Online Food Shopping: Consumer perception and retailers market approach, contrasting the markets UK and Germany

Table of Contents

Abstract

Acknowledgements

Tables

Charts

1 Introduction
1.1 Background
1.2 Topic choice and justification
1.3 Research aim and objectives
1.4 Limitations of the research
1.5 Report outline

2 Literature Review
2.1 General definition and historic overview of the Internet
2.2 General definition of electronic commerce
2.3 Market overview Germany and UK
2.4 Consumer’s online shopping behaviour
2.4.1 Online shopping population
2.4.2 Increasing online shopping
2.4.3 Reasons for online shopping
2.4.4 Security concerns of online payments
2.5 Overview food retail market
2.5.1 Market approaches, business models
2.5.2 Food online shopping
2.6 UK and German Companies
2.6.1 UK Companies
2.6.2 German Companies
2.7 Summary of the Literature Review and Research Questions

3 Methodology
3.1 Research Perspective
3.2 Research Approach
3.2.1 Reliability
3.2.2 Validity
3.2 3 Generalisability
3.3 Research Design
3.3.1 Snowball sampling
3.3.2 Purposive Sampling
3.4 Research Strategy
3.4.1 Survey
3.4.2 Interviews
3.5 Data collection
3.5.1 Survey
3.5.2 Interviews
3.6 Method of Data Analysis

4 Data Analysis
4.1 What population is interested in online food shopping?
4.2 How is the food shopping behaviour in general?
4.3 Perception of online food shopping?
4.4 Do payment concerns effect online shopping?
4.5 Do supermarkets do good advertising?
4.6 What are the implications for the future?
4.7 What other sectors are of interest?
4.8 Summary Data Analysis

5 Conclusions and Recommendations
5.1 General definition and a historic overview of the Internet
5.2 General knowledge about the German and UK market
5.3 Different market approaches in the countries
5.4 Consumer food shopping and online shopping behaviour
5.4.1 How is the food shopping behaviour in general?
5.4.2 What population is interested in online food shopping?
5.4.3 Perception of online food shopping?
5.4.4 Do payment concerns effect online shopping?
5.4.5 What are the implications for the future?
5.4.6 What other sectors are of interest?
5.5 Outlook in the future
5.6 Recommendations for further research

7 Bibliography

Appendix 1 Questionnaire printout version English

Appendix 2 Questionnaire online version English

Appendix 3 Interview Notes: Interview

Appendix 4 Interview Notes: Interview

Appendix 5 Interview Notes: Interview

Appendix 6 Interview Notes: Interview

Abstract

The research’s aim was to contrast the retailers’ market approach and consumer perception of online food shopping in the markets Germany and UK.

The first part of the research project was the review of existing literature to build up knowledge about the history and definition of the Internet and to give a market overview of Germany and the UK. The next areas investigated within the literature review were consumers’ online shopping behaviour and the food retail market. The last part was concerned with specific companies from both countries and their market approach.

Research questions developed in the literature review were concerned with the food shopping behaviour and the perception of online food shopping. Additional questions were if payment security has an influence on online shopping and what other market sectors are of interest.

The first part of the survey collecting quantitative data was carried out within a sample of 100 food shoppers from the UK and 100 from Germany. Questionnaires were distributed using the snowball sampling method – a method where each respondent passes the questionnaire to a number of further contacts. Interviews built the second survey part where two participants from each country were questioned in-depth about their food shopping behaviour and perceptions. The interviews backed findings from the questionnaire survey and gave further information.

Quantitative data was gained and analysed by using the program SPSS. SPSS is a tool that provides the possibility to run statistical correlations between variables and provides graphical outputs to illustrate the findings.

The findings show great differences in consumer perception and retailers’ market approach between Germany and the UK.

While in the UK online food shopping is popular with consumers and some retailers found a way of establishing themselves in this market, German companies do not offer the service nationwide and consumers seem to have limited interest. Main reasons identified in the research lie in the differences within the economical markets and culture of the countries.

The outlook in the future shows an ongoing increase in online food shopping in the UK but less activities in Germany.

Acknowledgements

The final step to complete a Masters degree is the Dissertation. Writing a Dissertation is a time consuming and demanding process which I would not have been able to accomplish without the support and help of several people whom I want to thank here.

My first thanks belong to my parents who supported me not only financially but also with a never ending patience on my educational way. Starting with 13 long years of school in Germany they supported a further 5 years of under and postgraduate studies. I hope the future outcome lives up to their expectations.

For all the help over the last year I would like to thank my partner Chris who has shown amazing strength throughout very difficult times. I look very much forward to a hopefully healthy and less stressful future together.

My supervisor Mr. James Knight was always willing to give me immediate response to any questions regarding my work. The fact that he is based in London was not interfering with his role as supervisor at Bournemouth University. He supported the research project with insightful knowledge and dedicated large amounts of his time towards it. Therefore I would like to thank him very much.

