The fattening of the curve: the future of food and digital

We will see a recession of food e-commerce in the short-run followed by a faster and wider adoption of digital services around the consumer food journey in the longer run. The fattening of the curve.

We at Bloom Partners have recently done a study on the new normal of food habits in the context of Covid-19. During the crisis, more people have resorted to online food shopping than ever before — driven by necessity, availability and convenience. However looking ahead, the study reveals that consumers are craving and enjoying real food experiences more than ever: quality over price, local origin over pure availability and sensible shopping over convenience hoarding. Oh, those smells and sounds of the farmer’s markets…

Let us uncover this paradox: an unprecedented rise in online food shopping followed by a run on Farmer’s markets — followed by… what? We break it down into four facts that define the past, present and future of food and digital adoption. From adoption reservation and hype to recession and growth: Here is our story of the fattening of the curve.

Fact 1: Slow adoption of food e-commerce.

Over the past few years, e-commerce has gained importance within the food category, with more supermarkets and suppliers venturing into the online space. Nevertheless, food e-commerce adoption rates across customer groups has remained insignificant despite significant investments. In 2019, experts predicted a plateauing of revenue growth within online food retail sales at around 4.5% YOY (eMarketer:2019). And while we have seen food e-commerce growth rates of 17% in 2019 the revenue share is still a mere 1%.

Fact 2: Adoption hype during COVID-19

However, since March 2020, COVID-19 has rattled these predictions and boosted food e-commerce significantly. It is no surprise that e-commerce has gained in popularity, across socio-demographic segments, as many previously apprehensive consumers have adopted to online grocery shopping out of necessity. E-commerce platforms saw a a six percent global traffic increase between January and March 2020 and a doubling in revenue growth worldwide within the ecommerce market segment of food & beverage (Statistica:2020). This customer growth came at historically low customer acquisition cost. Equally, valuations of meal kit companies experienced a spike with HelloFresh having gained almost 40% in the last 3 months and Marley Spoon spiking by 28.3%. With this significant shift, online food grocer Ocado recently invested into 20 new micro-fulfilment warehouses across the U.S. to keep up with this new demand and the hope it will continue beyond the pandemic.

Fact 3: Adoption recession after COVID-19

This adoption spike however is not sustainable and an adoption recession is likely. In our recent food study, with 502 respondents across Germany, grocery delivery services like Amazon fresh (-25% of intended use AFTER the crisis) and online supermarkets (-17% of intended use AFTER the crisis) will lose against local speciality supermarkets (+29% of intended use AFTER the crisis). Respondents also showed a shift in food habits, with high-quality and regionality trumping brand and price when making a purchase decision. Real food experiences will thrive, as lockdown measures and restrictions loosen across countries, and supermarkets accommodate to deliver the missed in-person, real shopping experience. Availability of goods will not be an issue. The spotty customer experience of digital services (from inconvenient delivery windows to poor quality and service) will be remembered. And the economic viability of meal kits and meal delivery will be questioned when real food and dining experiences are back. Consumers will also consolidate their online shopping channels.

Fact 4: Fattening of the curve in the longer run

During Covid-19 more people have been exposed to digital technology than ever before, and that acceleration across all sectors (from shopping to healing to conferencing to streaming to gaming to.. you get the point) will win the game for digital in the longer run. Looking ahead, we expect two things to happen: digital adoption around food will not just happen faster but also broader. We call this the fattening of the curve — the faster and wider adoption of digital services around the full consumer food journey of educating, planning, shopping, preparing and experiencing:

• We will see faster adoption in established digital services, such as food delivery due to wider exposure during Covid-19, that will be able to their offerings for increased demand for real food experiences and local quality;
• We will see faster adoption in emerging digital services such as grocery delivery with a focus on replenishment, exclusivity and personalization: almost half of shoppers are wanting retailers to provide them product suggestions to match their unique preferences and tastes.
• We will especially see wider adoption in digital services beyond shopping but around the full consumer food journey: services, that support consumers in their desire for real food experiences. Our study indicates that digital inspiration sources will be used significantly more (+18%) after the crisis with consumers valuing added digital services to support their cooking journey.

Our advice: identify, invest, intensify and innovate.

Food producers, retailers, distributors and service providers should embrace the opportunity to innovate, invest and test. Here are five recommendations to ride the wave of adoption:

1. IDENTIFY: Analyse consumer behaviour patterns on your existing digital services to understand what made consumers come, stick around or leave.

2. INVEST: Keep the new cohorts of consumers that have been newly exposed to your services by investing savings in customer acquisition into retention.

3. INTENSIFY: Strengthen the relationship of existing consumer cohorts by further personalizing offerings and experiences based on acquisition and retention learnings (step 1 and 2). This holds true for shopping and service offerings alike.

4. INNOVATE: Look beyond food and grocery shopping but across the whole consumer food journey for digital services and digital delivery to (profitably) connect with consumers. This will also require you to think across industry boundaries in the search for partners — including the quest for Direct-to-Consumer services and delivery.

5. TEST: Leverage the wider openness towards digital services to test early, often and open in the market– to ensure investments into ideas that DO work vs. ideas that SHOULD work.

By Maximilian Hinz and Mireille Toyn

Bloom Partners is a digital growth firm based in Munich and Berlin, Germany. We support the ambitious to unlock digital growth opportunities by bringing together the right people, strategy, and technology. Find out more about our digital services here.