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Online Grocery Shopping on a Verge of Breakthrough

The title is from a web site promoting Finland, back in 2010. If we were, back then, close to see a stellar growth in online grocery shopping, certainly it’s booming today! Unfortunately, the news was, as usual, a bit ahead of their times. In 2017 only 0.3% of the total grocery sales in Finland was online, roughly equal to two K-supermarkets. I’ve given a lot of thought on the future of shopping and especially to groceries. Here some of my thoughts – happy to receive comments and opinions to further deepen my knowledge.

What’s happening in the European market in online grocery shopping?

UK is the leading country in Europe in online shopping of all categories from clothing to food. Currently app. 5% of all grocery sales is online and it is projected to grow 50% in coming 5 years. 35% of Englishmen did order food over the internet during the past year. Yet if we look at the numbers a bit closer, one can notice that the 50% increase actually takes it to 7.5% which still isn’t very much. At the same time the biggest online grocery retailer Ocado profited 2018 only 12 million (2017 a loss of 0.5) from a turnover of 1572 million. Looking at the number of people using internet grocery stores, the curve is not pointing to the stars, actually it has been almost steady over the past five years and for the first time it was declining.

I’m looking at the UK numbers and trends as they are the strongest in Europe, although some smaller countries like Estonia and Netherlands have more people using the web as their grocery sourcing option. In any emerging technology the easiest way to predict the future, is to look at the markets where the penetration has been fastest. The rest are likely to follow, unless there are differences which obstruct the advance.

Delivery efficiency plays a key role in succeeding in the Finnish online grocery shopping market

How about Finland, where do we go? Some of the generally accepted prerequisites for successful online grocery trade are present in Finland. We do have access to fast internet widely available and also almost everyone has a smart phone. One thing we certainly don’t pass, is the population density, except for Helsinki area. I haven’t yet found a verified threshold for a mass and density, but it seems that so far only cities with at least 1 million of population succeed. The population density is the key driver for the delivery efficiency. That being said, it may change in future as new technologies emerge. We also tick in the box for high GDP (you may allow you the extra comfort regardless of small extra cost) and good infrastructure. Also, the elements come into the play, who wants to face the fierce winter weather to get their daily porridge?

So why then, only less than 10% of Finns ordered groceries online 2017? One of the reasons is a paradox; if there’s a limited supply there will be no growth and the demand remains low. Once things get going, they will grow fast – this has been proven in other markets. Recently the S-group opened a pick-up station just next door to where I live and I thought great, I’m going to try that. One afternoon I chose my usual pizzas and beer, with marginally lower cost than taking them from the store on my way home. Then, the delivery cost of 5 to 9 € was added and I was offered a pick-up slot the next day! As long as there are too few users, the delivery times are ridiculously long. And how could I predict if I’m home at a three hours slot to take the delivery? I assumed the pick-up would be the solution, but it wasn’t as the timeframe was the same three hours.

My conclusions on online grocery shopping experience

Unless the delivery times enhance, I don’t see the online grocery booming in Helsinki. Probably we need a totally new player in the market to shake up the establishment, like Ocado in UK. Until that, we are likely to go on with the less than one 1% of online of the total grocery sales. Outside Helsinki the local grocer can look forward to flourishing business, but some day sooner or later the sales of the local hypermarket in greater Helsinki area starts to decline. Meanwhile, I enjoy the 24h Alepa on my way home from the office – way more sustainable than any other means – or is it? A subject I need to discuss more in detail in my future texts.

Risto Vuorenrinne has worked in real estate business for 20 years. He holds a master’s degree in laws and engineering. In Trevian he’s responsible for new investments of international investors. Prior to joining Trevian Risto has worked with the world’s leading private equity investors advising them in acquisitions of assets In Finland. He has a long experience on commercial property development.