UK supermarkets are losing hundreds of millions of pounds in profits as they are left “overexposed” to the higher costs associated with online grocery.
British grocers stand to lose a whopping £246 million in profits for every percentage point increase ecommerce sales take of the total grocery spend in the country.
According to new figures from trade credit insurer Euler Hermes, ecommerce sales now account for 12 per cent of total grocery market revenue in the UK, well ahead of Europe’s closest rival France at eight per cent.
This means that UK supermarkets are far more exposed to cost pressures associated with disruption and investment in ecommerce supply chains.
However, it is not just the UK that is being hammered by the increased costs associated with online fulfilment.
In its European food retailers: The bitter digital aftertaste of the Covid-19 legacy report, it estimates that for every percentage point increase in online grocery sales across the Eurozone, retails will lose €13.6 billion in sales and up to €1.9 billion in profits.
“The UK’s already well-developed appetite for online grocery shopping has left it overexposed by the surge in household demand during the pandemic,” Euler Hermes advisor for macroeconomic research Aurelien Duthoit said.
“As we head into the traditionally busy ‘golden quarter’ amid disruption and increased costs across the supply chain, it’s imperative that retailers are able to meet any further uptick in online demand efficiently.
“While grocers are looking to attract customers back to their stores following successive lockdowns, they should be looking to rotate their investment to adjust for a sustained increase in e-commerce. Investment in the past 12 months has rightly focused on expanding online capacity but more sustainable models will need to prioritise profitability – including a redesign of current logistics infrastructure and extensive uptake of new warehouse automation technologies.
“We’d also expect to see fledgling partnerships between traditional retail brands and food technology businesses continue to blossom – be that delivery specialists, dark store operators or logistics companies offering software and warehouse services.”