The online opportunity for food and beverage companies

Why adopt e-commerce

Traditionally, food and beverages have been sold in stores or direct to consumers at farmers' markets and other venues. Online shopping for these categories has been available for many years but consumers were slow to embrace it in Canada. Despite the increases in online sales in other sectors, food and beverage continued to be dominated by a visit to a store, market or other venue.

The impact of the COVID-19 pandemic accelerated the growth of online sales in many food and beverage categories. Consumers were encouraged to reduce visits to stores, avoid crowds and as much as possible, stay home. The market responded and online sales for food and beverage increased by 107% from February to April 2020, according to Statistics Canada's research in "Retail e-commerce and COVID-19: How online shopping opened doors while many were closing". E-commerce has emerged as a viable option for many food and beverage producers and processors. The marketplace is evolving quickly where producers and processors can definitely consider this as another channel to distribute their products.

There are a number of reasons to consider adopting e-commerce as part of your distribution strategy.

A changing marketplace

Food and beverage are often highly consumable items, which results in consumers purchasing these products frequently. For example, perishable products often have a short shelf life and require refrigeration. With more demand, shipping companies are adding resources to allow for reduced shipping times which enables food and beverage suppliers to offer more perishable products online. Consumers have also been more interested in ordering these products online. When changes in consumer behaviour occur, they can happen quickly.

The changing marketplace is driven by a changing consumer. During 2020 many shoppers did not feel safe in retail stores, especially where there were crowds. They changed their shopping habits to reduce trips to stores and in some cases eliminated them altogether. In certain markets it was mandated to reduce store capacity, which required consumers to wait in line outside stores. This was another factor influencing consumers to explore options to visit stores.

The increases in these products being purchased online happened and continues to evolve in four different segments of the market:

Producers and processors selling direct to consumers from their websites
Producers and processors selling their products on third-party marketplaces such as Amazon or Local Line
Producers and processors selling their products to traditional retailers who sell the products on their own online platform. For example, if your product is listed in a Save On store it is also available on their website
Producers and processors selling their products to traditional retailers and the order is selected by an independent company and delivered to the consumer. For example, your product might be listed at Loblaw and it is available through Instacart

Due to increased traffic and more volume being transacted in these channels, the offerings have improved for consumers. Many producers and processors are improving their websites, with the result being better experiences for consumers. There are options to support e-commerce that make it possible for any size company to sell their products online. millions of consumers visit the largest third-party marketplaces every day. They are attracted to one product and enticed to buy more. Some companies offer a paid membership option that includes 'free' shipping which is very appealing to consumers.

The increased demand for online food shopping also resulted in retailers improving their offerings. Some have adopted the click and collect model where consumers order online and drive to the store or a predetermined location to pick up the order selected by employees of the retailer. Other retailers invested in stand alone warehouses dedicated to online order fulfillment and delivery. Consumers looking for online shopping and delivery can also select third party companies to complete the shopping and deliver products. This option is not available in all markets.

Retailers across all categories are implementing changes to their offerings. Their online platforms have improved and they are promoting more offers for online shoppers. Many retailers are also investing resources to build their own online community where they communicate directly with consumers. This allows them to manage the conversation, control access to their consumer base while not being dependent on a third-party platform.

The swift rise of third-party marketplaces has changed the entire market. Consumers are now in the habit of checking prices online, regardless of whether they plan to visit a store or conduct the transaction on a website. Another factor impacting shopping habits is the availability of inventory in stores. Inventory is a cost to a retailer and some retailers are reducing inventory at the store and encouraging consumers to shop online. All of these factors are influencing how people shop for many items.

Consumers perceive they can find what they want, compare prices and enjoy the convenience of shopping wherever and whenever they want.

Profile of the online food and beverage consumer

Consumers in Canada are changing where they shop, how they shop, why they shop and even the demographics of the shoppers are changing. The pace of change is rapid and although it is a challenge to keep up, it is also an opportunity for products that are available online.

Consumer preferences and expectations

Prior to the pandemic, online offerings for food and beverage were concentrated in areas with dense populations and some platforms were more challenging to use than online shopping for general merchandise. This has changed and consumers coast to coast have online access to all of the items in traditional food stores. Consumers are also buying food and beverage products online from non-traditional sources such as third-party marketplaces.

Convenience has always been an important factor when considering where to buy food and beverage. Consumers now perceive shopping for these items online to be convenient. They have access to all of the items in stores in their neighbourhood or thousands more from online retailers. This selection and the convenience of home delivery in some markets has changed the consumer's definition of convenience.

As more retailers and online sellers improved their ability to execute, consumer confidence in online shopping improved. The ability of the store to select quality perishable products for online orders was a big factor in building consumer confidence. The increased volume in food stores during the pandemic has made it possible for them to invest in staff and ensure they are properly trained to select the right products.

Adoption of e-commerce and online shopping by consumers

Online shopping for food and beverage has increased. Many consumers adopted online shopping during 2020. When they did take the time to learn the platforms and increase their confidence in e-commerce for food and beverage, greater numbers of consumers adopted this form of shopping.

