Laurens Sloot, Professor of Retail Marketing

NL: Deep pockets are required for online retail concept

Picnic, Google, Hello Fresh, Marley Spoon, Mathijs' meal box, Streekbox. Lately, online food initiatives have been tumbling over one another. We asked Laurens Sloot, Professor of Retail Marketing at the University of Groningen and the founder and director of the EFMI Business School for his opinion on the future of online retail. Is it hype, a trend or a truly future-proof retail concept?

Investors
"For years an incredible amount of online retail initiatives have been undertaken. The Internet and new social media make a lot of new concepts possible because you can appeal directly to the consumer, without the need for a physical store or payment for advertising. The threshold to start something new is low. In addition, much capital is floating around venture capitalists, who have faith in online concepts. Behind some of those concepts like Hello Fresh, Marley Spoon and perhaps Picnic is a lot of 'risk money', where the objective is to capture a lot of market share in a short time. Many of these concepts are put on the market as startups. You can see that this is too much, but often investors are not harmed. Rocket Internet is funding hundreds of startups, only a few have to succeed to recoup any investment," says Lawrence.

"In England the online groceries are already at 4.5%, but it comes from wayback. In the late 90s this was already boosted by Tesco Direct and Ocado. In France, the online market is at around 3.5% and in the Netherlands this year its share goes to 1.5%. For now they are niche markets, but we estimate at EFMI Business School that the market for online shopping in the Netherlands in 2020 will be about 4 to 5%, which would be a tripling of the current market share," says the professor.

Foodkits
"The market for foodkits is a separate component within these groceries. It is in fact the multi-fresh specialist online. The range is more limited than in regular supermarkets, but wider than a fresh specialist. It actually opens a new intermediate segment. Here there are also opportunities for fresh suppliers from a specific region to combine things. A company like Hello Fresh now enters the market quite aggressively. How online marketplaces of food kits will develop, is not just a question of supply but also demand. Whether it lasts depends completely on how good the initiative is compared to the existing alternative of conventional supermarkets. It is clear that a certain audience is interested in meal boxes ​​for convenience, for the element of surprise and for education. But I do not think it is going to be a very big market. With all the pressure from investors and providers you see now, I expect that within four years at most, turnover can grow to 2-2.5%.

"The question is whether these initiatives are not going to be the Malt Beer of tomorrow. In the late 90s it had a market share of almost 10%, but collapsed to 1 to 2%. I am not a specialist in food kits, but I follow the online retail and watch, as an economist, particularly for sustainability," added Lawrence. "A foodkit of Allerhande is easily 30-40% more expensive than if you buy the items yourself and with Hello Fresh this percentage is even higher. I think few people are willing to structurally pay such a price increase for their groceries. It is nice for some time, but at some point the element of surprise is gone. In addition, the real food lovers often find it not at all bad to go to a supermarket or specialty store."

It surprised Laurens Sloot that these online initiatives didn't come from the growers. "They sometimes find it unfair that they get a few cents for their cucumber and that retail makes a lot of profit. My response is always: 'Fine, then start your own shop'. Complaining is allowed, but you cannot continue to complain. Then you owe it to yourself to do things differently.

"In the case of retail, you will see that it is a different ball game, where substantial investments are needed and where there is an incredible amount of competition. To launch something new like Bilder & De Clercq did is fantastic, but that does not mean it will be successful. The same applies to Marqt, who are still losing money. Very deep pockets are required to come up with a concept that could potentially be profitable."

Farm shops
Laurens sees the farm shops take over part of the position of the specialty shops. "Small scale and authenticity meet a need. Part of the population has a distrust of processed food with all its preservatives. They like to buy fresh and at the source. A farm shop provides a lot of added value and there is a group of people willing to pay for it. These farm shops can often develop into a regional or local brand. A very good example is the Zuivelhoeve, which set up 38 stores. A good example in the fruit and vegetable world is strawberry farm Kalter. Of course the fresh sector also can continue on their current path, but if you make a commodity, you are dependent on the world market. For example, in Holland the pig industry cannot do much about the Russian boycott, but it creates huge price erosion. In short, I see room for farm shops, which gradually turn their product operation into a brand operation."

l.m.sloot@rug.nl

See also ; www.streekbox.nl

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