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'Swift rise of online grocery in UK is now threatening retailers' profit'

'Swift rise of online grocery in UK is now threatening retailers' profit'
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Pooja Shrivastava
By Pooja ShrivastavaOct 11, 2021
Pooja Shrivastava
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Grocery shopping has gone online fast over a year marked by Covid-19 lockdowns. A new recent market report suggests that the online shift is now threatening to eat away a major chunk of UK grocery retailers’ profit with each point move.

Prior to the pandemic, e-commerce was sitting on a 5 per cent market share which has now more than doubled. ONS figures released in August 2021 showed the online grocery retailers now have 10.7 per cent of the market share.

Now, a new research “European food retailers: The bitter digital aftertaste of the Covid-19 legacy” by trade credit insurer Euler Hermes has put the figure of e-commerce sales at around 12 per cent of total grocery sales, despite Covid restrictions easing. That’s higher than in European markets including France (8 per cent), Italy, Spain and Germany (all 4 per cent).

More meals eaten at home and the flourishing sales of home and personal care products propelled annual grocery sales growth to +5.3 per cent in 2020, about twice the average growth rates seen in the 2010s, says the report.

Euler Hermes has also warned that for every percentage point increase in online market share, retailers could end up losing £246 million in profit because of the extra costs of online fulfilment. Its calculations assume that UK retailers operate with an EBITDA (earnings before interest, tax and asset write downs) of 3.7 per cent – the European average – while online fulfilment has a profit margin of -10 per cent.

The rise in market share and profits, exacerbated by current supply chain issues, is set to threaten store owners' business as a whole. The report also claims that retailers who can accelerate investment in digital capabilities will be able to equalise profits between their online and physical operations.

The report further added that the fact that the use of e-commerce for groceries has skyrocketed and continued to rise when the lockdown was lifted implies that consumer habits have definitely changed.

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