Regulations and guidelines for selling food and beverage online
With more food and beverage products being bought and sold online, the Canadian Food Inspection Agency issued guidelines for businesses and consumers:
These are valuable resources for any business in the sector to ensure you are in compliance with Canadian regulations.
Challenges and hurdles
E-commerce is enticing and there are some who believe if you build a website and provide the option for consumers to buy, you will be successful. This is not reality for many companies. There are a number of challenges to overcome to ensure the endeavour is successful.
Investments in the right resources might be needed to implement a successful e-commerce business
Employing the right human resources to create, manage and operate a successful e-commerce business is an integral component. There are many people who have the ability to create social media posts, one component of the strategy, but this does not ensure a successful online selling segment in a business. Human resources with the right skills and experience to implement a successful program are not always easy to hire. These are specialized skills that should be considered before moving ahead with any e-commerce strategy.
There are investments in applications and platforms required to operate an e-commerce program. The level of sophistication of these systems should be comparable to the positioning of the products and brand being promoted. Many website hosting platforms and design applications have basic e-commerce applications. It is important to offer the functionality and shopping experience that supports your brand positioning.
E-commerce exists in the context of your overall digital business strategy
E-commerce endeavours are most successful when they are part of a digital strategy. A stand alone website with an online shop will not generate much traffic and positive results will be a challenge. An integrated digital marketing strategy includes many components that generate interest, reinforce brand positioning, drive traffic to the right place and provide a secure environment for consumers to buy. This is a segment of your business that will require constant focus and resources to deliver the desired results.
An online presence with e-commerce ensures your product is available to anyone in the world with access to the Internet. An online presence with e-commerce does not ensure they will find you and that they will want to buy your products. A solid definition of your target market is just as important online as it is in a physical store. When you know who is most likely to buy your product, you will be able to figure out where to find them online and develop relationships. A producer or processor should not assume an online presence with e-commerce capability will be enough to generate the sales desired.
Order fulfillment and shipping could be a potential roadblock
Fulfillment of orders for e-commerce is an important component to consider when developing your e-commerce strategy. There are many options that should be considered as there is no one right solution for every product or category. Producers and processors who create their own e-commerce platform or those who decide to use a third party must determine how orders will be fulfilled. This is also a component of your business that can evolve as sales change. Small numbers of orders can be fulfilled in-house and when sales grow it might be more practical to find a third party to do this work, where they can be more efficient and cost effective.
Many online sales are lost when consumers get to the point in the transaction where shipping charges are added to the price. This can be a significant proportion of the total price and in many cases it is a barrier to purchase. When creating an e-commerce solution, one important consideration is the cost of shipping. It is beneficial to research all shipping options and determine the best solutions. Often, this can include more than one service provider as rates change, depending on variables such as destination, package size and weight. One service provider could be the best option for domestic orders while another might be preferable for international orders. When researching fulfillment options, consider the complexity to your business of working with multiple companies to ship products. This can result in more time and added costs create multiple orders for pick up or to drop packages in more than one location. Third party sellers offer fulfillment and shipping services but there is a cost with the supplier required to maintain appropriate inventory levels.
Consumers expect you to safeguard their information
Developing direct relationships with consumers can be a valuable asset for any producer or processor, however, it is also a considerable amount of work and resources are required to maintain the security and accuracy of information. When consumers provide permission for a company to communicate with them, they have expectations. They are sharing their contact information in exchange for something they see is of value to them. This could be information, special offers or the perception of being part of the brand. The online seller needs to deliver what the online community is looking for and maintain the security of the information your consumers have shared. Regardless of the method used to maintain and communicate with the database, it will require human resources and systems to generate the best results.
Developing an online approach to selling food and beverage products requires a solid strategy and the resources adept at executing the strategy. There are many challenges to consider prior to developing the final plan. When challenges are considered during the planning stage, often the best solution can be incorporated into the strategy to optimize results.
There are many opportunities associated with e-commerce, however there are also some threats that can impact food and beverage businesses. These can affect reputations, and in some cases, cost you considerable funds to repair. Many can be mitigated by taking proper precautions and investing in the right security to protect information and access.
