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- Technical contribution
The online trade of food and beverages is difficult in Germany. Even experts are wondering why this is the case. Perhaps though, they will soon be wondering no more! Because the COVID-19 pandemic has brought a lot of momentum to the market – and there are signs that this will continue.
Opportunity for the online trade with beverages
A much quoted half-truth in hastily written newspaper articles and management seminars is that the English words ‘crisis’ and ‘opportunity’ are the same word in Chinese. This is not exactly true, as only one of the Chinese characters is the same and its interpretation is the subject of fierce debate, not just amongst sinologists – but let’s not get caught up in that debate right now. Because every cloud can indeed reveal a silver lining. The COVID-19 crisis, for example, represents a huge opportunity for online trade.
“We have felt a 1000% growth in direct sales,” says one craft brewer, almost intoxicated by the success. He has everything available on the small web shop on his own site. “For us, our online trade exploded,” others from the same segment also tell us. But what’s happening outside of this niche? And is it a flash in the pan or a lasting change? What does this coronavirus pandemic mean for e-commerce in the beverages sector?
The COVID-19 effect
The current situation: In May 2020, the online portal Statista – which collects a wealth of data from market research and opinion polling institutes – asked consumers: Where have you been buying your food since the outbreak of the coronavirus pandemic?
“At the time of the survey, around 19% of respondents in Germany stated that they had bought their food online from supermarkets since the outbreak of the coronavirus pandemic. Prior to the outbreak of the pandemic, this was only true of around 7% of respondents.
Not only are more people buying food online, they are also buying more: “In terms of value, food was being ordered almost twice as much,” the German E-Commerce and Distance Selling Trade Association (BEVH) observed, which forecasts sustained growth for the segment. “In the second quarter, e-commerce established itself for the long term as an additional form of supply infrastructure,” says BEVH General Manager Christoph Wenk-Fischer – namely when it comes to food and drink.
While €407 million was spent online on food during the second quarter of 2019, according to figures from the BEVH, the second quarter of 2020 saw a whopping €772 million being spent. The BEVH also surveyed consumers, and 22% of them said that they would order food online more often in the future.
The online beverages trade has been a niche topic so far
Nothing is older than yesterday's newspaper – or rather, the figures from before COVID-19, before the global pandemic and its consequences began. Let's take a quick look nevertheless though, because it is important to understand how important the short-term, significant increase in the online food trade is – it took such an inexplicably long time to get to this point!
There was a trend over the last five years or so that showed a growth in online trade for food and beverages – but you almost need a magnifying glass to see that growth. In Germany, this kind of change trudges along at an extremely slow pace. “The online food trade was a true niche topic, at least until before the coronavirus pandemic,” summarises Dr Sascha Hoffmann, Professor of Business Administration and Online Management at the Fresenius University of Applied Sciences for Management, Economics and Media in Hamburg. Not even a giant like Amazon was able to do anything about it, and after a few short-lived attempts, their attempts ground to a halt.
According to a representative survey by A. T. Kearney in 2019, e-commerce accounted for 1.5% of the total food market in 2018 (2016: 1.2%).
Customer benefits vs. barriers for retailers
From the customer's point of view, factors that make online purchasing favourable are: time savings (no need to drive to the store, no need to look for a parking space, no queuing at the till), 24/7 opening hours, (usually) larger selections. Factors that go against it certainly include consumers wanting to see their fresh food (e.g. fruit and vegetables) and even feel and smell them before buying them. This is a strong reason against buying food online, but it doesn’t apply to beverages. There are also sometimes additional fees and charges for deliveries and, under some circumstances, for committing to certain delivery dates and timeslots.
On the part of retailers and producers, the topic of online trade has created a number of hurdles, but the biggest one – ensuring the quality of perishable or fresh products – isn’t something that beverage retailers and producers need to deal with. Sure, beer tastes particularly good when it’s fresh. But beer is not minced beef; factors like temperature and the number of hours it takes to deliver aren’t as important.