The companies Blue Level and InfraNet-Dynamics sponsored the research with the set up and hosting of the online survey. All support in this area was very professional and the dedicated time is gratefully accepted.

Special thanks go to all the survey respondents whom I can not thank personally due to the anonymous nature of the research. The time and thoughts were much appreciated and without their help this research would not have been successful.

Finally my thanks go to all the new friends I met within the last year at Bournemouth University. Special thoughts go to Hannah, Clare, Jenni and Jouni with whom it was mostly good fun to live with, Lara & Mike which are a great couple and Rita who is a lovely girl. I hope to be able to stay in contact with all these great friends in the future.

Tables

Table 1: Country Frequency

Table 2: Country/Gender Frequency

Table 3: Country/Age Frequency

Table 4: Country/Occupation Frequency

Table 5: Country/Hours Frequency

Table 6: Country/People Frequency

Table 7: Country/Internet Con. Frequency

Table 8: Country/Supermarket Frequency

Table 9: Country/Transport Frequency

Table 10: Country/Time to S. Frequency

Table 11: Country/Shopping time Frequency

Table 12: Country/ordered Food Frequency

Table 13: Country/Use Frequency

Table 14: Country/Start OS Frequency

Table 15: Country/Easiness Frequency

Table 16: Country/Delivery Frequency

Table 17: Country/Freshness Frequency

Table 18: Country/Completeness Frequency

Table 19: Country/Reason Frequency

Table 20: Country/Security Frequency

Table 21: Country/Provide OS Frequency

Table 22: Country/Homepage Frequency

Table 23: Country/Future Frequency

Table 24: Country/Clothing Frequency

Table 25: Country/Books, CD Frequency

Table 26: Country/Furniture Frequency

Table 27: Country/Holiday Frequency

Table 28: Country/Information Frequency

Charts

Chart 1: Searches carried out in Oct. 2003 in the UK

Chart 2: Country/Gender

Chart 3: Country/Age

Chart 4: Country/Occupation

Chart 5: Country/Hours

Chart 6: Country/People

Chart 7: Country/Internet Connection

Chart 8: Country/Transport

Chart 9: Country/Time to S.

Chart 10: Country/Shopping time

Chart 11: Country/Ordered Food

Chart 12: Online shopping/Occupation

Chart 13: Online shopping/Age

Chart 14: Country/Use

Chart 15: Country/Start OS

Chart 16: Country/Easiness

Chart 17: Country/Delivery

Chart 18: Country/Freshness

Chart 19: Country/Delivery

Chart 20: Country/Reason

Chart 21: Country/Security

Chart 22: Country/Provide OS

Chart 23: Country/Homepage

Chart 24: Country/Future

Chart 25: Country/Clothing

Chart 26: Country/Books, CD

Chart 27: Country/Furniture

Chart 28: Country/Holiday

Chart 29: Country/Information

1 Introduction

1.1 Background

With the entrance into the new millennium we finally arrived in the information age. Both in the home and workplace, we are surrounded by an ever changing environment, full of new technologies. These technology based systems and devices are marketed at helping to improve our efficiency and enabling us to do traditional tasks in new and innovative ways. This further development in technology is now supporting companies and individuals to cope with day to day business, and for that matter to improve life style.

One of the biggest steps in this technology innovation and movement towards the information age was the development of the Internet. Since the 1990’s the importance of the Internet for the broader public is continuing to grow. The development of the Internet started in 1968 with the aim to create a communication tool for military purposes (Leiner et al, no date). Some 25 years later the Internet was developed further and open standards were published. Companies discovered the advantages of the Net as a commercial tool. Nowadays it is common for businesses to place advertising on the Internet, contact consumers via email and have an online sales and ordering systems. Firms which do not adopt their strategies to this new market approaches are in danger to be overtaken by more innovative competitors.

The most famous person in this context is Sir Tim Berners-Lee who is known as the inventor of the Internet as we use it today. Sir Tim Berners-Lee was made a ‘Knight Commander in Order of the British Empire’ by Queen Elisabeth in early 2004 for his “services to the global development of the Internet” (W3C, 2003). Berners-Lee himself is amazed by the effects of the Internet. He told the British Broadcasting Company (BBC) (BBC, Web inventor…, 2003) that “he never expected his invention would lead to such an accolade”, he saw it as “just another program” at that time. How wrong he was with the underestimation of his invention is shown by today’s massive internet adoption rate throughout the world.

The Internet’s initial public adoption was primarily taken up by education institutes. This has now broadened significantly. Students now get lessons at school how to handle computers and today there are companies which offer their products and services over the Internet as their only route to market. This leads us to accept the Internet as a mature and proven environment for recreation, lifestyle and commercial purposes.

On one side, there is the advantage of technology and on the other, the changing lifestyle we all lead in this technology era. Since living in a technology driven world, people in the western countries have become used to take advantage of the services and devices which enable them to fulfil their duties faster and to enjoy more spare time. Individuals attempt to work hard and earn reasonable amounts of money which they, in turn, spend to increase their available spare time, e.g. cleaners, and to use this newly created time use for personal benefit, e.g. gym or wellness programmes.