Cyber security threats
Cyber attacks from anonymous outside hackers can have a devastating impact on any business. These malicious attacks are often targeted at information theft, used as leverage to force the business to pay a ransom. These incidents are very difficult to investigate and have impacted large corporations and public institutions. One threat to any business developing an e-commerce strategy can occur if proper safeguards are not adequate. A reputation built over many years can be destroyed when consumers do not have the confidence to shop on a website, fearing their personal information would be exposed.
Consumers making the decision to shop on a website expect the proprietor has taken proper precautions to protect their personal information. There are different models of e-commerce, including subscription based programs where credit cards are kept on file for repeat purchases. This can be a very lucrative strategy, but if the information is not protected and is released, even without a malicious attack, consumer confidence and the business reputation will be destroyed. Adequate safeguards are an important component of a digital strategy to protect all consumer information from threats inside and outside the organization.
Other threats outside your control to be mindful of
The online world is not always a place where a country's consumer protection laws apply. Canada has extensive legislation to govern online transactions. Unfortunately, businesses are not always upfront where information is collected and there can be attacks on product reputation or reviews from anywhere in the world. If untrue or unsubstantiated, it can be difficult to have corrections made on the platforms. Online, everyone is able to express their opinions, even when not based on facts. Product and brand reputation are essential to maintain as the online reputation of products and brands influence consumers. Producers and processors selling online should monitor the postings and protect their interests.
A great online shopping experience can be negatively impacted when the product does not arrive in the right condition or in a timely manner. Some food and beverage products require refrigeration during shipping which can add complications. When you rely on third party shipping to transport orders, there is always a risk that they will not deliver. Online sellers must have procedures in place to work with consumers who are not satisfied with the final product. Challenges can be anticipated by determining a standard operating procedure for each issue. For example, if a product arrives two days late or if it is stolen at delivery, what is the position of the company selling the product? These issues will probably happen so be prepared.
A number of threats can result in a negative experience for online consumers. Producers and processors who anticipate threats and implement proper safeguards can reduce the likelihood of threats and develop procedures in advance to resolve the issues when they happen.
E-commerce has a lot of potential for food and beverage producers and processors, however it is also important to consider the risks associated. There are a number of risks that can be reduced with proper planning and consideration.
Maintaining relationships with consumers and buyers across distribution channels
Selling online can be a good channel to include in the sales mix for food and beverage products as more and more consumers are looking to this channel for these items. When a producer or processor's sales mix includes retail, they must manage all the different channels. Retail customers will challenge you to ensure they get fair prices and saleable offerings, relative to what they can find elsewhere online. Retailers will check online offerings to ensure they believe the price they are paying for a product is fair. If they do not see the price as fair they might complain or even delist the product.
Prices in different channels can be different because consumers place a different value on going to a store as compared to having a product conveniently delivered to their home, particularly for bulk purchases. One opportunity to reduce shipping costs per unit is to encourage consumers to purchase larger amounts of products. This can be accomplished with promoting case packs or bundling products together. Product offerings can also be different. Examples are different sizes, and different flavours available online. Producers and processors risk damaging their relationship with existing customers if consumers perceive the online offering to be superior than what they are selling. To reduce the risk of damaging a relationship with an existing customer, online sellers can share the results of these special offers with existing customers.
Retailers understand online is a channel where producers and processors will sell their products. Compare offerings regularly to ensure the prices and products you are selling are fair and equitable to each customer in each channel.
Ensuring your online approach is aligned with your business realities and capabilities
Despite the growth of e-commerce, the vast majority of food and beverage continues to be purchased in stores. If you focus a disproportionate amount of energy and resources to selling online, you risk missing sales in stores. Every category is different, so careful study of consumer trends and purchase data will help determine where to put your focus and resources.
Consumers can be put into market segments by age, household income or other demographics. Some segments of the population are more likely to purchase products online. Producers and processors could overestimate the potential of online sales if your consumers are not willing or able to buy online. There are a number of factors such as accessibility to the Internet, trust in e-commerce, delivery prices and computer skills that will impact a consumer's ability or desire to buy online. These factors should be considered prior to developing and implementing an e-commerce strategy.
