According to the study "European food retailers: The bitter digital aftertaste of the Covid-19 legacy" by Euler Hermes, in the five major European markets - UK, France, Italy, Spain, and Germany - e-commerce penetration in supermarket product sales ranges between 3% and 11%. In the last year alone, annual sales growth for retail companies through digital channels was 5.3% - almost double the average growth recorded over the last 10 years, driven by more meals made at home and increased demand for personal care and household products.
During the first half of this year, e-commerce sales grew by 2.4%, despite the progressive opening of bars and restaurants, and the trend is expected to continue, regardless of the easing of measures to control the pandemic.
However, the study warns that this growth could have a negative impact on the profitability of the sector, as the high operating costs are not reflected in the price presented to consumers. It is estimated that each percentage point of purchases that transits to online channels will imply losses of more than 13 billion euros in sales and almost 2 billion euros in profits in the revenue of food retail companies, equivalent to 4% of the total.
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New challenges for retail
The analysis highlights that the growing penetration of e-commerce in the food retail sector entails two major challenges for incumbents: first, it changes the rule of competition by price, adding convenience and service to the equation, making smaller companies or those more reticent to keep up with the digital transition face a greater risk of losing market share; second, it is a major threat to profitability. Online grocery sales are at a loss, regardless of the delivery mode (click and collect or home delivery), as these new processes carry higher operational costs than traditional.
Among Portugal's main trading partners, the United Kingdom and France are the countries whose retail sector faces the greatest risks: e-commerce penetration rates are high, market concentration is higher and there is a strong presence of supermarkets and hypermarkets with structures prepared to enter e-commerce. In the French market, for example, "drive-through" or "click and collect" services are predominant.
In Italy and Spain, the market is more fragmented, characterised by strong competition between foreign companies and large national or regional companies, which translates into a lower penetration of the use of e-commerce, even though sales through online channels have increased by 60 to 65%.
The German market is mainly composed of discounters (35% of the market compared to 10-15% in other large markets), who tend to be more reluctant to follow trends.
The Euler Hermes study predicts that the dual threat to market share and profits will lead retailers to rethink their e-commerce operations strategies, focusing on three main areas of consideration:
- An adaptation of the shop mix and a rotation in investment to allow better adaptation to a greater penetration of e-commerce;
- Investment in digital capabilities enabling greater efficiency, with a view to achieving profit parity with physical retail;
- Partnerships with companies in the rapidly growing e-commerce ecosystem (food technology, grocery delivery and logistics companies).
The analysis carried out by SIBS Analytics in the 365 days of the pandemic report - Changes in the consumption habits of the Portuguese reveals that, in national digital purchases, "the food and retail trade and sports and recreational material sectors showed faster growth compared to the same period in the previous year, finding in online trade an alternative to the drop recorded in physical purchases" (considering the data recorded in the first year of the pandemic). The study also highlights that "the food and retail trade grew 109% in this channel in the first confinement and 97% in the second, while the sports and recreational material sector increased even more: 114% of consumption in the first confinement and 190% in the second."
The conclusions of the European eCommerce Report, released by EuroCommerce, reinforce this perspective of the development of national e-commerce, with a 23% growth in Portuguese B2B e-commerce in 2020, representing a turnover of around 7.4 billion euros.
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This article is republished in partnership with Supply Chain Magazine - read the original article here.
