Food manufacturers ‘unprepared for digital revolution’

By Michael Stones

- Last updated on GMT

Related tags Retailing

Food firms are failing to exploit the digital revolution
Food firms are failing to exploit the digital revolution
Food manufacturers are unprepared to exploit the digital revolution that is boosting online sales of food and drink, warns Rabobank.

The warning was delivered in its new report – Food Processors Challenged by Online Growth Dynamics ​– published today (June 11). Rabobank’s senior analyst David Roeg told shoppers’ growing preference for online sales are sparking the biggest changes seen in the retail industry for a generation and food processors should be better prepared to exploit them.

“The online retailing revolution is comparable with the rise of self-serve supermarkets 60 to 70 years ago but processors are not well prepared​,” said Roeg.

Shoppers’ preference for online grocery purchases is unstoppable – driven by the greater convenience and wider choice compared with in store shopping, he said. “That would bring both challenges and opportunities for food processors, as they refined their offer to benefit from this new trend.”

Roeg said there were huge business opportunities for early adopters who could tailor their products to meet the demands of the online revolution. But that depended on developing strong brands that commanded prominence online.

No limitations on shelf space

With no limitations on shelf space, the barriers to listing and delisting products are reduced. This change will benefit both existing producers and small and new entrants such as those in the slow moving premium segment or small ethnic food category.

Rabobank also expected more producers to sell products through new online platforms or markets.

But food processors who failed to adapt risked being pushed to the back of the e-shelf. “It's not enough to change the packaging or formulations,” ​said Roeg. “In the face of increased competition and opportunities for commercial advantage, products need to be ‘online-proof’. Even the most popular products can lose share of screen so it is important for consumers to understand how to navigate the new online retail world.”

Online prominence alone was no longer enough to secure online sales, according to the report. “New technology allows retailers to control what customers see,”​ said Rabobank.

“In this algorithm-controlled world, retailers can 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, such as birthday parties.”

Privacy online

While this can benefit consumers, there are incentives for a retailer to persuade customers to change products too, which could lead to concerns about privacy online.

The report outlines three areas where processors can modify business plans to exploit the digital revolution. Those included: making products online proof, new marketing techniques and improving supply chain efficiencies. See below for more detail.

Initially the changes would favour own-label products over brands. “Own-label will have a free ride because they will be supported by retailers – both now and even more so in the future. But secondary or third place brands in the market will be in for a very rough ride,” ​said Roeg. 

The changes will be far reaching for retailers too, he added. “Ultimately, Rabobank expects retailers to downsize their property and store portfolio significantly with only fast moving and profitable products getting shelf space, the rest will be ordered online.”

More information about the Rabobank report is available here.

Meanwhile, most food retailers and manufacturers had been slow to harness the burgeoning consumer power and the unique advantages of social media, claimed digital specialist, Britannia Communications.

Its managing partner Angus Flood told this website: “We are increasingly seeing a strong correlation between category velocity and digital competence. Social media is working for both business-to-business and business-to-consumer sectors. The evidence of return on investment is now available.”


Manufacturers’ strategy for the digital revolution

1) Adjust products to make them online-proof​: Firms could see their leading brands filtered out by consumers using filters such as gluten-free or low-sodium. An option for producers of B-brands is to specialise in niche products such as healthy options.

2) New marketing techniques​: Marketers and sales teams will need to develop more advanced systems and procedures to actively manage share of screen every day all day.

3) Supply chain efficiencies​ for retailers and processors: Online retail will lead to more complexity for retailers with some costs rising, such as more flexible production runs; and some falling, with 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.

Source: Rabobank

Related topics Manufacturers