Selling direct to consumers online comes with the requirement of managing the buyer/seller relationship. If your buyers or consumers are not happy with the product or other issues related to the transaction, you need to be prepared to deal with it. If the resources are not in place or not capable of handling the situation, there is the possibility of losing the consumer and that they might share their unhappy experience with other online shoppers.
Understanding the competitive realities of the online selling landscape
E-commerce strategies can include different options such as third party marketplaces. These platforms bring a lot of consumers to products but they can also assert some control over the sales process. The platform will also allow consumers to compare products which might not be equitable to all products. Producers and processors listing products on these platforms can implement a process to carefully review all details of the relationship.
One challenge to selling online is competition from products that are similar, yet inferior quality. Certain products can be developed and produced for lower prices and erode sales of your products. Maintaining a credible point of differentiation can reduce the negative impact of these products.
There are many examples of successful e-commerce initiatives in the food and beverage industry. Simply offering products for sale online is not a guarantee of success. All channels in this industry require a considerable effort and investment in time and resources to deliver the desired sales. Risk to e-commerce can come in different areas. Every product and every category is unique and the characteristics of individual products ought to be considered.
Every channel has strengths that can have a positive impact on a food and beverage business. E-commerce has a number of strengths that can impact sales, profit and overall direction of the business.
E-commerce offers greater control in the core aspects of your business
A benefit of e-commerce is the opportunity it affords the seller to have more control over some key aspects of their business. If you decide to implement e-commerce on your own website, the entire transaction is between your company and the consumer, until the product is shipped. Although some online sellers deliver their own products, the majority are shipped through a third-party carrier.
When products are sold directly to consumers, the full retail price only goes to the producer or processor. If products are sold through traditional retail between 50%─60% of the full retail price can be absorbed by brokers, distributors and retailers. This percentage could be even higher in specialty store channels. The actual percentage would depend on the distribution model, category and retailer where the product is being sold. In a Business-to-Consumer (B2C) e-commerce model, these dollars remain with the seller. Different costs are required to generate website traffic, execute promotional programs, process orders, fulfillment, shipping and other costs ─ but the seller controls when and where to make the investments.
Cash flow is an important consideration in any food and beverage business. There are costs incurred to produce products and retailers do not usually pay invoices for at least 30 days after products are delivered. E-commerce payment is much quicker so the business has faster access to money. Transaction fees must be considered and third party marketplaces payment terms can vary. Overall, if a business can generate the influx of payment, faster is beneficial.
E-commerce enables a more direct relationship with your consumers
Your involvement during the consumer buying decision is different than what happens in traditional retail. In stores, thousands of products compete for consumer attention and the store does not always execute every program as expected. Retailers also see consumers having the relationship with the store, not individual products. There are opportunities throughout the interaction with consumers to build brand recognition and develop relationships. When this is done properly, it can be a valuable asset to any food and beverage business.
E-commerce platforms generate considerable data for sellers to use in their business. If you decide to implement a B2C or third-party marketplace strategy you will have access to a lot of information. This information is valuable to predict future sales, assess effectiveness of promotional strategies and understand consumers better. This same data is often expensive to obtain when selling through traditional retail stores. When online sellers decide the right metrics to measure and make decisions using data it can be very beneficial.
There are a number of positive aspects to e-commerce. Online sellers need to assess the impact of each factor on their business. Some will require more resources to execute or benefit from.
E-commerce presents a number of opportunities for food and beverage producers and processors. These opportunities can impact sales, profitability and consumer relationships. Opportunities, such as the ones listed below, are there, but require effort and execution to ensure they benefit your business.
The most obvious benefit of e-commerce is reaching new consumers, regardless of their location. For example, when products are available online, consumers in any market are able to make a purchase. While you can focus your business priorities on a number of target markets, anyone with access to the Internet and able to use your shipping options can make a purchase. This can be beneficial to niche products or other items produced a considerable distance from consumers in the target market.
Selling online also provides an opportunity to develop and nurture long-term relationships with your consumers. This can be done through email, social media or other forms of personalized communication. The online seller knows who is buying which products so there is a great chance to solicit feedback, suggest other similar products they might like and make sure they become a loyal buyer. The long-term loyal consumer is also a great source of information as they are often willing to share opinions about your product and other brand related issues.
