First published in Irish Food, Issue 3, 2020
A lasting legacy of Covid-19 will be the growth of online grocery shopping. While this is very good for the consumer, who wants the convenience of online shopping, it will pose additional challenges for independently-branded, Irish food producers, writes David Leydon, head of food and agribusiness with ifac.
Irish food producers have shown innovation and resilience throughout the Covid-19 crisis with many food brands pivoting online and, more importantly, all producers have worked through the supply chain to make sure good food is always available to Irish families.
However, at ifac we’ve noticed that some Irish food producers are already experiencing lower sales on retailer ecommerce platforms compared to sales from physical stores. This trend is in its infancy but plays to two key challenges which Irish food producers now face; the rise of digital, and the rise of private label.
Consequently, three impacts strike immediately. The first relates to a consumer’s actions on an ecommerce platform. Repeat online shoppers can be served a personalised list of products, curated from their previous baskets, and this is intended to guide their decision making, just like the personalised feed we are served on social media platforms. This list nods to display tactics in physical stores; where products are displayed at eye level, or where a product appears in multiple displays or facings around the store to encourage purchase. However, the ability to manage consumer behaviour online is much stronger than in a physical store, and digital technology gives retailers like Tesco.ie, Amazon.ie, or Ocado in the UK, significant control over consumer behaviour.
The second impact is on a consumer’s desire to try something new. Online, previously purchased products will be within easy reach of the user. This can act as a barrier to trialling new products, particularly if the user is time-poor: replenishment not discovery will be the more likely consumer behaviour. While this feature adds convenience to a shopper’s online experience if you’re a new and emerging food brand and you’re not already part of this list of products you cannot win.
Thirdly, should the economics of last mile delivery allow, retailers will have a very strong platform to driver their own private label products. Private label has grown consistently and now has value share to about 50% today. It has shed its poor brand image of the past and developed a very strong reputation among consumers. Online purchasing provides retailers with increased opportunities to drive private label sales and additional challenges for producers who are constantly looking for ways to make their new branded products more visible to consumers.
All of these challenges are not new and while purchasing groceries online was already growing steadily in the lead up to this pandemic, Covid-19 has now accelerated this trend. At certain periods over the lockdown period 10% of Irish households received an online grocery delivery compared with 6% for the same period last year. According to Kantar, an additional €20.6 million was spent online in the four weeks to April 19th versus the same period in 2019.
Routes to this marketplace have increased too. There is a range of new online grocery shopping platforms and delivery services for Irish food producers, such as Buymie, NeighbourFood, and others. These are exciting for the sector and deserve support. However, we cannot lose sight of the fact that over 88% of groceries are purchased through the five major Irish retail multiples. This remains the critical route to market; Supervalu and Tesco currently have an online ecommerce facility for delivery or click and collect, while others are rumoured to be launching an online grocery platform.
The total impact on Irish food producers from increased online grocery shopping will be significant. Further investment in their brands is critical if they are to successfully shape consumer behaviour in this growing ecommerce environment. Irish food producers need to understand how to package their product so it looks attractive on the digital shelf, how to maximise online promotions with the retailer and analyse how they rank on each ecommerce platform when, for example, a user searches for a generic term like yogurt or bread. This requires both a sophisticated digital skillset and the financial power to invest in their business. It will also lead to more interesting negotiations with their retailers.
The legacy of Covid-19 will result in accelerating numbers of consumers completing their main weekly shop online. We believe that while there are opportunities in this space, the challenges for those wishing to build independently-branded Irish food businesses may just have increased.