The present research is concerned with finding out how food retailers are dealing with the trend to use the Internet as a commercial tool to reach customers. Food retailing is an industry with a well established traditional market approach. With increasing usage of the Internet in other industries, some key players in the food retail market have decided to change their approach and to provide so called “Online Shopping”.

1.2 Topic choice and justification

The idea for the research topic was developed due to experiences of different consumer behaviour in the two countries Germany and the UK. The question why the UK food retailers have a different market approach to German ones and if this is conforms to the consumer perception could not been answered by existing academic studies.

The report outcome gives an overview of the major differences between the two markets UK and Germany and provides suggestions why these differences may occur.

The findings of the research will give companies in Germany and the UK an overview if they are on track with their market approach or if they should rethink their strategies.

1.3 Research aim and objectives

Aim

The research is aiming to find out what the differences in the retailer’s market approaches between the UK and Germany are and if the approaches conform to the actual consumer perception between these two different markets.

Objectives

The first objective of the report is to establish a general definition and a historic overview of the internet and electronic commerce. This is followed by an investigation about structure and development of the German and UK market in general.

The next objective is to understand the consumer behaviour concerning online shopping followed by food shopping perceptions. To find out about different market approaches of food retailers in Germany and the UK is the next objective.

At least this research will compare the online food shopping possibilities with the consumer perceptions in both countries and estamlish if they are in line.

1.4 Limitations of the research

This research aims to build general knowledge about food retail markets in Germany and the UK related to online shopping. The study investigates the consumer perception of food shopping with the focus to compare what consumers want and what supermarkets offer. The main limitation in this case is based in the sample size and structure. The information regarding consumer perception of online food shopping is based on a survey undertaken in Germany and the UK and including about 100 people in each country. The findings are relevant for this sample but it is assumed that they are applicable for a more general picture. Nevertheless there may be differences in findings if perceptions of another sample are taken.

1.5 Report outline

The structure of this report is divided into five main sections.

The given introduction has built up the background of the research as well as the reasons why this research is of general interest. It explained the aim and objectives of the study but also its limitations.

The introduction is followed by the second chapter, the critical literature review. The literature review is exploring which relevant body of knowledge already exists. This will lead to a picture about general consumer behaviour and food retailers market approaches. The literature review ends with a summary about the existing body of knowledge and with further research questions in areas which are not covered by existing literature.

The third section is about the methodology of the research project which means it explains in depth which approach the research is taking, the way in which the research is designed and the way data is collected. Also the issues reliability and validity are addressed in this chapter.

The fourth chapter is concerned with the data analysis where the gathered data is analysed and findings are explained. The findings are compared with the knowledge gained from the literature review and build into the general picture.

The last section is built by the conclusions drawn by the research findings. Here it is viewed if the findings meet the aim and objectives of the research project. Further perspectives for the future and recommendations for further research are given in this chapter.

The following literature review is exploring existing literature to see which topic related findings are already established. The literature review is viewing books, journals, newspapers and internet articles.

2 Literature Review

The structure of the literature review is based on the objectives of the project and is establishing the general definition and a historic overview of the internet and electronic commerce. To give better understanding of the situation in both countries and to gain knowledge about possible reasons for differences between consumer behaviour the general market situations of both countries are investigated. The literature review is also focusing on the market approach of different food retailers and the consumer’s shopping behaviour in the UK and Germany.

The sources used in this literature review are related to the Internet and ecommerce. These two main topics are very fast changing which means information get old in a relatively short period of time. This choice of topic requires a literature review viewing mainly recent findings, statements and opinions. Due to this the present review is viewing many Internet sources and recent articles rather than books.

2.1 General definition and historic overview of the Internet

There are several books and articles existing about why the internet was built and how the World Wide Web (www) developed. Most of them are written for computer scientists with very technical explanations. This first part of the literature review is aimed to collect information which is understandable for ‘normal’ computer and internet users.

Nearly all statements about the history of the internet start with the emergence of a project called ARPANET (Advanced Research Projects Agency Network).

Kristula (no date) stated that the idea of ARPANET was established by the US Department of Defence to rebuild the “US lead in science and technology applicable to the military” after the USSR launched the first earth satellite, Sputnick.

Ruthfield (no date) supposed that in 1964, in the Cold war, the US military was concerned that their communication could be affected by an attack. This fear was caused due to the fact that all communication systems were centralised and could be a target for enemies. Ruthfield states further that the ARPA (Advanced Research Project Agency) as a part of the Department of Defence was responsible for the funding of research projects witch were concerned with technological or military problems. In this case they “became interested in developing a way for computers to communicate with each other”.

The paper ‘A brief history of the Internet’ was written by Leiner, Cerf, Clark, Kahn, Kleinrock, Lunch, Postes, Roberts and Wolff, all people who where actively involved in the development of today’s Internet and have insight knowledge about the procedures.