Physical distribution in retail is a barrier to entry in some markets with other challenges to impede producers and processors from getting to the shelf. One cost is the listing fees or slotting fees that retailers charge suppliers. These can range from you giving free product to paying many thousands of dollars for access to the shelf. These dollars are costs that can be re-invested to build your brand, develop your e-commerce business, drive more sales and increase profitability.
Many producers and processors have been cultivating online communities. This can be on a stand alone platform like social media or as part of an email list. Examples where you can be participants of and listed in different communities is being a maple syrup producer and listed as a member of a region's business community. Consumers in online communities are probably interested in your product or brand which are great starting points for e-commerce initiatives.
One opportunity for online sellers is to work with other producers and processors. It is possible to leverage the online community for both businesses to generate more sales. This works very well for complementary products that have a similar target market. For example, if consumers have young children, they will be interested in many food and beverage products that are good for their family. With shipping costs one of the biggest challenges to online sellers, it can be beneficial to work with other companies and increase the value consumers receive in one shipping cost.
Where shipping costs can be a significant proportion of the total cost to consumers, there is the opportunity to bundle products. A number of items in one box can be delivered for the same cost as one or two items. Bundling is an added value to the end consumer.
Producers and processors that have a good definition of their target markets can benefit from this knowledge when selling online. Generic posts and paid advertising can be targeted at specific groups of consumers. A consumer profile can determine who receives advertising; your parameters can be demographic, geographic and by several other options. The return on investment can be much better when your target market receives the promotions.
There are a number of opportunities for producers and processors when selling online. The online strategy should be developed to capitalize on these opportunities which can be different from one product or category to another.
Resources are required to adopt a successful e-commerce approach
Developing, implementing and operating a successful e-commerce initiative requires human resources, investments in systems or platforms and other in-house or third-party resources. There is a broad range of sophistication available in all of the elements of an e-commerce strategy. This can range from a simple direct to consumer model with your own fulfillment to a sophisticated omni-channel approach with third-party fulfillment. There are a number of resources required for food and beverage businesses to consider implementing in a realistic program that supports the brand positioning of the business.
It is possible some of the resources are available within the organization and some will need to be outsourced. E-commerce has a number of requirements and some can be quite technical or strategic. Food and beverage businesses can investigate the skills and resources required at every stage and find the optimal solution within or outside the organization.
The human resources required need to have specific skills. A knowledge of social media is an asset, however it is not the only skill required. The people involved in the development of the digital strategy and e-commerce initiative should have expertise in creating an online presence and using Search Engine Optimization (SEO), social media posts and/or paid advertising to drive online traffic to the website. The creation of the e-commerce platform is another area where there are many options for execution. The people developing, implementing and operating this segment of the business should understand how the platform works and integrates with other systems such as a customer relationship management platform and electronic payment. A thorough assessment of the skills required will illustrate the complement of human resources required.
Technical systems and safeguards
An e-commerce offering requires an online presence and systems. The systems for an e-commerce initiative include a number of components. A website is the foundation of your online offering. This is where you drive traffic to explain your products and develop relationships with potential buyers. Food producers and processors selling direct to consumers will need an e-commerce platform to illustrate products, share information and allow consumers to make a purchase. Once the purchase is made, there is a requirement for a payment platform where money is exchanged. These are the minimum requirements and there are many levels of complexity available. Online payment can be integrated with the company's banking to ensure money flows properly.
A priority for many consumers shopping online is the security of the websites they are visiting. There are a number of options for you to consider when investigating online security to protect your own information and the privacy of your customers. The overall objective is to maintain a secure online interaction.
An online presence can extend beyond a website to an online community that is on a third party platform such as Facebook, Instagram, Twitter, TikTok, LinkedIn or other social media applications. Consumers who decide to follow your offering have given you permission to share content and offers with them. Another form of an online presence is to maintain an email list of consumers and other interested people who have given you permission to interact with them to share content and offers directly through email.
Order fulfillment and shipping
If the decision is made to fulfill orders, the food and beverage business will need adequate space to maintain inventory, select products, pack orders and ship to consumers. Depending on the offering, this can get complicated. There are several factors including order sizes, product sizes, consumer destinations and volume that will dictate the requirements for order fulfillment. Another requirement for fulfillment is to have the ability to produce the proper paperwork and shipping labels. An account with a customs broker is also required for orders being shipped outside Canada.
