The E-Commerce Revolution
The UK Online Alcohol Retailing industry is at its first steps, and majority of its players have come from mail order business models to online way of selling. Nevertheless, according to a new ecommerce study from the IWSR, the UK has one of the most developed ecommerce sectors in the world for alcohol selling. A report form ecommerce analytics firm Profitero, in collaboration with Nielsen, showed that around 21% of UK consumers had bought alcohol online, behind only China (27%) and Japan (22%). The global average of alcohol ecommerce penetration is around 8%, according to a Nielsen’s study carried out in 2016. “This makes alcoholic beverages one of the least-shopped categories in e-commerce, but one with tremendous potential”, the report pointed out.
The industry has endured strong growth for the last five years. This is underpinned by yearly revenue upward trend driven by the internet becoming accessible to an increasing number of households. The largest proportion of the industry revenue comes from the wine online sales, showing a growing demand over the relevant period, due to the popularity of the wine clubs and premium wines. However, the industry growth has not been stronger driven by consumers’ raising health consciousness hence leading to falling levels of alcohol consumption per capita (Source: IBISWordl).
In addition, according to the British Beer and Pub Association, the number of pubs in the UK have declined 17%, from 60,800 in 2000 to 50,300 in 2016. Nonetheless, the premise licences issued during the same period have increased 5.1% to 208,928. This mainly driven by off-licences applications as a consequence of the shifting preference of people in the UK purchasing alcohol in the off-trade, such as in supermarkets and shops, to consume at home. In 2016 and 2017, almost 70% of all alcohol (by volume of pure alcohol) was sold in the off-trade (increasing from 53% in 2000), out of which almost 5% are online sales.
Meanwhile in 2017, alcohol was nearly 64% more affordable in the UK than it was in 1987 and 3.2% more affordable since 2008, remarking the overall trend of increasing affordability over the period. ‘Affordability’ is the price of alcohol relative to adults’ disposable income (Source: NHS Statistics on alcohol in England, base year 1987).
Statistics from the Department for Environment, Food and Rural Affairs states that from 2013 to 2017, the off-trade alcohol weekly sales per person experienced a 4% increase, from £3.24 to £3.36. At the same time the Office for National Statistics has estimated that in 2018, the average weekly household spend on alcohol consumed in the home was £8.70, compared with £8.00 that was spent on alcohol consumed in pubs, bars, clubs, hotels and restaurants.
Within the same context and although the tendency is to think that the frequency for online alcohol sales is low, UK have more than 50% of consumers purchasing alcohol from internet at least once a month, with wine and beer bought more regularly as part of the online grocery shop. In a broader picture, online FMCG sales, including alcohol, represented 7% of UK grocery spend year to date May 2018.
On the other hand, some analysts in the industry have highlighted the fact that bricks and mortar stores are retaliating their position caused by a slowdown of growth in the online grocery channel. The UK business development director at Kantar, Jo Smith, thinks that the online sales decline stems from the fact that ecommerce platforms are struggling with the agile dynamism of nowadays consumers, for instance some of these online shops asking to commit to a minimum spend.
In order to compete in the shorth to medium term, the online retailers will have to equal or even improve the top-up shop or “small basket” trip option, which account for just under three quarters of total alcohol spend. This will mean better convenience instead of just focusing on pricing as the key primary factor to motivate consumers to switch to online alcohol shopping.
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