The online grocery market, which is an extension of the home-shopping philosophy, provides both consumers and retailers with many advantages. For the consumer, these include the ease and convenience of shopping via a computer, and the ability to search for products, to compare prices and to arrange delivery, usually at a time that is suitable for them. For retailers, online sales provide easy access to customers and gives them the ability to offer a wide range of items online that consumers may not have the time to view in-store. In addition, retailers are able to develop their share of a fast-growing sector of the market.

There are, however, some formidable barriers to entry for companies considering entering the online grocery market. These include high start-up costs, efficient stock picking and replenishment systems, comprehensive delivery networks and user-friendly website design. Although some of the UK's leading supermarket chains are already established in online grocery sales, the omission from this market of some of the other leading grocery multiples would suggest that this method of home delivery is not suitable for all.

The most successful online grocers continue to be the traditional retailers with high profiles and brands that are already familiar to consumers. The supermarket chains — Tesco, Sainsbury's, ASDA and Waitrose — all operate in the sector, with Tesco (via its Tesco.com service) being the clear market leader. Another leading force in the market is Ocado, a warehouse-based online grocery retailer that is partly owned by the John Lewis Partnership, which also owns Waitrose.

The online grocery market continues to boom, with many of the leading suppliers reporting record sales and orders in the final months of 2005. The buoyancy of the market has encouraged companies such as Sainsbury's and ASDA to increase the coverage area of their delivery services, as well as the range of products available online. The range of products sold by Ocado is also set to rise.

Although the online grocery market is a relatively new channel for retail sales — and is one that Tesco has demonstrated can be profitable — many of the UK's other leading supermarket groups seem reluctant to enter. For example, Morrisons, the UK's fourth-largest supermarket chain, has yet to develop an online sales presence. In addition, other leading chains, such as Somerfield, the Co-operative Group, the Musgrave Group (which operates the Budgens and Londis fascia) and leading discount stores such as Aldi and Lidl, have no online operation. The Iceland Group did establish an online sale service in 2001, but closed this in 2005 quoting its loss-making burden.

Online sales of groceries are rising at a much faster rate than grocery sales in general, although it remains uncertain whether online demand is helping to expand the overall size of the grocery market or merely taking an increasing share of a sector that continues to expand at its traditional long-term rate. If the latter is the case, then it would suggest that grocery retailers who do offer online buying facilities have an opportunity to increase their share of the overall grocery market at the expense of those who do not.

Although the market for online grocery sales is expanding strongly, this does not appear to rely on extensive amounts of main media advertising. The amount of media advertising by Tesco and Sainsbury's on their online services accounts only for a relatively small percentage of their overall main media advertising expenditure, and levels of expenditure by the sector overall remain modest. Other forms of promotion by online grocers are viewed as being more appropriate for their activities.

The UK is now considered to have Europe's highest number, and the world's fourth-largest number, of broadband subscriptions. This high take-up level has enabled the UK to become a leading centre for online sales in general, and for online sales of grocery products in particular.

The main advantages associated with Internet shopping are the speed of transactions, convenience, ease of selection and, in many cases, price. Exclusive research carried out for this report (by NEMS Market Research in April 2006) shows that 11.7% of respondents have purchased groceries via the Internet at least once, of whom 2.5% make online purchases at least once a week and 1.4% two or three times a month. The largest proportion, 3.4%, purchase groceries online once a month. The research findings also suggest that users are moving towards more frequent online purchases and higher levels of expenditure per purchase.

Key Note forecasts that, over the next 5 years (to 2010), the UK Internet grocery market will continue to expand rapidly, accounting for an increasing share of retail sales predominantly in food stores. Between 2006 and 2010, the Internet grocery market is expected to rise by more than 20% year on year.

The online grocery market, which is an extension of the home-shopping philosophy, provides both consumers and retailers with many advantages. For the consumer, these include the ease and convenience of shopping via a computer, and the ability to search for products, to compare prices and to arrange delivery, usually at a time that is suitable for them. For retailers, online sales provide easy access to customers and gives them the ability to offer a wide range of items online that consumers may not have the time to view in-store. In addition, retailers are able to develop their share of a fast-growing sector of the market.

There are, however, some formidable barriers to entry for companies considering entering the online grocery market. These include high start-up costs, efficient stock picking and replenishment systems, comprehensive delivery networks and user-friendly website design. Although some of the UK's leading supermarket chains are already established in online grocery sales, the omission from this market of some of the other leading grocery multiples would suggest that this method of home delivery is not suitable for all.

The most successful online grocers continue to be the traditional retailers with high profiles and brands that are already familiar to consumers. The supermarket chains — Tesco, Sainsbury's, ASDA and Waitrose — all operate in the sector, with Tesco (via its Tesco.com service) being the clear market leader. Another leading force in the market is Ocado, a warehouse-based online grocery retailer that is partly owned by the John Lewis Partnership, which also owns Waitrose.

The online grocery market continues to boom, with many of the leading suppliers reporting record sales and orders in the final months of 2005. The buoyancy of the market has encouraged companies such as Sainsbury's and ASDA to increase the coverage area of their delivery services, as well as the range of products available online. The range of products sold by Ocado is also set to rise.

Although the online grocery market is a relatively new channel for retail sales — and is one that Tesco has demonstrated can be profitable — many of the UK's other leading supermarket groups seem reluctant to enter. For example, Morrisons, the UK's fourth-largest supermarket chain, has yet to develop an online sales presence. In addition, other leading chains, such as Somerfield, the Co-operative Group, the Musgrave Group (which operates the Budgens and Londis fascia) and leading discount stores such as Aldi and Lidl, have no online operation. The Iceland Group did establish an online sale service in 2001, but closed this in 2005 quoting its loss-making burden.

Online sales of groceries are rising at a much faster rate than grocery sales in general, although it remains uncertain whether online demand is helping to expand the overall size of the grocery market or merely taking an increasing share of a sector that continues to expand at its traditional long-term rate. If the latter is the case, then it would suggest that grocery retailers who do offer online buying facilities have an opportunity to increase their share of the overall grocery market at the expense of those who do not.

Although the market for online grocery sales is expanding strongly, this does not appear to rely on extensive amounts of main media advertising. The amount of media advertising by Tesco and Sainsbury's on their online services accounts only for a relatively small percentage of their overall main media advertising expenditure, and levels of expenditure by the sector overall remain modest. Other forms of promotion by online grocers are viewed as being more appropriate for their activities.

The UK is now considered to have Europe's highest number, and the world's fourth-largest number, of broadband subscriptions. This high take-up level has enabled the UK to become a leading centre for online sales in general, and for online sales of grocery products in particular.

The main advantages associated with Internet shopping are the speed of transactions, convenience, ease of selection and, in many cases, price. Exclusive research carried out for this report (by NEMS Market Research in April 2006) shows that 11.7% of respondents have purchased groceries via the Internet at least once, of whom 2.5% make online purchases at least once a week and 1.4% two or three times a month. The largest proportion, 3.4%, purchase groceries online once a month. The research findings also suggest that users are moving towards more frequent online purchases and higher levels of expenditure per purchase.

Key Note forecasts that, over the next 5 years (to 2010), the UK Internet grocery market will continue to expand rapidly, accounting for an increasing share of retail sales predominantly in food stores. Between 2006 and 2010, the Internet grocery market is expected to rise by more than 20% year on year.