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Is online grocery shopping a game changer for food producers and processors?

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A new report by agribusiness banking specialist Rabobank examines the growth of online food retail and the challenges it presents for food producers and processors.

The global food industry is on the cusp of an online retailing revolution that will lead to fundamental changes for players along the supply chain, from processors through to retailers. This means brands and private-label food processors of every size will need to exploit opportunities and tackle the challenges of being visible online.

In its latest flagship report, ‘Food Processors Challenged by Online Growth Dynamics’, Rabobank discusses how the growth of online grocery shopping is becoming a game changer for processors, similar to the introduction of self-service supermarkets in the 20th Century.

Rabobank examines how food producers and processors are having to re-assess brand strategies, adjust and diversify their product range, refine their marketing tactics and modify their supply chains in order to meet the demands of online retailers or risk becoming invisible online.

John David Roeg, Senior Analyst, Rabobank observes that the online grocery market, in theory should be a place for everyone to sell everything; however, food processors face the danger of being pushed to the back of the e-shelf. In the face of increased competition and opportunities for commercial advantage, products need to be ‘online-proof’.

From large FMCGs to B-brands and private-label producers, all stakeholders will have to employ different strategies to make products stand out against the competition online. In the end it will be the squeezed middle that find it difficult to break the top line search results dominated by the most popular (A brands) or the cheapest (private label) products.

New algorithm-controlled technology additionally allows retailers to steer customers in a certain ‘ordering direction’ with tailor made promotions and substitutions based on browsing or buying history, similar customer profiles, and standard shopping patterns. While this can benefit consumers, there are multiple incentives for a retailer to persuade a customer to change products too, which may lead to concerns about transparency and privacy online.

Rabobank has identified three areas where processors can adopt strategic changes to flourish in the online age:

Assortments

Large FMCGs face the risk of seeing their leading brands filtered out by consumers using parameters such as gluten free or low sodium. An option for producers of B-brands is to specialise in niche products such as healthy options. Beyond niches, there are other variables that can lead to filter-beating products such as smart pricing and packaging variety.

New marketing techniques

Marketers will need to develop more advanced techniques to actively manage online visibility. While the emphasis will be on building strong and recognisable brands, tactics to improve visibility can include negotiating individual terms with a retailer for promotions, substitution deals or on-screen advertising.

Supply chains

Online retail will be a more complex terrain for retailers with some costs going up due to more flexible production runs for instance; and others coming down, such as working capital due to fewer stocks in the supply chain. New product development can also become less expensive since online provides an ideal platform for product testing in a small catchment area. Improved flow control can also result in fresher products for consumers and lower stock losses, while shorter lead times and smaller batches are possible thanks to better data and forecasting.

Online retail channels can open up a world of opportunities not previously afforded in the grocery industry for those food processors that get it right. With no limitations on shelf space, the barriers to listing and delisting products are reduced. Apart from established producers, even small and new market entrants such as those in the slow moving (super) premium segment or small ethnic food category can benefit from online retail.

Rabobank believes retailers will eventually downsize their property and store portfolio significantly with only fast moving and profitable products getting shelf space, and the rest to be moved online.

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