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The take-off of food e-commerce, an illusion created by the pandemic or reality?

Business

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18 March 2021

The leap in sales the retail food sector has been experiencing since the start of the pandemic is not only due to increased sales in physical stores (stemming from the leap in food spending and the mass panic to stockpile food in the initial months), but also due to the unprecedented boom in the online channel.

Online food sales grew 182% in Spain between mid-March and the end of May 2020, skyrocketing by eight and surpassing 2% of sales for the first time.

In an article published in Expansión in May 2020, the quality director of Mercadona, Luis Pla, pointed out a figure of 3.7% of sales, while the marketing director of Consum, Manuel García, spoke of a percentage of 2.5%.

This increase was even higher at El Corte Inglés (third company in Spain for online sales, only behind Amazon and AliExpres), ending up representing 18% of market share for online food sales, an enormous growth of 196%.

This unprecedented explosion in e-commerce has entailed huge headaches for food retailers, which were unprepared for this growth, with some even having to close the service.

With the arrival of the “new normal” and when we finally return to a full situation of normality, what is forecast to happen to food e-commerce? Was the boom in the last year simply a mirage and will rates return to pre-pandemic levels or is food e-commerce here to stay forever?

The trend indicates that retailers should be ready for an imminent future in which the online channel will remain at rates higher than the pre-pandemic era. According to Kantar, food e-commerce jumped from 2% before the pandemic to 8% during confinement, falling again to 4% with the new normal.

Innovation, digital transformation, logistics changes, omnichannel strategies and user experience are the primary core areas on which retailers will have to rely to cope with the huge challenge of reinventing the online channel, taking advantage of their full potential and making it profitable.

Food retailers did not traditionally have a clear strategy with regard to the online channel, instead handling it more from the viewpoint of an unprofitable service, but one they had to offer their customers nonetheless, who expected the option of buying food online as well. This perspective is changing and they are starting to focus on this channel with an eye on the future and as an opportunity to improve their business models.

The launch of Amazon Fresh represents a new challenge for the sector, which must explore new business models, such as more widespread implementation of click-and-collect, new models like BOPIS (Buy Online Pickup in Store): picking up near the store with barely the need to get out of the car, prepared meals with home delivery, exclusive deals for online customers, express deliveries, new revenue sources… From the omnichannel perspective, since customers are progressively becoming omnichannel customers, so that the focus must be on both channels, physical and online. According to the “4th Observatory for the Evolution of Food E-commerce 2020: Towards Digital Proximity,” the mixed channel is the one that is growing most.  

 

Logistics is another of the big challenges that will have to be faced to adapt to new trends and guarantee the future sustainability of e-commerce.

The latest report about the logistics of e-commerce refers to the “last mile” and the demand for crossdocking and refrigerated platforms as the main trends. To be able to capitalize on deliveries, retailers need to be closer to end customers, so that the “last mile” becomes a driver for these new platform models, where location, space, technology and relationships between the processes are all key factors.

New distribution models, such as “dark stores” (physical stores that work exclusively to prepare online orders) and micro-hubs distributed throughout the urban area as distribution and collection centers that are closer to customers are starting to become a reality.

Digital transformation is one of the key areas on which this change of model will be based. Greater automation in warehouses and order preparation, ensuring maximum efficiency of shipment ranges, load adjustments and the optimization of transportation routes and tracking of online routes are a few examples where technologies like Big Data, AI, IoT and RPA are helping retailers with their digital transformations.

Improving the user experience during online shopping is another of the main trends. Retailers that want to compete online will have to be creative to ensure that customers have a better purchase experience that is more personalized, has greater multi-device flexibility, and adapted to the mobile-first trend.

The pandemic has undoubtedly represented a before and after for e-commerce in the food retail sector and everything points to the fact that the take-off of the online channel is a reality.

Retailers have a great opportunity to reinvent their business models from an omnichannel perspective, taking advantage of the full potential of the online channel to establish new ways to be in contact with customers, offering them contents with personalized value and connecting emotionally with consumers who are increasingly more demanding and connected, also when they are filling their shopping carts.

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