COVID-19 accelerates growth of food and beverage E-commerce market

As the world grapples with the COVID-19 pandemic and its devastating impact on people’s health, the economy and social disruptions, the food and beverage industry has undergone a tremendous change in terms of where and how people source their supplies.

In response to the WHO protocol on social and physical distancing to curb the spread of the coronavirus, the number of people deemed safe to gather in a single place dwindled, with some countries initiating lockdowns at some point.

This in turn led to most consumers turning to e-commerce platforms as their channel of choice for purchase of food, beverages and other essential groceries, as opposed to physically visiting retail outlets, restaurants, grocery shops etc.

According to data from Google, searches for “food delivery services” have grown globally by more than 300% since the outbreak. A report by Kantar Group concurs with this finding, noting that as by the end of April 2020, the e-commerce share of the food market was cumulatively 12.4% across China, France, Spain and the United Kingdom, up from 8.8% at the end of 2019.

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In an exclusive Nielsen study of 10 Middle East and African markets, consumers indicated they were doing more shopping online than prior to the pandemic outbreak, rising by 44% in Saudi Arabia, 41% in United Arab Emirates (UAE), 34% in Nigeria, 33% in Kenya, 31% in Qatar and Bahrain, 28% in Oman, 29% in South Africa and 27% in Egypt and Kuwait.

“This pandemic crisis has shown the world that online food delivery is not just a commodity, but a necessity. The food business adapted quickly to the new normal, by availing contactless and cashless deliveries,” said Shreenal Ruparelia Chief Commercial Officer, Jumia Food – a leading the food delivery platform in Africa.

 More than just Covid

The extraordinary events caused by the COVID-19 pandemic have clearly had a profound impact on the rise of food and beverage e-commerce. However, other growth factors, which were in play prior to the pandemic, are also expected to contribute to the overall growth of the sector in the years to come.

An increase in smartphone users has always given a boost to food and beverage e-commerce sales, as they are mobile has become the primary online shopping tool. As per an article published by k-commerce, the world smartphone users reached 3.2 billion in 2019 and are expected to grow by 600 million, hitting 3.8 billion by end of 2021.

In Africa, e-commerce is still at its infancy by global standards, standing at less than 2% vs. north of 20% in China or 12% in the USA. But it has promising potential, as Internet penetration in the region is estimated at 39.3% with 527 million Internet users, a growth of +12% since 2000, indicates Jumia.

The large population of tech savvies are and will continue being millennial and urbanites with the highest spending power and are on the lookout for convenient, personalized, time saving, cost-efficient ways to consume, and consume more.

Majority of these consumers prefer to buy their food online via web or applications, as it allows them to save time, indulge in a wide variety of food products, discover new cuisines and outlets, benefit from low prices courtesy of bulk purchase, deals and promotions and increasing online launching of products.

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Overall, the global food and beverage e-commerce market is expected to grow from US$14.9 billion in 2019 to about US$22.4 billion in 2020. The market is foreseen to stabilize and reach US$34.6 billion at a CAGR of 23.4% through 2023, indicates Research and Markets in a report.

The major global players in the market are Amazon Fresh, Zomato, Bigbasket, Swiggy, MilkBasket, Walmart, Flipkart, Uber Eats, Walmart, among many others.

In Africa, the market is currently dominated by Jumia foods, operating in 9 countries. Other local players include Zulzi, Expand Cart, Yamee, Ordera, GoFood, Deliver Addis, who operate alongside multinationals such as Uber Eats and Glovo.

They are all eyeing the market share of the region’s food and beverage industry, which is worth US$313 billion and is projected to reach US$1 trillion by 2030. According to Jumia’s Africa Food Index 2020, the growth will be significantly propelled by the rise of online food sales.

Collaborations heighten

Some of the food companies in the world process their own food orders and undertake the deliveries. While others partner with established logistic companies leveraging on their network, technology and expertise for last mile deliveries. The latter is highly used by most players, including those who have established logistics departments, as demand for delivery services at times outpaces their logistics capacity. Being a symbiotic relationship, the food delivery businesses also highly benefit from the retailers and food outlets, which fashion them with supplies that trade on their platforms.

A report from Capgemini in 2019 shows that retailers’ net profit could fall by up to 26% in the next three years, if they don’t radically improve last-mile solutions, despite increased online grocery sales. The COVID-19 pandemic has accelerated this reality, making market players shift focus to expansion, partnerships and acquisition strategies in a bid to make the delivery process efficient and effective.

South Africa’s supermarket chain Pick n Pay acquired on-demand online delivery app Bottles to strengthen its e-commerce operations earlier in October 2020. In the same region, UberEats partnered with Game Stores, a subsidiary of South Africa’s retail giant Massmart Holdings, to deliver food and essential products to customers during the nation-wide lockdown. This came after Checkers, a supermarket chain owned by Shoprite, entered an exclusive partnership with Mr D Food for delivery of alcohol to customers’ homes.

