OPINION: The future of agri-food marketing as world turns to e-commerce
JOHANNESBURG - An overwhelming number of forecasts postulate that 170 countries around the world will experience an economic recession during 2020 because of the disruption by the spread of Covid-19 and social distancing, which led to forced closure of non-essential retail outlets and restaurants in large parts of the world.
Many retail outlets and foodservice places will never re-open post Covid-19 because they were unable to carry operating costs amid the prevalent drastic revenue declines, especially, in markets where governments are unable to control the spread of the virus or to shore up the economies by supporting businesses and households.
When non-food and foodservice channels eventually rebound in 2021, most of them will not be able to return to pre-Covid-19 sales levels, having lost substantial revenue and market shares to online business permanently.
During the Covid-19 pandemic, retail has been largely limited to grocery stores and e-commerce since the middle of quarter one of 2020.
Consumers are adopting new consumption habits centred around home eating and home shopping and these are the channels for which the strongest upward impulses are forecast in 2020.
Thus, in the turmoil created by the Covid-19 pandemic, food and health channels will do well, while non-food marketing and purchasing migration to online will accelerate. Grocery channels are benefiting from stockpiling and increased home eating. Meanwhile, the pharmaceutical and health channels are receiving a boost from rising health and hygiene awareness.
Against the foregoing background, it is apparent that the world economy is undergoing a complete metamorphosis in response to the Covid-19 catastrophe and new opportunities are being created. The agri-food sector should not be left behind and should be innovative in its response to the pandemic especially when it comes to marketing and product packaging.
There already exist examples of how agriculture and the entire agri-food sector’s marketing is evolving.
For example, it is now possible to buy highly perishable and delicate products like steak online. Alibaba has pioneered such e-commerce services that even the South African agricultural sector could emulate and improve upon.
While traditional non-chain operations and brick-and-mortar non-food channels will take heavy sales declines and even face bankruptcy in 2020, brands should note how many product categories still offer opportunities in chain retail, especially in e-commerce.
E-commerce will increase in 2020 by a whopping 8 percent above initial forecasts pre-Covid-19 in a number of dominant economies.
Therefore, brands should partner with the likes of Amazon, Alibaba, JD.com and Pinduoduoto, and compensate for declines in brick-and-mortar distribution channels.
Having cited the fore-going example, there is nothing stopping local agri-food brands from establishing their own home grown e-commerce vehicles to paddle their products.
It is expected that across most markets, e-commerce will defend its 2020 chain retail market share gains beyond 2025, resulting in a permanent shift to a more digital future of retail, as well as a widening gap between the world’s leading e-commerce platforms and a second tier of formerly dominating established retail groups.
Accumulated figures shows the rapid speed at which retail market concentration will advance in the wake of Covid-19, with strong implications for suppliers. Global top five e-commerce brands including Alibaba, Amazon, Walmart, Pinduoduo and JD.com will grow their combined share of global chain retail from 19.5 percent in 2019 to 23.2 percent in 2020, and grow this further to 28.2 percent by 2025. This corresponds to an additional 8.7 percentage points of market share.
Brands should urgently leverage growth opportunities provided by the top five to mitigate the negative impact from the recessionary environments they are operating in, as well as plan beyond the short-lived upside impulse on sales from hyper-stores, which must be expected to return to creeping market share decline from 2021.
The implications of this imminent, and already present, shift in retailing and marketing are many for the South African agriculture sector and a few recommendations may be useful.
First, transitioning to online marketing is inevitable in order to ab initio opportunities presented by fast-expanding leading platforms including Alibaba, Amazon, Pinduoduo, JD.com, Takealot and the likes.
Second, South African agri-food sector would benefit from partnering with leading and dynamic consumer packaged goods channels in order to secure their market outlet and market share in a growing channel.
Third, the sector needs to treat delivery intermediaries as a new marketing channel and partner with them in order to leverage on their rapid growth in the economy.
Fourth, producers need to work with retailers to identify in-demand stock keeping units to enable their participation in e-commerce, rapid-delivery and subscription programmes.
Fifth, and linked to the previous point, is the need to ensure traceability of products and adherence to safety and health standards. With increased occurrences of both human food-borne diseases, for example listeriosis and salmonella, as well as animal diseases such as foot and mouth disease, African swine fever, there is a directly correlated increase in phyto-sanitary standards.
Increased traceability to the source of food that consumers purchase counteracts the consumers’ concerns and regulators’ requirements. Organisations such as the Agricultural Research Council have an important role to play in spearheading the development of scientifically credible and impartial traceability systems for the various categories in agri-food value chains.
Numerous technologies are now available internationally for the implementation of traceability systems and these include the Blockchain technology as the new kid on the block. The Agricultural Research Council is already making forays into this technological space that is suitable to e-commerce and this will soon result in a South African traceability system for livestock.
This system will go a long way in dealing with notifiable animal diseases and increase consumer confidence in the South African food system. This development is pivotal to assisting the agricultural sector to transition into the new marketing era characterised by increased e-commerce.
Lastly, South African food producers should proactively prepare for faster and more flexible and agile fulfilment of consumers’ demand, by engaging with new delivery methods across retailers.
Dr Thulasizwe Mkhabela is an agricultural economist and is the Group Executive: Impact & Partnerships at the Agricultural Research Council; [email protected]