Retailers swallow online food cost to lock in shoppers

Wed Jul 9, 2014 6:27am EDT
 
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By Emma Thomasson

BERLIN (Reuters) - Big retailers are taking a calculated hit to margins to invest in online grocery operations, in the hope they can persuade consumers to add more profitable items like clothes and computers to their orders of fruit and vegetables.

Food has been one of the last things to move online because complex logistics for fresh, chilled and frozen products make it an expensive business. Retailers are also reluctant to lose the potential for the lucrative impulse buys that occur in-store.

However, retailers in Europe and North America are now ramping up their online food offer to compete with Amazon.com, which is expected to expand its sale of fresh produce beyond a few trial areas with the aim of complementing its non-food sales - and eating other retailers' lunch.

"They are trying to hook customers up to brands for their grocery shop and hope they will spend on non-food which is lower headache and higher margin, which will drive profitability," said Sophie Albizua of retail consultancy eNova Partnership.

"It is notoriously difficult to make money selling groceries online. The reason why people do it and need to do it have nothing to do with profit and nothing to do with groceries."

Britain has led the way in selling groceries online, with e-commerce already accounting for some 5 percent of food sales. Other countries like France are now catching up and the Boston Consulting Group (BCG) predicts the global market will grow to $100 billion by 2018 from $36 billion in 2013.

"COMPELLING ECONOMICS"   Continued...

 
Part of a slogan is pictured on the side of a Tesco supermarket delivery truck in New Malden southwest London June 4, 2014.  REUTERS/Luke MacGregor