The old adage that attack is the best means of defence may well have been in the mind of Ocado chief executive Tim Steiner last month when he effectively declared war on rival online grocer Tesco.com. The Waitrose-backed service launched its own price comparison facility comparing prices of its branded goods with those of market leader Tesco.
In recent years the three top grocers plus Ocado have been expanding their distribution area and revamping their sites. Now they are turning their attention to each other as the home shopping's popularity grows.
However, the rules of the game are different from in-store, where promotions are designed around store navigation. The problem with selling online is that if the consumer is not looking for a product or promotion, they're not going to see it. This has led to many promotions being price-based.
Still, Ocado's move has been praised by industry observers. The store is aiming to dispel the image that branded products are more expensive than in Tesco and has created a comparison facility to offset this view. The move was seen as bold, especially as many analysts believed Tesco was sizing up an attack on Ocado's stronghold inside the M25. Ocado founder Jason Gissing thinks it will demonstrate price effectiveness. "It will cost several million pounds but we can afford it."
There is plenty to fight over. According to grocery analyst IGD, around 18 per cent of people already do their weekly shop online, with the figure expected to double by 2012. The number of online shoppers has also risen by 30 per cent in the past year while one in ten consumers believes they will not be shopping in a supermarket in five to ten years.
IGD senior business analyst Gavin Rothwell says: "The online grocery market is only two per cent of the total market but it's growing six times as fast. We've become used to buying books and holidays online but the technological revolution has yet to impact the way most of us buy our groceries."
These trends could signal a challenge for how brands are able to promote products, especially with regard to on-pack as only generic packs are shown online. According to Ella Norton, head of user experience at Asda.co.uk agency GT, the way sites are designed means there is little scope for brands to run promotions such as on-pack competitions.
Kellogg sales development manager Robert Suth says the company is increasingly focused on how its products are sold online. "The online are area is something we want to explore with the retailers and that's a direction we want to head in," he says. Suth is aware of the problems of relaying an on-pack promotion through an online store and says it is something to be looked at further down the line. Kellogg is also mooting the idea of creating links to product promotions as well as segmentation.
The majority of promotions online at the moment are based around price promotions and multibuys. According to GT's Norton, however, supermarkets are ready to revamp their online offer and make it easier for consumers to shop. "Sainsbury's were looking at creating a device that would allow you to create a shopping list in your kitchen," she says.
Despite technological advances, promotions are most likely to remain in the realm of BOGOFs, says Norton. Online promotions are likely to be based around the use of shopping-list and targeted communications for email.
Tesco.com is still the undisputed king, yet it is interesting that the number two position in online grocery market share is tightly contested by Sainsbury's and Ocado. This is despite the former having a much larger coverage than Ocado, which is limited to the M25 and along the M1 - and which may just demonstrate that, regardless of the internet's range, everything comes down to location in the end.
FACT FILE
£2.4bn - UK online grocery market
10% - the number of consumers who say they won't be using grocery stores in 10 years
3.2% - estimated yearly growth over the next five years
Source: IGD.