Why Selling More Food Online in South-East Asia Makes Sense
While China has been leapfrogging every other country in Asia when it comes to the development and application of e-commerce in food retail, the key six economies in South-East Asia are lagging behind. In 2017, less than 1% of all packaged food sales in the region took place online – yet Rabobank estimates that at least USD 3bn was invested by various e-commerce players in 2017. This investment should stimulate both food and other e-commerce players to further intensify their e-commerce-related activities in the region. Regardless of the hurdles for e-commerce in the region, it definitely makes sense for food companies to sell more via digital channels.
While online infrastructure issues (e.g. internet access, e-commerce sites and apps, as well as payment facilitation) are being resolved, physical logistics – both upstream and last-mile delivery – remain the biggest hurdle for e-commerce adoption by food companies and e-tailers (online retailers). Innovations in fulfilment centres, efficiencies in warehousing, and improved route optimisation technologies are slowly, but steadily tackling some of these logistics-linked infrastructure issues. However, as improvements in infrastructure are likely to be step changes spread out over a long period of time, e-commerce will need to adapt to, and work within, the infrastructure currently available.
E-tailers are also offering multiple payment solutions to facilitate the payment of online food purchases, which typically concern low amounts, but occur very frequently. Though the risk of consumers not paying has restricted the use of cash-on-delivery, bank transfers have found acceptance among e-tailers and consumers in Indonesia, Vietnam, and Thailand – as have offline payments at convenience stores in Thailand and Vietnam.
Scale: a chicken or egg situation
E-tailers have expressed concerns about a lack of economies of scale in the online food business. As such, they are not very interested in devoting more resources to food e-commerce. This has resulted in a limited range of food products being available online. For e-tailers, the question of prioritisation is a critical one: When it’s easier to sell a non-perishable product at a higher price with, in most cases, a higher margin, why sell food – a perishable with lower prices and margins – on a per-unit basis?
The answer lies in the opportunity to continuously engage the consumer. According to Euromonitor, an estimated 29% of all consumer expenditure in South-East Asia is on food & beverages – it forms the biggest component of a consumer’s annual expenses. Continuously engaging with consumers through food e-commerce should yield a steady stream of consumer data on shopping patterns and preferences.
Getting your company ready for new consumer generations
While South-East Asia has a reasonably high internet penetration of 60%, less than half of the region’s internet users shop online – and even fewer buy food online. Buying food online represents a significant change in behaviour, as consumers are accustomed to using touch, sight, and smell to gauge the food’s quality and freshness.
However, the next generation of consumers – the 281m millennials and Generation Z that have grown up using smartphones – are convenience seekers. They have more trust in online solutions, and they are more comfortable buying food without touching, seeing, or smelling it.
Consumers can also be nudged: Food companies and e-tailers could also use discounts, promotions, and free delivery to convince consumers to make their first online purchases, after which buying online could become second nature.
Cherry-picking the assortment
Most shopping baskets in South-East Asia contain fresh fruit & vegetables at check-out, and e-tailers will very likely have to sell these in order to encourage food e-commerce. But fruit & vegetables have a highly complex supply chain with low margins. That’s why e-tailers should stick to products that have a longer shelf life (such as rice, edible oils, bottled water, or long-life/UHT milk), are bulky, or are unique brands – until they reach the necessary scale to offer an assortment of fresh, chilled, and frozen food.
Thinking beyond the top line
As e-commerce remains confined to those key cities in South-East Asia in which established food companies already have high penetration levels, food companies may be wondering whether e-commerce is bringing in new customers… or whether the online growth is purely a result of existing consumers switching from offline to online.
For new-to-market companies and brands, e-commerce has brought in a lot of customers within a short timeframe. This would have been impossible if they had followed the offline route. But for the more established brands, e-commerce likely represents a shift in channels rather than incremental sales. However, as the growth of small brands via e-commerce in China has shown, big companies and brands perhaps need to go online sooner rather than later in order to counter competition from their more agile start-up competitors.
1 The key six economies = Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
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Umesh MadhavanAnalyst – Consumer Foods