.

We identified 12 reasons why e-‐retailers get excited about pet...
Family focused so drives larger baskets
Recession Proof (particularly cat)
Pet owners overspend
-‐in bricks and mortar
gaps
Regular demand patterns so simplified logistics
SKUs suit .com
Bigger sizes and structural advantages of home delivery over in-‐store
Opportunity to reward loyalty
Can deliver better choice to all shoppers...Long tail
High margin accessories
Trade-‐up opportunities and growth in premium lines
Online can provide the rich content pet owners enjoy or need.
X-‐trade to profitable financial products and other services such as vet

Low margins on regular food
Suppliers need to do more to add value to category
Lack of innovation
Source: Tesco, Ocado, Zooplus
Search is where consumers start and where they research. All grocery retailers -‐ other than Tesco -‐
have no presence against key search terms although the specialists do well. All brands are poor for
some reason none understand how consumers search for pet online. So, for example, no retailer or
pet brand appear on the most popular (Source: google analytics) search term when it comes to pet:
pets for sale.

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Retailers are also poor at helping pet owners quickly get to the online pet category and the brands
they want. Tesco are the best as they attempt to use pet owner decision trees, and have their site
architecture follows the rules of best design and content for on-‐line shoppers.

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Ocado expoilts their Facebook presence and it is possible to link products to personal pages but it
takes seven steps to get from Home Page to Brand

We have identified five things shoppers look for in their online shopping experience. Deliver against
these and experience shows they will become more loyal visiting more often and spending more
each time

We can then assess e-‐retail sites across these five criteria thereby identifying areas of improvement.

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Radical Company
a: 43/45 Camden Road. London. NW1 9LR
a: 10100 Santa Monica Boulevard. Los Angeles. CA. 90067
a: 9 Ann Siang Road. Singapore. 069690
t: +44 (0) 845 658 5909
Contact: john.white@radicalcompany.com
www.radicalcompany.com

Radical The Digital UK Grocery Shopper 2010

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