Leiner et al (no date) reports how different research groups started to research in the problem area. They “all proceeded in parallel without any of the researchers knowing about the other work”. All groups came to the conclusion that the idea of sending information form one computer to another is only possible if the information is send by so called packet switching.

Kristula (no date) explains that “packet switching is the breaking down of data into datagrams of packets that are labelled to indicate the origin and the destination of the information and the forwarding of these packets form one computer to another computer until the information arrives at its final destination computer.”

Cerf (no date) cites that the act of different computers communicating with each other is called the “Internetting project” and the final result of the research was the “Internet”.

The next big step in the ARPANET project was the connection of four nodes. Leiner (no date) cited that the University of Utha, UC Santa Barbara, Stanford Research Institute and the Network Measurement Center were connected in 1969. He suggests that this event in 1969 builds the start of the Internet.

There is no fixed definition for the word Internet existing. Different people and institutions use different definitions but all describe the same network.

Alexandrou (2003) defined the Internet as “a worldwide system of computer networks – a network of networks in which users at any one computer can, if they have permission, get information of any other computer.”

The Hyperdictionary (2004) defines the Internet as “a computer network consisting of a worldwide network of computer networks that use the TCP/IP network protocols to facilitate data transmission and exchange”.

Kristula (no date) states as the next major event the invention of the first e-mail program which was in 1972. He also cited that in 1973 the invention of the TCP/IP (Transmission Control Protocol/Internet Protocol) as the next important step.

Leiner et al (no date) identifies that the TCP/IP was developed to support the idea of an open-architecture network environment. An open architecture made it possible so that other networks can connect themselves with the Internet and communicate with each other.

Rutherfield (no date) argues that the idea behind the new protocols was to enable the Internet to deal with more users at a time. He contrasts the increasing numbers of hosts (connected terminals) before and after invention of TCP/IP. In the years from 1969 till 1977 only 107 hosts were added to ARPANET while in 1994 over one million hosts where added to the Internet.

Kristula stated that in 1992 one of the most important events took part, the development of the World Wide Web (WWW) released by CERN.

CERN’s homepage (CERN, 2004) states that CERN is the ‘European Organisation for Nuclear Research’. They state further that the WWW was invented by Tim Barners-Lee who was employed by CERN. His project was to invent an Internet protocol which was easy to use for scientists working in different universities and institutes. The tool developed by Barnes-Lee is the so called Hypertext Transfer Protocol (HTTP) which is still in use.

Alexandru (2003) defined the World Wide Web as “all the resources and users on the Internet that are using the Hypertext Transfer Protocol (HTTP)”.

The inventor of the WWW, Tim Barnes-Lee, is nowadays chairman at the World Wide Web Consortium (W3C). The W3C was established in 1994 with the target to “lead the World Wide Web to its full potential” (no author, homepage W3C, 2003).

The British Broadcasting Company (BBC, Web Inventor …., 2003) called Sir Tim Berners-Lee the “Father of the Web” when he finally was awarded the title Knight Commander of the Order of the British Empire. The awarding ceremony took place in early 2004 and was held by Queen Elisabeth.

The World Wide Web Consortium which director Sir Berners-Lee is states that he sees his knighthood as an award for the whole Internet community including developers and inventors whose work was needed to create the Internet (W3C, 2003).

2.2 General definition of electronic commerce

Alexandru (2003) defined electronic commerce as “the buying and selling of goods and services on the Internet, especially in the World Wide Web.” He also states that the term electronic business (e-business) is often used as a synonym.

The authors of the web-design-uk Internet page (2003) agree that ecommerce means selling goods on the Internet, using web pages.

Authors of internet.about.com (2004) divide ecommerce into business to business (B2B) and business to customer (B2C). They argue that in B2C ecommerce most important business steps can be provided online or supported by the Internet. These steps are promotion, ordering, delivery and after sales support. They argue that expenditures for promotion on the Internet will increase enormously due to consumers which start to search for product information online. Common promotion tools are banners, pop up windows and emails. The ordering process over the Internet is one of the main features of the B2C commerce according to internet.about. Placing orders is easy and convenient for users because it also involves the payment online. Product delivery is for digital products only. The after sales support includes search engines, emails support and consumer groups.

The existing literature about definition and history of the Internet and electronic commerce is complete and no further research is needed in this area.

The next section is giving an overview about Germany and UK. This is important to understand the stages the markets are in at the moment.

2.3 Market overview Germany and UK

The two markets UK and Germany are in different stages of market development. Germany is in a depression and the UK is in a stage of stable growth in most areas. The situation a country is in has a great influence on consumer behaviour; therefore this literature review discovered the present market situation in both countries and gives an overview over the technology adoption in each country.