More people are shopping from home than ever before in Canada. They have the option of getting their food and beverage delivered or to pick it up with the click and collect model. Many retailers offered free online shopping during the pandemic, removing the barrier of nominal fees for order selection.

Mobile friendly platforms for e-commerce have also been popular with consumers. For example, in 2018 more than 88% of Canadians over the age of 15 had a smartphone with access to the Internet, according to Statistics Canada - Table 22-10-0115-01 Smartphone use and smartphone habits by gender and age group. With social media extremely popular, retailers, third party sellers, producers and processors can communicate and provide shopping options within paid advertising or generic posts.

Penetration was low for online shopping for food and beverage prior to 2020. Consumers were skeptical of someone else selecting the food they would be sharing with family and friends. Retailers and others selling food and beverage online had to prove they could deliver the correct product and quality expected. Consumers developed confidence in a company's ability to charge the right price, select the right perishables and deliver the correct items. Despite rapid increases in online shopping, online sellers proved they could execute, which had a positive impact on consumer confidence.

E-commerce provides a new way to understand your customers

Traditionally, food and beverage was promoted with weekly flyers and retailers used in-store merchandising to influence consumers' buying decisions. This evolved to social media with online promotions and loyalty programs that offer extra incentives for buying certain products. Consumers are still motivated by special offers, discounts and loyalty points. They are looking for them and finding them online. Consumers are enrolled in online communication and giving e-commerce sellers permission to communicate with them online.

Online shopping is different from buying in the store. When consumers shop at stores, they decide which store will be their primary destination and they compare within the category. They are limited to what is available in the store and the category. When they shop online, they compare more between stores and might rely on reviews from other consumers they do not know. It is a different buying decision.

One feature of online shopping that differs from the store is the ability of Customer Relationship Management (CRM) platforms to maintain purchase history and use artificial intelligence to predict what consumers will buy. Many online shoppers like the purchase history because it reduces the time required to find items they want to buy again. If they are satisfied with the value the item delivers, they just want to get it into their virtual cart. Using the shopper's purchase history and other information they collect, online sellers are able to predict what consumers are interested in buying. This can result in significant incremental sales and consumers appreciate it in being introduced to new or different products.

The consumer shopping experience for food and beverages differs when taken online

For many consumers there are five major attributes that influence their shopping for food and beverage: price, convenience, selection, shopping experience and quality. There are other factors and every consumer has their own breakdown of these attributes to determine where they shop. When deciding where to shop online, they might have different priorities. Canada Post has generated a summary of Canadian consumers buying groceries online: Is online grocery the rising star on Canada's e-commerce horizon?

Shoppers in food and beverage categories put considerable emphasis on price because these products are a significant portion of the weekly expenditures in any household. With online shopping it is much easier to compare prices and some online sellers even compare the prices for shoppers. Consumers shopping online have the ability to compare prices quickly, wherever they happen to be shopping. Delivery is one component of the price equation that is variable. Some consumers will pay fees for delivery and others will exit the buying decision when they see extra shipping costs. Large third-party sellers have eliminated this barrier to purchase with annual subscription fees that include "free" shipping. An example of this is Amazon Prime where consumers pay an annual fee to be an Amazon Prime member, which includes free shipping on millions of products and other benefits.

Convenience has always been an important factor to consumers when determining where they shop for food and beverage. Convenience online is different than selecting a physical store. When selecting a physical store, accessibility, location and layout affects the decision. Location is still a factor if the shopper is participating in a click and collect model: if they choose to use delivery, location is irrelevant. Convenience online occurs when products are easy to find and they arrive in the time frame promised.

Consumers have access to almost any product they could ever be looking to find. Selection online is almost limitless. Selection in physical stores is also decreasing as retailers reduce carrying costs for inventory that does not sell quickly. As this equation continues to change, more consumers will be looking online as selection in physical stores decreases.

The online shopping experience is about the website working properly and a seamless process to checkout. Many websites now offer real time chat which is often more artificial intelligence being used to answer questions consumers ask over and over again.

Quality of food and beverage purchased online was a hurdle online sellers had to overcome. Consumers were leery of retailers, third party sellers, and producers and processor's ability to select and deliver the quality they expected. As sales are increasing, consumers must be pleased with the improvements in all aspects. Any organization selling online must have a solid process in place to work through issues with unsatisfied consumers. Consumers have options and they will find alternative choices very quickly if they are not satisfied.

With consumer behaviour changing and more food and beverage being purchased online, there are opportunities for small-to-medium-sized businesses to explore this channel. Within the channel there are options such as selling direct, a third-party seller or through a traditional retailer's online platform. There is no right solution for everyone and it is important to assess the opportunities and challenges associated with each model.

Consumers are shopping differently. Producers and processors who adapt to these new priorities and shopping patterns will have better opportunities to build relationships with consumers in their target markets.

