The Changing Face of Fresh Produce Retailing & Opportunities for US Suppliers

European Market

Retailers and marketers provide insights to sales scale.

Greater advances and access to technology mean that an increasing number of consumers around the world, but not least in Europe and the U.S., are venturing online to purchase their weekly shop. This is further helped by the modern consumer’s need to utilize technology for greater convenience and time efficiencies. As an example, in the U.K., all the major supermarkets — such as Tesco, Sainsbury’s, Asda, and Waitrose — have their own online sites allowing consumers to shop 24 hours a day. This is beginning to present serious implications for the fresh produce sector.

In the U.K., the online grocery market grew at an annual rate of 13 percent during the past five years to reach a value of £8.6 billion in 2015. There is a forecasted 12 percent yearly growth during the next five years to £15 billion in 2020. Of this value, currently brick-and-mortar grocery retailers (with their own online site) account for 74 percent of sales with the remaining 26 percent accounted for by “online-only” retailers, such as Ocado and AmazonFresh.

In the European online grocery sector, France is the pioneer. Dominant retailers such as AuchanDirect, E.Leclerc, Casino Supermarket and Système U operate their own online sales channel. As a result, France produces a route to market, which other European countries look to for ideas and inspiration. A good example of this is the “click and collect” format, which many other European retailers now invested in and is a growing trend popular with time-pressured consumers.

The retailer’s drive-through-service stores, E.Leclerc DRIVE, are also commonplace in France, whereby consumers can collect their online grocery order without actually entering the supermarket. For the French retailer, E.Leclerc DRIVE contributed to around a third of its total online market share growth. By the end of 2016, the retailer aims to have 800 DRIVE stores open across France, including its first on a motorway.

Retailers are seeing an ever-increasing growth in the volume and value of sales on their online channels. Online grocery sales at Tesco now account for 7 percent of total sales at £2.9 billion. The retailer currently operates from six fully dedicated dot-com stores and in-store picking from larger U.K. stores as a direct result of greater consumption demand for online groceries. Taking the lead from French retailers, Tesco invested in 1,750 Click & Collect points as well as more than 260 grocery drive-throughs.

Online Only

In addition to online supermarket websites, new platforms are emerging whereby no physical stores are present. The digital only presence gives these retailers a competitive advantage in terms of lower operating costs. Typically, a number of these formats launched successfully in the U.S., such as FreshDirect and Instacart, but now these are entering the wider European marketplace.

AmazonFresh was launched in the U.S. in 2007, and last year opened in the U.K., with further reports indicating that it will also begin operations in France and Germany this year. A feature on the U.S. site allows consumers to select fresh produce items that will be hand selected and purchased by Amazon employees from a consumers’ local market. The aim is to provide busy working professionals the opportunity to source food from local suppliers. In the U.K., a deal recently manifested that will result in products from Morrisons supermarket being available for purchase online via Amazon.

Further development within the sector occurred with the launch of Natoora in the U.K. and France. This platform focuses only on selling fresh produce to consumers and businesses such as restaurants and smaller retailers on a wholesale basis. The operation has seen strong growth since its launch, and it currently supplies more than 400 London restaurants. The business itself is focused around the fact that it sources all of its products from a number of European wholesale markets and directly from a set of core growers. This presents opportunities for produce suppliers to work directly with online trading platforms to supply products in the European market.

Impact On US Suppliers

This continuing development of the online grocery channel in the U.K. and rest of the EU means that there are a number of key factors U.S. suppliers must consider in order to take advantage of the opportunity in this route to market:

  •  Product Range – Suppliers need to be able to provide online channels with the variety and choice their consumers require.
  • Consistency – Suppliers need to ensure retailers receive consistently high-quality items with adequate shelf life dates.
  • Competitive Price – With the sensory aspect of purchasing fresh produce eliminated online, the price of products becomes a leading purchasing decision factor.
  • Promotion of Country of Origin (COO) – U.S. suppliers can work with retailers to actively promote the COO and boost the awareness of U.S. fresh produce.
  • Local Competitiveness – U.S. suppliers must consider the competitive advantages they can offer the consumer over local sources, such as innovative and additional varieties, seasonality, and competitive prices.

With the online grocery market set to grow by 73 percent over the five years in the U.K. alone, there still remains plenty of room for new produce suppliers to gain a slice of the action. Those suppliers that consider their offering for the market; how it can best be presented online; pricing; and working directly with retailers will be the ones that have the potential for success.

Emma Gough is a senior consultant at Promar International, a leading value chain consulting firm and a subsidiary of Genus plc. Gough has worked on a range of international fresh produce projects across Europe, as well as in Southeast Asia. She is a committee member of the UK Chartered Institute of Marketing Food, Drink and Agriculture Group.