The World Factbook (2004) identifies that the United Kingdom of Great Britain and Northern Ireland (UK) has a total area of 224,820 sq km and a population, estimated in July 2003, of 60,094,648 people. It is stated that services make up the largest part of the UK’s economy with 74%. The major areas are banking, business services and insurance. The World Factbook identifies that the UK economy is one of the strongest in Europe with low interest rates, low inflation and a low unemployment rate. This economical background gives UK consumers a feeling of security and large buying power.

The Federal Republic of Germany (Germany) has a total area of 356,021 sq km and a population of 82,390,326 people (The World Factbook, 2004). With this numbers Germany is the larges economy in Europe but with a weak performance over the last decade. The World Factbook argues that the integration of eastern Germany is a “costly long-term problem”. With high unemployment and slow growth Germany’s deficit has now risen above the EU’s 3% debt limit (The World Factbook, 2004).

The strongest difference between the two countries affecting consumers is the unemployment rate. The BBC (BBC, Jobless…, 2004) stated recently that the UK unemployment rate is at 4.9% of the workforce. This number is the lowest in the last 20 years. The BBC also argues that the number of people claiming unemployed benefits is the smallest in the last 30 years. With that and an increase in average earnings of 3.4% the BBC suggested that the market situation provides a “healthy outlook” (BBC, Jobless…, 2004).

The situation in Germany is different. As stated by the Mittel deutscher Rundfunk (MDR) a German public broadcasting station the rate of unemployment rose again at the end of 2003 up to 10.5% of the workforce (MDR, 2004).

The BBC (BBC, Jobless…, 2004) also argues that the German economy is still fighting with the affects of the fall of the German Wall 14 years ago. The BBC stated further that major problems occur in eastern Germany where the unemployment rate is double than in the west.

As reviled at the homepage of the UK parliament (2004) the amount of part-time work in the UK is much higher than in Germany with Figures of 25.3% compared to 17.6. The UK lie much over the European average in part-time work according to this figures.

T-online (2004) an international Internet provider argued that the German economy will become more successful in 2004 but that slight economical improvement will take a long time to be seen in consumer behaviour. T-online states that German consumers are alarmed by the economy and that the spending behaviour is deeply affected.

The CyberAtlas (CyberAtlas, 2004) offers latest statistics on Internet users world wide. CyberAtlas uses where available Nielsen//Net Rankings to provide not only figures for Internet Users but also for numbers of active users. Active users are people which go online in a given month and not all users with Internet assess.

For Germany CyberAtlas stated 44.13 million Internet users and 27.97 million active users. For the UK there are 34.3 million users registered and 21.3 million users are called active (CyberAtlas, 2004).

Greenspan (Western…, 2003) argues based on findings from Jupiter Research that the number of broadband connections in Europe will overtake the US figure. He identifies that –based on May 2003 figures- the Internet adoption rate within Europe differs dramatically. The UK presents the highest number of internet users in percent of the population with a rate of 57%. Germany with a bigger population but in relation fewer internet users had an adoption rate of 39% by May 2003 according to Greenspan.

The ebusiness Forum (2003) ranked countries by their readiness for ecommerce. The UK got into rank 3 with a government announcement to become the “most competitive broadband market in the G7 by 2005” (ebusiness Forum, 2003). The UK also has a minister for e-commerce and the goal is to have all government services available online by 2005. This development is supported by a change of the broadband pricing strategy by the UK’s main telecommunications supplier British Telecommunication Plc (BT) who reduced prices significantly.

Germany has ranked 13 out of 60 countries compared in their readiness for ebusiness stated by the ebusiness Forum (2003). According to Meta Group (cited in ebusiness Forum, 2003) this is due to the fact that German companies reduced their Internet budgets in 2002 after the slow down of the Internet boom. The German government is supporting ebusiness as well by planning to make all services online by 2005.

The reviewed literature builds a picture about the market conditions in Germany and the UK. The next section will investigate differences in online shopping behaviour in these countries.

2.4 Consumer’s online shopping behaviour

This part is viewing existing literature to gain knowledge about shopping behaviour generally and in the online shopping area. The shopping behaviour changes gradually with changes in peoples lifestyles.

2.4.1 Online shopping population

The Internet company Webcheck (2003) describes a study undertaken in 2001 where it was found out that people who are self employed and between 25 and 34 build the group which is most likely to buy online.

Greenspan (Gains…, 2003) on the other hand refers to a research carried out by a German research company the GfK Group. They found out that the majority of online shoppers is male and between 30 and 39 years old.

The retail consultancy Verdict (cited by IMRG, Women…, 2004) agrees that men are the main UK online shoppers with 53.7% but that UK women spent more money then men in 2003. They predict that the balance between UK male and female Internet users will shift in the future and that men won’t be the majority on the Net any more.

The BBC (Women out.., 2003) had as one of its news headline “women outspending men on internet” to introduce the finding that women increased their Internet spending by 71.4% in 2003. The BBC argues that the change in women’s attitude will be the major driver for online sales increases. Another group of interest for online business marketers are the over 55 year olds. This group, not gender divided, has the highest online spending amount per person. The BBC supposes that this is due to a large disposable income and the fact that people see surfing the web as a new hobby to find good deals on the Internet.