As e-commerce sales evolve, resources required will change. For example, shipments in early stages might be most economical if fulfilled by your business. When the volume grows, the complexity of the work might be done most efficiently by a third party with the proper facility and processes in place. Assess the resources required regularly, to ensure they are adequate to deliver the volume and support the brand positioning.
Manage relationships with existing customers
E-commerce is a separate channel for selling food and beverage products. Your offering reflects the brand positioning within this channel. If your company is selling to other channels, customers will have the opportunity to explore the e-commerce offering. For example, if a company is selling products to a major retailer, the category manager could visit your website to explore the Stock Keeping Units (SKUs) listed and pricing. Despite the channels being different, comparisons will be made.
Maintain a fair playing field
Existing customers are important and although they understand e-commerce is a reality, they want to be treated fairly. The first thing they likely will compare is the price they are paying for your product vs. what it sells for on your website or a third party marketplace. They will take the same approach they would when they see your product in a competitor's store. Their expectation will be the landed price they pay and the final retail price in their store delivers comparable value as the new channel. This is not always a direct comparison because shipping charges and other factors can impact the final price. They will also expect to continue to receive the focus and attention your business has been providing. If they perceive this to be changing, they will look for different options or offer opportunities to other products.
Be prepared to answer the question, "Why is our cost XX and consumers pay less on your website?" It is important to be ready for this question. When you can answer it succinctly with facts, your customer will be more inclined to respect your answer and focus on other issues.
Ensure consistent customer service and support
Maintaining relationships with existing customers will require the same support you have always provided. This could include some temporary price reductions, participation in loyalty programs and other initiatives you have implemented to build sales. A proactive approach that illustrates your plan should alleviate the concerns they might have. Some tactics are more effective in stores and these can be included in your plan to drive sales with existing customers.
It is possible to test special offers, line extensions and other initiatives online. When you learn from the results, consider sharing these learnings with existing customers. This will build your relationship with them and reinforce your commitment to their business. Sharing results from online experiences can also deliver more sales in their store.
Understand the needs and expectations of your customers
Given the exponential growth in e-commerce sales in food and beverage it is likely your existing customers have more focus on e-commerce within their business. If you visit their websites to ensure your products are listed properly, also check the links to purchase are working properly. They are managing thousands of SKUs and they might not have time to check every one.
During the development of your website and online offerings remember your existing customers. Some food and beverage producers and processors are looking to deliver sales across all channels. When you share the locations of your customers' stores and/or third party marketplaces with consumers, they can find your products easily. Some people might prefer to buy online this week and be shopping in a store or at a third party marketplace next week. Make it as easy as possible to find and buy your products.
Summary snapshot: Considerations before adopting an e-commerce approach
Regulations and guidelines for selling food and beverage online
- Canadian Food Inspection Agency issued a summary that is a valuable resource for food producers and processors
- Employees or outside resources with the required skill set
- Investment in applications and platforms required
- Developing a digital strategy that includes selling online
- Order fulfillment and shipping
- Deliver a secure online shopping experience
- Cyber attacks are a challenge
- Reviews on products or brands that are not fact-based
- A poorly executed shipment of products
- Alienating existing customers
- Managing a fair pricing position across all channels
- Targeting consumers who are not willing or able to buy online
- Comparisons made between your products and inferior products
- Direct relationships with consumers
- Opportunity to reinvest margins made by retailers
- Data generated by e-commerce can be used to forecast consumer behaviour
- Faster payment for products
- Removing physical distribution as a barrier to entry for new markets
- Developing long-term relationships with consumers
- Selling product to the online community you have developed
- Collaborating with other online sellers to reduce shipping costs per unit
- Reaching your target market efficiently and effectively
Resources are required
- Human resources with specialized skills
- The right applications and platforms that interact seamlessly for consumers
- Online security to protect information
- Consumer friendly and efficient solutions for order fulfillment and shipping
- Maintain a fair playing field
- Share online learnings where appropriate
- Review their online offering and support wherever possible