On the other hand, it’s tricky but still possible for them to find solutions to the famous ‘last mile’, i.e. delivery from a distribution hub to the customer's door, and the subject of packaging. And then there's the issue of selling alcoholic products to minors – but there are best-practice procedures that can be put in place for this (including age verification when buying online and age verification by the delivery person).
Anyone who weighs up the pros and cons and looks at developments over time may quickly come to the same assessment as the experts: the online beverages trade is becoming a big thing as well. If you’re in the business of selling drinks, you should make sure that you get involved as soon as possible. There are three ways to reach customers via the internet.
Your own online shop
What craft brewers did in the first shocking moments of the coronavirus lockdown was to integrate small, simple web shops into their main websites. These are not optimised platforms from a UX or SEO perspective, but they provide a simple way to order products directly from the beverage makers. Software is available for this at very low prices. In many cases, logistics was looked after internally: they packed boxes and even sent them off to customers all by themselves. This is a model that certainly doesn't scale very well, but, according to many, it worked fantastically in the first few weeks.
“Having your own online shop can certainly be worthwhile for very special products,” says Professor Sascha Hoffmann, “but you can't rely on large orders or customers coming back very regularly.
Nevertheless, these quickly put-together web stores and impromptu coronavirus beer deliveries can have positive long-term effects – if they manage to overcome the hurdles. Experts keep observing how quickly consumers actually get used to e-commerce.
“The rule of thumb is: if you've tried it three times, you've got the hang of it. Once this is achieved, the very high entry threshold for buying food and beverages on the internet in Germany – for whatever reason – is then overcome, and customers stick with purchasing online. Who would want to go back to carrying beverage crates again, after they know that online ordering is easy and prices are on a par with physical shops,” explains Alexander Pöhl, Principal of the Retail and Consumer Goods Practice at the management consulting firm Oliver Wyman.
Bricks-and-mortar retail goes online
For some time, Rewe and Edeka have been striving to expand their bricks-and-mortar offering, making use of the possibility to buy food and beverages online and have them delivered.
“In doing so, large retailers can rely on existing brand awareness and build on structures they already have in place, at least as far as purchasing is concerned,” says Alexander Pöhl. Therefore, he advises the producers of food and beverages to keep an eye on this channel for distributing their own products.
Online-only: marketplaces, etc.
These include specialised online retailers, marketplaces and – particularly excitingly – new players with a very narrow focus on beverages such as Flaschenpost.de and Durstexpress.de.
“They certainly have one big advantage: proximity to the customer,” says Alexander Pöhl. Everything is designed to suit the customer. Professor Sascha Hoffmann agrees: “A low minimum order value, no delivery fee, narrow time slots for deliveries – and they even pick up your old bottles if they have a return deposit on them, too. The convenience is hard to beat.
He sees online-only players as having an advantage over food retailers with home-delivery options: “Their IT and logistics sets them apart. They pull out all the stops to ensure customer retention. They can see customers’ preferences and order frequencies, and they can evaluate a lot of data.
However, these online businesses are still struggling to make money because of their expensive business model (a lot of staff, such as drivers, warehouse storage, a fleet of delivery vehicles, etc.). “These new companies need relatively good staying power – or venture capital,” explains Hoffmann, “to build up a critical mass of orders before their business model pays off.
They’re betting on future economies of scale that will make it even more difficult or impossible for later entrants to gain a foothold in the market. So, it's a kind of ‘winner takes all’ game, in which only two or three major players are likely to prevail.”
How can you get into e-commerce with beverages?
According to management consultant Pöhl, it is far from clear which of the variants in beverage e-commerce will win the race. Therefore, producers should be open to and ready for any of these methods. The important thing to remember is to pay attention to your customers – this aspect is timeless. Every retailer is interested in stocking products that bring customers to their platform and that lead to orders being generated right there and then. Strong branding and a good understanding of digitalisation are what’s needed for the future.
“What was set in motion by COVID-19 is a huge opportunity for e-commerce. This growth will continue," says Principal Alexander Pöhl from Oliver Wyman with conviction.