At the beginning of 2018, the German online grocery market showcased clear characteristics of growth. However, there has been little progress over the last few months.
At present, only one in six households regularly buys groceries online. This figure is surprisingly about the same as it was in 2013 (Nielsen, 2018). As for the internet, it currently accounts for just 1.2 % of all food purchases. Although many consumers are logging online to gather information about products, they seem unwilling to buy them from there.
As a result, none of the big grocers, in Germany, are currently earning money by selling products online (Business Insider, 2018). One prominent reason for this stagnation is the high density of supermarkets in big cities. City residents are a vital clientele of any online business. Due to several supermarkets existing in a relatively smaller area, people have all the options near them. This has made online food shopping less relevant, as it is simpler to go out and directly buy food from the local store.
Then again, those living in metropolitan areas are more than likely to experiment with technology which has led to the belief that with time online grocery delivery might pick up. The answer, to the lingering question of whether the market is stagnant or if it requires time to expand and make an impact, will depend on the measures that companies take in the near future.
When we look at the market size of online grocery shopping, Germans spent 1.36 billion euros on it in 2018. While it might seem substantial, this figure is just a small fraction of the total money spent on groceries (153 billion euros in 2017) in general. In comparison to the worth of all goods and services ordered online (85.5 billion euros in 2018), it still falls significantly short.
More impressive is the rate at which the online groceries segment is growing - over 20% on an annual basis. This increase has led to further predictions by the German e-commerce association BEVH who believe that the market could expand to a size of 3.6 billion euros by 2023, almost triple of what it is now.
The chief players in the online market are Amazon, Rewe, Allyouneedfresh and Bringmeister (owned by Edeka). There has also been much attention given in the press to the Dutch startup Picnic.
Picnic has taken a different approach to the idea of grocery delivery which is making it stand out. Started in the North Rhine-Westphalia area, the company operates as a ‘modern milkman’ making regular delivery rounds at specific time slots. Moreover, they have invested in an easy-to-use app as well as electric vehicles keeping their operations environmentally friendly.
Why are consumers not buying groceries online?
According to a market study by Oliver Wyman, the primary cause for consumer disinclination in the online grocery market is the unwillingness to pay a delivery fee. The research shows that more than 46% of German consumers who currently do not buy groceries online would do so if there were no delivery charges.
Moreover, there is an indication that Germans prefer the experience of touching and feeling the product before buying it. A similar situation came up when companies like Amazon first started selling everyday products online. Although there was a shift in the trend over time, the case with food is different.
How to become profitable?
An essential challenge for current market players is to be productive while bearing high operational costs. The expense of renting space and maintaining a delivery infrastructure have been the primary reasons behind the withdrawal of key players from the online market in the past. Now, companies are either focusing on pick-up points or looking at alternatives for door-to-door delivery to reduce costs and improve customer satisfaction.
Although this market has shown little growth so far, there exists great potential. A recent study conducted by PWC shows a growing interest in online grocery shopping. 15% of consumers have already had an online grocery shopping experience so far, and 40% more plan to order in the next six months. These changes prove that people are slowly opening up to the concept and are ready to experiment with the possibility of getting food delivered to their homes regularly.
About the report
These insights derive from the Online grocery shopping report Germany. Results from our ongoing research are available in our webshop.