Food processors unprepared for digital revolution, warns expert

The global food industry is on the eve of an online retailing revolution that will lead to fundamental changes for players along the supply chain, from processors to retailers. Food processors and producers, however, face the danger of being pushed to the back of the e-shelf because products are not sufficiently ‘online-proof’.

This warning was delivered by senior analyst John David Roeg in Rabobank’s latest report,

“Food Processors Challenged by Online Growth Dynamics”.

Rabobank said the growth of online food retail is a game changer for food processors, similar to the introduction of self-service supermarkets, the arrival of hard discount and private label.

Roeg said the online grocery market should be a place for everyone to sell everything. “But food processors face the danger of being pushed to the back of the e-shelf. It’s not enough to change the packaging or formulations; 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 equally important for consumers to understand how to navigate the new online retail world.”

For brands and private-label food processors of every size, the digital revolution means exploiting opportunities and tackling the challenges of securing on-screen visibility.

Food producers and processors have to assess brand strategies, adjust and diversify their product range, refine their marketing tactics and modify their supply chains in order to meet the demands of online retailers and ensure they do not risk becoming invisible online.

Roeg said from large Fast-Moving Consumer Goods (FMCGs) to B-brands and the cheapest private-label producers, different strategies will be required to make products stand out against the competition.

New technology allows retailers to control what customers see. “It is not enough to make it to the top of the screen. 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 (for example, birthday parties).

Rabobank identified three areas where food producers can adopt strategic changes in order to flourish in the online age.

1)      Make products online-proof. First, it suggests that mid-market brands in the "squeezed middle" should specialise in niche products such as healthy options. Beyond niches, there are other variables that can lead to filter-beating products such as smart pricing and packaging variety.

2)      New marketing techniques. Marketers and sales teams should develop more advanced systems and procedures to actively manage the share of screen every day round-the-clock. While the emphasis will be on building strong and recognisable brands, tactics to improve visibility can include negotiating individual terms with a retailer for promotions, substitution deals (to promote it or to prevent it from happening) or on-screen advertising.

3)      Supply chain efficiencies: Online retail will lead to more complexity for retailers with some costs going up, such as more flexible production runs; and some falling, with fewer stocks in the supply chain. Roeg predicts that retailers and producers will work together to achieve new supply chain efficiencies so as to keep retail costs low.

“Ultimately, Rabobank expects retailers to downsize their property and store portfolio significantly,” concluded Roeg, “with only fast moving and profitable products getting shelf space, the rest will be ordered online.”