2.4.2 Increasing online shopping

Rush (2004) argues that with an increasing knowledge and comfort to use Internet functions such as search engines and email programmes the consumers willingness of using ebusiness will increase rapidly in the next five years. Rush stresses that businesses should focus their efforts on the new users which try online business for the first time. After targeting them and having first business contact with them she recommends retention marketing to keep customers.

Rush points at research findings gained by the research company Jupiter. These findings divide industries into three categories of growth within the next five years: Plateau, Steady and Steep. Companies in the Plateau category are on a high online sales level already and will experience a growth rate of lower than 10% per year. This category includes the book, PC and software industries. Companies in the category Steep will have online sales that are predicted to rise over 30% annually. Industries in this sector are home improvement, the food industry and over the counter drugs. The last category consists of industries which are selling high volumes on the Net like the clothing and electronics industry.

An analyst at the Jupiter research agency, Freeman Evans (cited by Greenspan, E-commerce…, 2004) states that 1.9% of all retail sales were done online in the last quarter of 2003. She argues that this figure will increase up to 5% in 2008. Another increasing role of the Internet is the information function. Freeman Evans identifies that offline purchases will be increasingly influenced by online research. She predicts that the number of offline sales influenced by searches in the internet will be at 30% in five years.

Greenspan (E-commerce…, 2004) suppose that the largest amount of money spent online will be in the travel sector. He defines that this sector will make up for 34% of the total ebusiness spending by 2008 in Europe. He proposed that the travel industry is followed by the book business which will be on second place in 2008.

The Interactive Media in Retail Group (IMRG, Online…, 2004) identifies that the tourism sector had the strongest growth in online sales in 2003. The number of sales on the Net increased by 112% over the year 2002 figures.

Another report written by the IMRG (e-Christmas…, 2003) shows in which sector of industry the most searches where carried out in November 2003. The measuring included 85% of the UK online users. The largest sector with 38% of all searches was the electronic and appliances industry followed by the travel sector with 13% and the food and drink sector with 10% of all searches.

Chart 1: Searches carried out in Oct. 2003 in the UK

Abbildung in dieser Leseprobe nicht enthalten

Source: Overture (cited in IMRG e-Christmas Report, 2003)

The BBC (2003) argues that electrical goods are the fastest growing online sector with a rise of 47% in the recent year. This rise stands for the figure of £ 204m (BBC, Internet shop…, 2003).

BBC reporter Webber (BBC, Clever…, 2003) identifies that marketing is crucial for online services. He stated that Google, the largest Internet searching engine is changing its approach on who is top of the list on keyword searches. Nowadays big companies with the necessary monetary resources are buying their places with money. This builds a disadvantage for smaller businesses which can not afford to pay. Now Google is about to introduce a new service where companies can place their links free of charge.

Webber argues that this development will increase the pressure to find other ways of marketing. He suggests that partnerships with other companies which have a similar target group are a very cost saving method to reach a broad population.

2.4.3 Reasons for online shopping

Tanskanen et al (2002) argue that a recent survey found out that the most important reason for doing online shopping is to save time and the convenience of online shopping. Tanskanen et al underlines these findings with another survey which stated that the average household visit shops nearly 5 times per week and spend 48 minutes per visit on a weekday and 58 minutes on weekends shopping. They state that 57% of this time is spent in cars travelling to and from the shops.

The IMRG (e-Christmas…, 2003) agree that the main advantage of online shopping for consumers is the time saving aspect. In their research about the Christmas season 2003 one of the findings is that online shopping is four times quicker than going into the physical shops. They also found out that shopping before Christmas is the most stressful part of the festive days.

A survey undertaken by Chen and Chang (2003) on the College in Denver focused on the question why consumers do online shopping. They found as the two main reasons, value and convenience. Value was gained due to the fact that consumers made the experience of easy to compare pricing due to the support of search engines. Convenience is, for the questioned consumers, to be able to purchase goods without having to visit shops and order products which will be delivered to the door.

Chen and Chang (2003) found out that even if the respondents were concerned with security risks and some complained about the handling of returns and refunds, the majority stated that they will use the Internet again. The level of satisfaction was very high with an average figure of 4.34 out of five.

The survey found out that one advantage of the Internet is the possibility to gain in depth product information through a search engine.

2.4.4 Security concerns of online payments

A high level of concerns regarding security risks with online payments do not stop German consumers to shop online, is a finding of Greenspan (Gains…, 2003). He further quotes a Forrester research which compares credit card usages. The findings are that 67% of UK residents use a credit card in contrast to only 36% Germans. He suggests that mistrust could be the reason for this behaviour.

The IMRG (Online…, 2004) states that visa cardholders in the UK increased their online spending by 91% in 2003 compared to the previous year. In the IMRG Christmas report is stated that spending with Visa cards on food and drink went up 146% in the UK within the last year.

