Huge supermarkets make a comeback in UK as online stores are overwhelmed
Ocado had such a spike in orders that it had to suspend both its app and online shop
London — For at least a decade, experts have been predicting the demise of the big box supermarket as online rivals such as Ocado Group muscled in.
Giant warehouse-style grocery stores with thousands of products seemed anachronistic in an era when consumers increasingly wanted to shop for fresh, locally produced food, or from the comfort of their living rooms. Now the biggest players with the scale to compete online and off are making a comeback.
“In our hour of need, suddenly having big stores with large car parks that can withstand multiple 38-tonne truck deliveries a day, wide aisles for social distancing, multiple checkout points and the ability for shoppers to click and collect has been really valuable,” says Clive Black, a retail analyst at Shore Capital.
Britain’s lockdown to curb the coronavirus pandemic has ignited demand at hypermarkets and turbocharged a shift to online buying as consumers rush to stockpile while keeping their distance from fellow shoppers. The shift presents an unprecedented opportunity for the big grocers to grab market share and generate brand loyalty, particularly for those judged to be handling the crisis well.
That hasn’t been the case for all retailers. Ocado, the UK’s only pure play online grocer, saw such a spike in orders it had to temporarily suspend both its cellphone app and its online shop last week. Its website on Tuesday still couldn’t accept new customers, and anyone attempting to access it was placed in a virtual queue of more than 10,000 shoppers.
Duncan Tatton-Brown, Ocado’s finance director, said last week it was growing at 20% in March and could be expanding even faster — fulfilling as much as four to five times more orders — if it weren't capacity-constrained. A fire that destroyed one of its UK warehouses in 2019 also affected its ability to respond to unprecedented demand.
An Ocado spokesperson declined to comment.
The grocer, which in the past has been feted for its rapid expansion and high levels of customer satisfaction, has been lambasted on social media. “How big does the Ocado queue have to get before we start referring to it as a percentage of the population?” tweeted Calum Richardson.
Roger, another Twitter user, tweeted that recent events had eroded his loyalty to the company.
Ocado isn’t the only company that has struggled to cope. The big supermarkets have had enormous strain placed on their supply chains as shoppers stripped the shelves of essentials. The grocers even took the unusual step of taking out an advert in national newspapers asking their customers to “buy responsibly” and only purchase what they needed.
Grocery chains including Tesco, Asda Stores and Aldi Stores. have announced plans to hire thousands of extra people to help them cope with the rising demand in stores. They’re also boosting their online divisions by increasing the number of staff picking products from store shelves to fulfil orders to be collected by customers or delivered to their homes.
“People will be eating in more as a result of social distancing and increased working from home,” says Fraser McKevitt, head of retail and consumer insight at Kantar. “Consumers spend more than £4bn each month on food and drink out of the home, a significant proportion of which will now be channelled through to supermarkets.”
Wm Morrison Supermarkets, Britain’s fourth-biggest grocer, reported last week that its like-for-like sales growth had gone from flat in February to more than 10% in the second week of March.
Brick-and-mortar supermarkets racked up 51% of all retail sales in Britain in the week ended March 17, according to Kantar data. That’s up seven percentage points from the comparable week in February.
James Grzinic, an analyst at Jefferies International, said the crisis was “stress-testing” retailers’ business models and potentially leading to changes in grocery shopping habits.
Whether those changes will be sustained after the crisis recedes is an open question. Nor is it clear which grocers will emerge as the ultimate winners.
So far, however, Ocado looks like the “biggest failure”, said Black at Shore Capital, because the “rigidity of its business model” prevented it from sufficiently ramping up capacity. “There will be some brand damage, as they have let a lot of people down,” he said.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.