Even as the major multiples drag bemused suppliers into the electronic age, they are sowing the seeds of the end of their domination of the UK grocery trade. The Internet and Net trading are unwrapping the stranglehold that supermarkets have built up since the late 80s.
Speculation? Probably not. The number of consumers converting to home or work shopping via Tesco or Waitrose and the ongoing investment from the City into large-scale trading exchanges make a shift in the balance of power inevitable. For many people it may still be an invisible change but behind the scenes a whole new architecture is being laid down that has already transformed the dynamics of trading in foods.
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We can expect that a major home delivery Internet rival will encroach on traditional markets within the next year. Take for example just one sector, the organic marketplace. SimplyOrganic.net has just taken in another £1m in investment from its founding shareholders and has the logistics and management capable of riding the ecology boom that is reportedly growing at 40% a year. Also unseen in the background in the same arena is Organicnation.com, which currently lacks the resource but has established an impressive range of more than 5000 organic lines through a dozen loyal and solid suppliers. This makes it the largest retailer of organic food in the UK, ten times larger than Tesco for example which is currently trying to up its range from 500 organic lines to 750. And on the B2B side there is Tradeorganex.com, which could prove to be the catalyst for greater change yet and suddenly bring online companies across the whole of Europe to trade. This competition for supermarkets did not exist a year ago and is happening across each market sector along the supermarket aisles.
Wider range, faster delivery
Already in London Urbanfetch.co.uk and other companies like Koobuycity.com and Bagsoftime.com are stealing a march on discount groceries at the snack end of the market, promising 30-minute delivery times. Dropzone.co.uk has set up deals with Londis and Jet to add distribution points for groceries to be picked up. These companies are redefining the old arguments about share of stomach. Today they are into pizza and fastfood, but in the US Kozmo has backed Starbucks with a US$60m budget to promote hot coffee delivered at work and in London an embryonic web operation attached to the upmarket Benugo sandwich bar will be selling what is tantamount to the e-sandwich to City offices before Christmas. Not unnoticed in the sector either is Roomservice.co.uk, which delivers full-blown ready cooked meals and wine from the restaurant of your choice to your dining room. The Net delivers a bigger choice, more quickly than any traditional shop can do. This is not a proposition consumers are likely to turn down.
Manufacturers could make the next move
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By GlobalDataMore destabilising for the traditional market is the creeping inevitability that soon a major manufacturer will grasp the nettle and back a web-based supermarket to supply products across the sector. A small-scale example of this might be Nestlé buying into Nutrisystem.com in America, an established diet site, to portray its Sweet Success range. Or a small manufacturer like Bonappetitdirect.com could find that its click value is disproportionately greater than its real value in terms of bricks just because of its pioneering efforts on the Net. Figures from the US illustrate clearly that the market for niche areas like diet foods or perhaps functional foods is solid territory for Net players who may be able to get in quickly ahead of the conservative buyers for most multiples with niche, individual products. The coffee merchant Whittards has recently taken a stake in an established Net shopping mall Bestofbritish.com which is the kind of forward-thinking that will further destabilise a historic market and open up new options to consumers who thought the coffee world ended with Kenco. Importantly also, having understood the value of clustering, the site will further empower manufacturers and in a sense the traditional role of retailer as a third party has almost disappeared.
Drill down deeper into the Net experience and it becomes obvious that with the establishment of major trading exchanges, manufacturers will start to recognise the benefits and savings in technology. From there it is only a short step to the kind of vertical marketing that Whittards is espousing as companies recognise that they too have a new market on their doorstep. Geest has already taken a step in this direction with Worldoffruit.com and only political pressure from its customers holds it back from developing its own e-commerce stations selling directly to the public. Fruit has already been seen to be a dynamic gift product on the Net.
The big prize naturally is Europe which requires a particular portfolio of products for which some of the bigger players may not be currently suited but new brand launches must surely now be aimed at exploiting the Net market place with longer shelf life, not too heavy, Net-friendly niche foods.
Supermarkets must keep pace
Not that the Net fluent supermarkets like Tesco and Waitrose – the jury is still out on Sainsbury, though it has been more active backstage than in public – are likely to be idle even if their Net trading arms become increasingly divorced from the store fascias. Both are looking increasingly like publishing operations and will have to go on developing the channel and content feel of their websites to keep up presence and traffic. Grocers may yet be the next media players via the Net or if not at the very least move to create Mcdonald’s style vertical markets. Tesco has just invested in ivillage.com, a potential sales channel for women. Even more radical, Waitrose is developing an organic boxed vegetable scheme via its supplier where all it is doing is putting the appropriate button on its site. Virtual trading indeed.
As for those like Safeway and Asda that have fallen behind in the Net stakes, they are unlikely to look like attractive propositions to predatory Internet companies backed by manufacturers who would surely not envy the investment in bricks and mortar and in less demographically affluent areas than the Web. And with a £75 billion market touted within five years that is some cake to be missing.
By Drew Smith
Drew is developing a restaurant and hotel portal eatsleepdrink.net
