April 4, 2001, 12:00 AM

Datamonitor sees significant growth in online grocery shopping

Consumers spent $1.5 billion in online groceries in 2000, a Datamonitor report says, with sales reaching $26.8 billion in 2005. Food chains are in the best position to take advantage of the growth.

The latest study from researchers and business information provider Datamonitor shows that the US online grocery sector will reach $26.8 billion by 2005. This prediction is contingent on online and offline grocers` ability toraise consumer awareness to drive adoption.

According to the report, Online Grocery in the US, 2001, the market for online grocery shopping is growing strongly, with total consumer expenditure increasing at a compound annual growth rate of 109% from $800,000 in 1996 to $1.5 billion in 2000. At the same time, the report says, consumers are deterred from using online grocery shopping services because they are unaware of such services in their local area. The report also says consumers are discouraged from using online grocery channels because they do not know which sites to visit. Datamonitor says that to combat such barriers to adoption, grocery executives need to pay special attention to marketing initiatives.

"Grocery executives are not accustomed to building brand awareness and marketing on the Internet," said Erlina Hendarwan, consumer analyst with Datamonitor. "Traditionally, they have limited marketing to a localized audience. In order to exploit the market potential of online grocery, grocery executives should begin to build brand awareness and consumer demand now, in preparation for online grocery developments in the future."

According to the report, online grocers must implement marketing and production plans that include an efficient logistics and supply chain system and link automated order processing with personalized marketing efforts. In the future, concerted customer relationship management (CRM) techniques and advanced technology developments such as broadband Internet access, Bluetooth, and other wireless technologies will drive the growth of online grocery shopping.

Datamonitor believes that brick-and-mortar retailers who invest heavily in online shopping services will emerge as the most important players in the future online grocery industry. Spurred by consumers` need for convenience, Datamonitor says, they will provide consumers with a full range of grocery items and a more flexible and less expensive order fulfillment system of in-store pick-up. The ability to leverage the value of their existing brand, loyal current customer-base and preexisting infrastructure will result in lower costs and allow them to reach profitability at a faster rate, the company says.

"Growth in pure-play grocers will be limited by the slim profit margins and difficulties in offering effective order fulfillment and customer service," said Hendarwan. Pure-plays` domination of online shopping is beginning to wane as supermarket chains buy them out, she said. "Major potential exists for joint ventures between other online service providers (e.g. Webvan, Amazon.com) and brick-and-mortar grocers which will further reduce overall costs and improve customer service."


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