Fool's Eye View

[ June 15, 2000 ]

Supermarket Web Checkout

By Nigel Roberts (TMFNigel)

Chippenham, Wiltshire -- There has been some interesting news from the supermarket chains over the last few days. Iceland (LSE: ICE) appear to be trying to steal a march on the rest by promising that all of their own brand goods will soon be organic only, and not only that they will be selling these at the same price as non-organic products. Apparently the company has bought up nearly 40% of the world's organic vegetable crop to meet growing demand. Iceland was the first to stop using genetically modified ingredients in its own brands, and the move to supplying organic foods looks to be part of the move to reposition the brand away from the dowdy image it has had in the past.

This morning we saw Tesco (LSE: TSCO) and Somerfield (LSE: SOF) making announcements, and they couldn't have been more different. Somerfield announced that it is to cease development of its 24-7 Internet shopping business and dispose of the three 24-7 fulfilment centres. John von Spreckelsen, the recently appointed Chief Executive said that they may come back to looking at e-commerce in the future, but 24-7 has not been growing and it was "a significant distraction to management", and that they needed to focus "on the core Somerfield and Kwik Save businesses." At the same time, at the Tesco AGM, the UK's leading supermarket claimed it was the world's number 1 online grocer, with 500,000 registered customers for its online service, and new customers joining at the rate of 2500 a week. John Gardiner, the chairman, said that sales in the first quarter of the current year had grown by 10.1%. In the UK sales were up 7.1%, but with prices continuing to come under pressure. Tesco is continuing to expand selling space and will add a further 1.3 million square feet in the UK next year. International sales were up almost 52%, and this growth should continue as the company plans to add another 3.1 million square feet of selling space outside of the UK. This includes 29 hypermarkets in central Europe and Asia.

Earlier this week Verdict Research said that shopping over the net has exploded over the last six months, with Internet sales up 71% in the six months to the end of April 2000 compared to the previous six months. Total spend across all sectors is expected to rise to £12.53 billion within 4 years, giving online businesses an estimated 5% of total retail sales.

So with Somerfield giving up on the Internet, where does that leave the rest? Iceland was the first to offer free delivery on its online shopping service, as long as you buy over £40 worth of goods. Iceland is able to serve over 97 per cent of the UK's population with its online grocery service. Iceland is taking about 5000 orders a week and has over 150,000 people registered. While this sounds impressive it is amazing to realise that the company takes 90,000 orders a week through its catalogue-based Talking Food telephone ordering operation! So much for the Internet then!

Clearly Tesco has claimed the leading position on the Internet, and only Iceland seems to be putting up a serious fight. Sainsbury (LSE: SBRY) is lagging behind (in a way that we have now all become used to), Safeway (LSE: SFW) and ASDA really seem to be nowhere in terms of e-commerce and Somerfield has given up. The question is: will Internet shopping for your weekly groceries really take off? And if it does, what will the supermarkets do with all of those expensive stores?

Related Links

• Tesco website | discussion board
• Iceland website | discussion board
• Internet Iceland -- by Maynard Payton