Visa (cited in IMRG Christmas report, 2003) stated that they are confident that online sales numbers will rise in the future because of the easiness for users and enhanced payment security online.

A research study undertaken by Singh and Hill (2003), both Professors of Marketing in the USA, is concerned with the relation of privacy and the Internet in Europe and Germany in detail. Findings of the survey were that consumers in the EU are protected by laws enforced by their governments and the European Commission.

Singh and Hill (2003) discovered that German consumers are affected in their Internet usage by privacy and security issues. Consumers stated that they believe that companies are responsible to ensure that submitted data is protected and not used differently than the original purpose. The survey also showed that consumer’s level of trust concerning privacy protection is low. Another finding was that concerns about privacy stopped consumer to purchase an item over the Internet.

The chapter investigated existing literature in the field of online shopping behaviour. The next chapter is viewing the food retailers’ market approaches.

2.5 Overview food retail market

The food retail markets of Germany and the UK are fundamentally different. McClellan identifies that food online shopping in the UK has a big significance whilst “no one is offering an online grocery shopping service in Germany” (Omwando, cited by McClellan, Sweet…, 2003).

Blythman (2003) cites an international survey carried out by the Competition Commission in 1999 which found out that UK retailers had on average over 2% higher profits than other European countries. Another finding was that food prices were 12% – 16% higher in the UK than in Germany and other countries. The Commission put higher pricing towards differences in exchange rates and higher fixed costs like buildings and lands.

2.5.1 Market approaches, business models

The UK’s food market changed recognisable in the last 50 years. Blythman (2003) identifies that after the Second World War consumers were served at a counter in independent shops. During the 50s Blythman argues that they were the first self-service supermarkets but ten years later already 2000 had changed their business approach. Nowadays there are over 4500 supermarkets most of them belonging to one of the four major chains which are dominating the UK market. Blythman states that the well known UK supermarkets are Tesco, Sainsbury’s, Asda and Safeway. She cites the Manchester School of Management when saying that there might not be one independent food retailer left in 45 years.

Kalakota and Robinson (2001) argue that traditional market channels are changing and new channels have to be adopted by businesses. They identify that a typical ebusiness model is the so called click-and-brick model and introduce a formula for this term. The formula is: “(brick-and-mortar) + (click-and-order) = click-and-brick (C&B)” (Kalakota and Robinson, 2001). They explain that the model allows traditional businesses to cooperate with online companies or to build their own online division. In both cases is the traditional business concept still existing but extended by the online part.

Kalakota and Robinson (2001) also argue that there are Internet companies which seek to build their own physical business.

Tanskanen et al (2002) identify that in recent years there have been many food online stores in the US which started a pure online business and struggled to succeed. These firms were ‘electronic copies’ of traditional supermarkets. They argue that these companies never reached the break even point and where forced to give up in order to be taken over by the long established brick and mortar companies. Tanskanen et al propose that the combination of traditional retailing joined with ecommerce will be successful in the next years. They discover further that there have not been any serious online-only food retailers in Europe. Here the traditional companies adopt the ecommerce model but much slower than US companies. They argue that this delay is due to fears of cannibalism of the own business and high investment in the long established models.

Anckar et al (2002) agree that the main reason for the failing of pure online food retailers in the last years was that they did not build any advantages over traditional brick and mortar companies. Another problem discovered by Anckar et al is that companies have overestimated the market for online business at that time.

A six step market approach proposed by Tanskanen et al (2002) is supposed to build a successful Internet food shopping process.

They argue that companies have to start their business in an area with a high population concentration to gain a profitable logistic system. The second crucial point is to build trust between the retailer and customer. The third success factor is to maintain high buying power followed by operational efficiency and a high service level. Fifth a good online appearance and clear product information are important to let the customer feel comfortable. The last recommendation for a successful online business is to improve the product range with non-food items with high profit margin.

2.5.2 Food online shopping

Anckar et al (2002) argue that online food retailing is a tricky business. They state that the type of product is not suitable for online shopping. One issue is that food is a tangible good which can not be delivered over the Internet. Another point they make is that food is perishable. Anckar et al argue that consumers want to choose the goods they buy. They are convinced that even if consumers trust the food retailers to be able to deliver fresh food there is still a difference between personal preferences.

Tanskanen et al (2002) identify the real customer needs in food shopping and questioning general beliefs about consumer needs. The beliefs are that consumers need all shopped goods immediately and that they want to choose fresh goods themselves.

They argue that there are only a few products used instantly after purchase which are out of stock. Tanskanen et al (2002) name milk and bread as usual instant use products and argue that this items are not interesting for online food retailers due to the immediate nature. They state that all other goods, especially repetitively bought purchases, are adequate to be offered by online retailers.

The argument that customers want to choose fresh goods themselves is neglected by Tanskanen et al (2002). They propose that consumers just want to be sure that the quality of online ordered goods is the same than they would choose. Tanskanen et al argue that the retailer has to build trust by ensuring that the food will be in very good quality to ensure that consumers are satisfied.

