Britain boasts the most developed internet retail market in the world, and at its head is UK supermarket group Tesco, according to a new report from Datamonitor.

The Exploiting eFMCG Opportunities study estimates that the UK online grocery sector will be worth $9 billion by 2005, compared to the forecast of $32bn for the US, which will remain the largest market.

British consumers’ experience of using credit cards over the phone has stood them in good stead, says the report, since it has helped them adapt with relative ease to using cards online.

Tesco retains its slot as the world’s biggest online grocer with internet sales estimated at $311 million for 2000 - almost double those of its nearest global rival Ahold with sales at $170m.

Moreover, Tesco has been attracting new customers with its service, avoiding undue cannibalisation of its bricks and mortar sales base. In November it estimated that 40% of its web customers were not previously Tesco shoppers.

The report observed that Tesco had benefited from an early start, launching its service six years ago. Although its system of in-store pickers has so far proved successful, centralised, dedicated fulfilment centres would become the norm as online services grow. Large warehouses are already used by UK rival J Sainsbury.

Fulfilment appears to be the key for success in online grocery retail, according to Datamonitor. “Many of the bankrupt pure-plays failed to generate enough business because of previous consumer experience where customers did not receive their deliveries as expected. Investment in distribution infrastructure may be less glamorous than creating a website, but it will be essential to build and retain a customer base.”

News source: Financial Times