Food makers struggling to migrate to online retail

Written by Reuters | Paris | Updated: Jul 2 2014, 15:42pm hrs
Online retailA package of Birds Eye Beef Lasagne is displayed in the freezer of a convenience store in London.
Grocery manufacturers are struggling to adapt to the online world and need to invest in smarter packaging, presentation and supply chains to reap the long term benefits.

E-commerce accounts for just 3.7% of sales for fast-moving items like food, drinks and personal care products, market researcher Kantar Worldpanel says, forecasting a rise to 5% by 2016 as supermarkets develop their websites and online only retailers like Amazon and Ocado take them on.

Greater e-commerce could save money with more targeted marketing, including via social media, and lower product development costs, but industry insiders say manufacturers are put off innovation by the so-far small volumes of goods sold over the internet.

At a recent meeting of the Consumer Goods Forum (CGF) in Paris, Amazon vice-president of consumables Doug Herrington berated them over the presentation of their goods, saying his firm had to photograph items to show their scale.

This is a space you should have been a leader in and instead I find we have to innovate on your behalf, he said, noting items often arrived leaking or in unattractive bubble wrap. The first moment of truth for the customer is not what's on the site, it's what arrives at their home.

Most food makers remain seriously unprepared for online retailing, said Rabobank analyst John David Roeg saying they would have to expand their product assortments, since online shoppers are more likely to use search terms like organic yogurt or gluten-free bread.

Iglo Group, which hopes its Birds Eye frozen foods will generate 25% of sales online by 2017 from 10% now, said it was streamlining product names and information alongside testing promotions encouraging bulk purchases.

If you have the wrong words at the beginning, someone who is accessing through a mobile (phone) might just see 'frozen pea' and have no idea what size pack it is, if it's peas and sweet corn, peas and carrots or just peas, general marketing manager Cheryl Calverley said.

It's a really new market though, so everyone's trying new things, she told Reuters.

Some manufacturers are toying with their own ecommerce sites but only in niche areas, with firms like L'Oreal, Nestle and Procter & Gamble selling small amounts of cosmetics, coffee, chocolate and shampoo directly.

Nestle's Nespresso coffee brand is unusual in that it gets 60% of its sales from its own websites, but the company said the plan was not to bypass retailers.

The world's largest food maker, which gets about 3 to 4% of its sales online, says it has created ad hoc online product name and descriptions, advanced images and how-to videos that link to retailers' websites but was proceeding cautiously.

We know that we have to engage with players that are going to set these platforms up, Nestle chief executive Paul Bulcke said in an interview. Because of our success and history, that could be a liability because you hold on to what you know.

Asked about bespoke products or packaging, Nestle cited its Gerber brand as an example of how the online space requires ad hoc packaging with an infant formula package available just on Amazon.

An online migration would ultimately lead to better consumer data and therefore less product inventory throughout the supply chain, Roeg said, reducing working capital and new product development costs by allowing for small, targeted trials.

Fabio Vacirca, global managing director of Accenture's consumer goods & services practice, also said margins would improve, despite a wider offering. A digital shelf is virtually infinite, so we will probably see more (product) complexity.