The Germany consumer advice company ‘Stiftung Warentest’ (2001) published a survey comparing different German online food shopping services. Asked why the UK company Tesco is successful but German companies struggle to provide online shopping they emphasise the differences in the markets. One issue is that the density in supermarkets is much lower in the UK than in Germany. Another point is made with the argument that German consumers are very price aware and often are not willing to pay for delivery services. The most important issue stated by Stiftung Warentest is that German profit margins are often under 1% which is much lower than in the UK.

The company identifies another main difference with stating that payment of orders takes usually place in cash or by Switch card after delivery.

The section investigated differences in general company market approaches and online food shopping issues in the UK and Germany. The next part investigates literature concerning several German and UK companies and their approaches in depth.

2.6 UK and German Companies

To differentiate between companies in the food industry has some difficulties. The company PlanetRetail (2002) ranks 30 food retailers from all over the world with their net profits. Difficulties occur due to the fact that most of the companies gain the major part of their profits from food retailing but not all. PlanetRetail (2002) states the main source of income of each company. They differ from ‘Warehouse Stores’ and ‘Supermarkets’ to ‘Discounters’ and ‘Hypermarkets’. Within the 30 biggest companies world wide there are three British companies: Tesco on rank 10, Sainsbury rank 14 and Safeway on rank 30. The largest German firms are Metro which ranks 5, REWE on rank 11, Aldi rank 12, EDEKA rank 16, Tengelmann rank 18 and Lidl on rank 25. The list is lead by the US company Wal-Mart in place one.

2.6.1 UK Companies

Arthur (2003) identifies the food market as very interesting for UK companies with a market size in Pounds 107bn business. He argues that entry barriers in the online shopping market are very high with high set up costs and slower rising customer numbers. Only four of the big supermarkets serve the online market, they are Tesco, Asda, Sainsbury and Ocado with a special model.

2.6.1.1 Tesco

Tanskanen et al (2002) identify that the fastest company to adopt ecommerce in the UK is Tesco which had market cover of 90% in 2002 already.

This is supported by Watson (2003) who argues in an article in the Financial Times that Tesco in one of the biggest success in online retailing. He states that Tesco opened its online business in the mid of the year 1999 and is now able to cover 96% of the UK with deliveries (05/2003). This service is handling about 100,000 orders a week which means about 60% of the food online ordering market. Watson (2003) cites Roper, the chief executive of the IMRG who said that Tesco is testing the potential of the Internet whilst other companies are left behind.

The IMRG (e-Christmas…, 2003) identifies that ordering food on the Internet is a booming business. They state that Tesco.com a UK food retailer homepage has become “The Fifth Emergency Service” (IMRG, e-Christmas…, 2003). According to the IMRG the sales of beverages has increased over 82% in the last year.

Tesco offers two different product types identified in a case study about Tesco online by Rowley (2003). The company offers products online which are either stored in a warehouse or in the supermarket. Ordered food products are picked by Tesco employees in the Supermarket. Products stored in the warehouses are additional goods which are non-food articles like clothes or house ware.

Rowley (2003) argues that shopping online with Tesco is like a real shopping trip. The online store is divided into departments with aisles and shelves. Picked items are added to a shopping list which will by end of the shopping trip contain all items ready to order. Rowley identifies that when starting the ordering process by pressing the check out button the system switches into a special save mode to decode payment information. The customer is asked to define a delivery slot in which he/she is available at home to receive the delivery. Rowley (2003) states Tesco charges £5 for each delivery service and deliveries are possible from Monday to Saturday.

De Koster (2002) compared different supermarket models in Europe. He argues that Tesco’s market approach of picking goods from the supermarket is very cost intensive due to the nature of a supermarket. Employees have to be paid to pick ordered articles in the store. He discuss that the supermarket lay out is contra productive to the picking process. Related goods are placed far away from each other to force customers to make their way through the whole store and shortcuts are mostly not possible. He argues further that order pickers may even disturb traditional customers. De Koster (2002) comes to the conclusion that the efficiency of models where employees pick orders in supermarkets is low due to the fact that it creates high labour costs per order.

Greenspan (Gains…, 2003) states that in the ranking of the most visited retail sites in October 2003 the Tesco Homepage was on place six and with that the only food retailer within the first ten.

According to Blythman (2003) a counting of all delivering journeys done by Tesco in the year 2002 the figure came to 1,150,000. This stands for a total distance of 224 million kilometres. Blythman identifies that Tesco is the largest UK retailer and on rank two in Europe.

2.6.1.2 Sainsbury’s

Sainsbury’s online shopping part Sainsbury’s ToYou keeps the second place in online shopping market share according to McClellan (What’s…, 2003). He identifies that Sainsbury’s ToYou delivery service serves 30,000 orders per week and is able to cover with its deliver 75% of the UK. Most deliveries are sent by local stores but 10% are served by a warehouse. McClellan discovers that this is due to the fact that the company has not enough stores in this specific area to satisfy the demand.

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