Developing direct relationships with consumers

A valuable asset for any food and beverage business is a group of loyal consumers who understand the product and support the brand. These consumers could purchase the products through different channels and each of these touch points allows for you to build a relationship.

In the traditional retail channel, it was more difficult to develop relationships with consumers. The transaction is with the retailer and they have been focused on building their own direct relationships with consumers.

Understanding the online relationship with your consumer

The penetration of total sales in the food and beverage category being purchased online is growing. With this increase there is an opportunity for food and beverage producers and processors to sell their products online.

Producers and processors are discovering there are advantages to selling direct to consumers online. There is an opportunity to build a direct relationship with the end user which is very valuable. In the traditional model, where food was sold in stores, the retailer had the relationship with consumers. It is possible to get direct feedback, ask about experience with the products and even generate repeat sales when you have a direct relationship with a consumer.

Online also expands the market size available to food and beverage producers and processors. Consumers in any market can find and make the decision to purchase online. In the past, physical distribution was a limiting factor. Products needed to be approved to make it to the shelf with many logistical challenges to get the products distributed. These hurdles are removed with e-commerce.

Selling products online direct to consumers or through a third party can offer increased opportunities for profit. In the traditional retail model 40%─65% of the final retail price can be absorbed by brokers, distributors and retailers. When selling direct to consumers online, producers and processors are able to re-invest some of this margin into their own programs and increase the amount they retain within their business. It is important to consider that digital marketing, order fulfillment and shipping costs are now your responsibility.

Direct selling online has other benefits such as the opportunity to generate repeat sales and to upsell. In the traditional retail environment, consumers can only select what is on the shelf and we are dependent on them to see opportunities or trade up to a premium product. During the online buying decisions, there are opportunities for you to influence the decision to buy more or differently, ultimately enhancing the transaction. When selling direct online, you can invite people into your virtual community and build long-term relationships.

Connecting with your consumers

When selling through e-commerce there are opportunities for you to connect directly and foster a long-term relationship. Consumers buying through e-commerce are also more likely to invite the company into their online world. When there is a situation where you are building a direct relationship with consumers, this creates a number of opportunities.

The producer or processor can create the messages going to consumers through social media, email and other communication channels. Communication can be focused where it is most beneficial for the seller while reinforcing the brand promise of the products. Consumers expect communication to be two way. If they have questions or comments, they will expect a timely response. Organizations that do not live up to this expectation risk damaging the relationship with consumers.

Selling direct or through a third party also generates a lot of valuable information. This data can be used to forecast future sales and assess results of promotions and special offers. Resources are required to manage and learn from data. Responding to consumer purchases and communication can lead to better consumer relationships. Often, data is not available or very expensive to obtain from traditional retailers who perceive purchase transactions to be between the store and the consumer.

When relationships are developed with consumers, this tends to lead to more sales on existing or new products. When producers and processors are able to see patterns in buying, such as monthly purchases, it is possible for you to offer a lower price or bonus to consumers who commit to once a month orders. It can be much less expensive to offer something special than it is to find a new consumer. Repeat purchasers can be brand ambassadors and your biggest advocates. On Shopify.ca there is a summary of the importance of consumer retention: Customer Retention 101: Grow Your Business by Selling More to Current Customers.

Many food and beverage companies invest resources to create online communities. These can be managed through a third-party platform such as social media or a proprietary platform. Using a third party enables you to grow your online community faster as the infrastructure is already in place. There can be millions of consumers already there ─ you just need to entice them into your space. When a third-party platform is used, the company is dependent on their rules and ability to maintain a solid platform. It is a great resource to have the ability to communicate with your consumers when you want to promote a special offering to them.

It is possible to create an online community that is not on social media. Email marketing continues to be a popular choice for many consumer packaged goods companies. Consumers have given you permission to contact them and in many cases would be willing to provide feedback as well. In Canada there is specific Anti-Spam Legislation in place to protect consumer privacy and they must be adhered to.

There are four options for selling online; three allow producers and processors to cultivate direct relationships with consumers. Selling online direct, through a third-party marketplace or on social media enables companies to develop online communities. When selling through a retailer's website, you will own the relationship with the consumer, just as you do when the transaction happens in your store. One consideration when developing an e-commerce strategy is an essential value and return on the investment of developing direct relationships with consumers.

Summary snapshot: The online opportunity for food and beverage companies

Why adopt e-commerce?

Meet the needs of a changing consumer
Develop direct relationships with the people who buy your products
Access to new markets
Possibility of incremental margins in your business

A changing marketplace

More shipping options with faster deliveries
Consumers are shifting spending to online
Consumers are gaining confidence in buying food and beverage online

Online consumers

Outside influences make it more likely consumers will search for food and beverage online
Social media is a greater influence over where and how people shop
Consumers will give you permission to communicate directly with them
Prices can be comparable and shipping is more consumer friendly
Millennials are more likely to purchase food and beverage online than other generations

Developing direct relationships with consumers

E-commerce increases opportunities for direct communication with consumers
Online selling generates data about the people buying your products
Your online communities are a valuable asset