Globally, Alibaba, an e-commerce giant has recently invested approximately US$3.6 billion in the acquisition of a controlling stake in Chinese largest hypermarket operator Sun Art Retail Group. The acquisition comes as Alibaba seeks to strengthen its online grocery delivery capabilities in the wake of Covid-19, as well as its offline retail offering in an effort to stave off competition in the high-growth market from e-commerce rivals such as JD.com, Meituan and Pinduoduo.

 Companies pull together

Mergers and partnerships between food delivery companies have also come to play. In January 2020, two European food delivery giants Takeaway and Just Eat came together, with Takeaway buying Just Eat in an all-share deal that gave Takeaway a greater presence in Canada, the United Kingdom, France, and Italy. The joint company, now called Just Eat Takeaway.com later acquired leading US food delivery company Grubhub – becoming the biggest food delivery marketplace outside of China.

During the peak of the COVID-19 pandemic, Uber Technologies, the parent company of Uber Eats reached a deal to acquire food delivery rival Postmates in an all-stock purchase worth US$2.65 billion. This transaction brought together Uber’s global Rides and Eats platform with Postmates’ distinctive delivery business in the US.

One of the latest happenings is the recent initial public offer listing at the New York Stock Exchange by US food delivery company DoorDash, with the company hitting a valuation of US$60 billion on the first day of trading – a whooping figure for the company that has whizzed past established players during the Covid-19 pandemic to take a 50% share of the market in a relatively short time. Analysts contend that most food delivery companies are doubtful of making significant headways towards profitability, and that they can burn through cash for only so long – leading to significant consolidation of the sector across the World.

Others are seeking more strategic ways to thrive. In Kenya, e-commerce platform, Jumia Kenya and Kenyan-based technology food distribution platform, Twiga Foods have signed a partnership agreement to enable shoppers on the platform to buy fresh produce as well as processed foods distributed by the farm produce aggregator.

South African alcohol producers SAB, Heineken SA, Diageo and Pernod Ricard launched online ordering systems as part of the safety measures during the Covid-19 lockdown IN THE COUNTRY.

Mega brands venture in the game

Growing demand for online food and beverage shopping is also encouraging companies to capitalize on the opportunity by setting up direct to consumer e-commerce operations, with some making the move in response to low sales registered following COVID-19 disruptions, such as closure of trading outlets.

Beverage giant Coca-Cola launched a home delivery service in Kenya dubbed ‘DialACoke’, which avails a wide range of its products including sodas, water, juices and energy drinks to its customers in a convenient, efficient and safe way.

As South Africa eased into Level 3 lock-down and ban of alcohol sales was lifted, liquor stores witnessed a surge in numbers of customers in long queues, which posed a challenge on observation of physical distancing stipulated to aid in combating the spread of the corona-virus. In  this regard, alcohol producers launched online ordering systems as part of the safety measures. Heineken SA, Diageo and Pernod Ricard in partnership with Touchsides launched the Hola Club Click & Collect platform while South African Breweries (SAB) introduced its USSD cell phone-based ordering platform called Firsti.

In neighbouring Zambia, Zambian Breweries Plc, a subsidiary of AB InBev, partnered with Tigmoo and AfriDelivery to facilitate delivery of its products to the doorsteps of customers. Though a lucrative opportunity to grow its market, the brewery admits it is at infancy and has not yet gotten great volumes through the distribution line but believes it will soon grow to greater heights with time.

“It’s not something that we have been doing a lot in the past; we just started. Together with our partners, we’re trying to encourage people that if you don’t want to go out, but you still want to have our products at home, you can place your order online,” said Zambian Breweries Country Director Jose Moran.

Globally, PepsiCo sidestepped retailers and started selling many of its products online via its PantryShop as Kraft Heinz launched Heinz to Home. Swiss multinational food and drink processing conglomerate Nestlé recently acquired Freshly, a provider of fresh-prepared meal delivery services in the US. The investment is forecasted to post sales of US$430 million in 2020, shipping more than 1 million meals per week.

Country Delight, a fast-rising dairy tech start-up in India has also revealed its plan of venturing into grocery delivery following a successful series C funding round where it was able to raise US$25 million. The company offers online delivery of fresh, natural cow and buffalo milk and other dairy products and with the new funding acquired, it seeks to expand its offering to food essentials such as fruits and vegetables, cold-pressed edible oils, wheat, batters, pulses, spices, pickles, and jams.

Game changing benefits

Done properly, direct to consumer platform increases brand loyalty and sales. In addition, it provides consumer data insights, which enables the companies to make informed decisions. “E-commerce is shaping up to be the next great revolution in the food and beverage industry,” stated Indra Nooyi, PepsiCo’s former CEO.

You’d probably think the growth triggered by COVID-19 would taper off as the pandemic subsides and the sales would settle down to their pre-pandemic levels, but historical trends suggest otherwise. The good thing about e-commerce sales is that once they go up, they never quite fall back to the previous levels. “Consumers are embracing e-commerce and eating at home like never before. It’s an evolution brought on by the pandemic but taking hold for the long term,” said Steve Presley – CEO, Nestlé USA.

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