06 Mar 2015

Rise of Online Grocery Shopping in Emerging Markets

Online food sales could be big business for emerging markets such as Russia, China, India and Brazil. But what needs to happen for food retail online to really take off in these markets?

It’s clear that ecommerce is growing apace in the BRIC countries, despite the challenges posed by poor infrastructure and other difficulties such as low rates of bank account adoption.

When it comes to delivering perishable goods and overcoming shopping habits, the challenges seem even more apparent.

Here’s a digest of how online food retail is shaping up in each of these emerging economies.

Russia: the challenges of traffic jams

There seems to be high demand for food deliveries in the bigger Russian cities but the infrastructure isn’t yet in place to meet it. Because of the complexity and costs of fulfillment, not many food retailers offer online delivery and those that do have restricted it to the big urban areas of Moscow and St Petersburg. That’s a common theme in emerging markets – infrastructural barriers and a concentration of services in large urban areas.

Consumers are reluctant to buy food online because those online retailers who do offer food delivery are not able to compete on price with offline stores and don’t offer the same range of products. Among BRIC economies, that situation seems to be unique to Russia.

However there is optimism about the future of this sector. This year, over half the Russian population will have internet access and Euromonitor predicts food and drink internet retail will see growth of 11% in the years to 2018.

Azbuka Vkusa, a premium food store, has tripled the size of its dedicated online retail warehouse since it started online sales in 2009. Online orders still account for only 2% of its grocery sales though.

But not all Russians are even aware that the service exists. Any vendor wishing to promote an online food retail business also needs to explain the whole concept of buying food online for delivery.

Logistics remain challenging, and meeting delivery windows is difficult with Moscow’s horrendous traffic jams. Whilst there’s optimism about sector growth, there are still significant barriers to overcome if the industry is really to thrive.

India: ‘mom and pop’ stores dominate

India shares with Russia the same infrastructure complexities that thwart the emerging market for online food retail. With the ecommerce market growing fast, increasing household incomes and more and more Indians coming online, it does seem likely that there could be significant demand for online grocery shopping.

So far, however, there’s little evidence of the market outside the retailer’s imagination! Online food sales totalled under $3 million in 2014 – contrast this to China’s spend of over $7 billion in this channel during the same period. It’s a tiny amount of activity for such a huge country as India.

One significant structural barrier to the growth of online food retail is the proliferation of small independent food stores. India’s food retail industry is characterized not by huge corporations such as Walmart and Tesco but by small, ‘mom and pop’ grocery stores.

Modern organized stores with a complex supply chain – the kind likely to venture into online retail – account for only 2% of food sales in India. This situation is one of the reasons India is likely to lag behind places like China when it comes to online food sales.

The other reason is internet penetration. Whilst more and more Indians are coming online, there’s still quite some way to go before India matches the internet adoption levels of countries such as Russia (around 50%) or Brazil (over 70%).

This year it’s thought the percentage of Indians who are online could reach 19%, which is small compared to China’s 47%. In such a populous country that represents a sizeable market, however many smaller towns and rural areas have much lower rates of access. As in Russia, it’s likely that online food retail is likely to be concentrated in the major cities for the foreseeable future.

In common with other emerging markets, India faces infrastructure challenges that make order fulfillment difficult. Many roads are in a poor state, and there are other transport barriers such as check posts and tolls. There have been some innovative ways to get around this problems, including using bicycle deliveries in inner-city areas and asking customer for multiple delivery slots and addresses in order to find the best way to access them. Innovation is likely to be key to cracking this market.

China – a rare case of potential realized

China seems to be the BRIC market where potential in online food sales is already being realized. In China there’s been significant growth in online food sales over the past three years, with an astonishing 80% rise in online grocery sales each year. This highly competitive market means that social media is important for differentiation and innovation, quality, service and price are all critical.

Following a number of food scares, Chinese consumers are motivated by concerns such as quality and traceability to buy packaged overseas food products online. But shoppers are also motivated by the price and convenience of online food shopping. Others are interested in the wider range of foodstuffs available online, such as finding imported snack products which aren’t always available in their local bricks-and-mortar store. It’s a huge and growing market and one that offers a lot of potential for international brand penetration – if you can get it right.

Brazil – online grocery shopping “not for me”

In any market, emerging or established, there are consumer attitudes to overcome before grocery shopping habits can change. Many Brazilians just don’t see online grocery shopping as relevant to them. Consumers express a preference for selecting their own groceries and online food sales seem to be the preserve of wealthier consumers and those buying food for children away at university. Buying groceries online isn’t yet seen as an option for regular households.

Brazil is the BRIC country with the highest rate of internet penetration – nearly three quarters of the population are likely to be online in 2015. Presently online food sales are at 1% of the total grocery market (in more established markets they are usually around 6%) but this channel is seeing big growth. Like other emerging markets, services tend to be focused in large urban areas.

Major retailers are offering online purchasing options, including for mobile, and one major supermarket chain also offers a shopping app. With ecommerce in general expected to grow at a healthy 20% in 2015, it’s thought online food sales will grow at a parallel rate. Whilst retailers are yet to commit fully to the online channel, there’s a feeling there’s real potential for online grocery shopping in Brazil.


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