Food retailers: Brick-and-mortar businesses continue despite the coronavirus

June 2020 – The corona pandemic is shaking up the food industry, as well as everything else. The very existence of restaurants, canteens and other large-scale consumers is threatened, and wholesale food retailers are sharing their suffering. In these times of working from home, reduced working hours and social distancing, people are once again cooking and eating at home – and food retailers are profiting from this. Online food sales remains a niche market and delivery services an urban phenomenon. The biggest winner of the corona crisis is the good old supermarket.

supplier puts packages on sack trucks

Compulsory masks, access control, physical distancing strips on the floor, empty shelves, even pushing and shoving in front of supermarket checkouts: The customer experience of grocery shopping has been lacking since the coronavirus outbreak began. You go shopping because the fridge is empty and you have to. Not because the ambience invites you to while away the time at the cheese and deli counter. And more is being bought than before the crisis because hardly anyone is eating out anymore due to government prevention measures to contain the virus. Home cooking is the order of the day. A return to old eating habits will be slow and in small steps.

young women and a masks for her mouth

According to recent newspaper reports, in these times, more and more consumers are discovering the advantages of groceries ordered online and delivered directly to the front door. Exactly one year ago, a report appeared on this website that began with the following words: “While online commerce is booming in Germany, online food distribution is still in its infancy. This applies above all to fresh fruit, vegetables, fish and meat. Complacency would be dangerous for stationary retailers, however. That’s because the history of the Internet teaches us one thing: disruption starts very quietly but can happen very quickly.”

Weak share of online sales for groceries

Have we now reached this point? Is the coronavirus a game changer for the German food retailers that will lead to a sustainably higher ratio of groceries bought over the internet? Delivery services like REWE, Bringmeister and Co. are usually booked for days, if not weeks, in advance. The mail order business for consumer goods is also running smoothly during the corona crisis via parcel shipping – and is low contact to boot. Gero Furchheim, President of the Bundesverband E-Commerce und Versandhandel Deutschland (Federal Association of German Mail Order Companies), states: “E-commerce’s chances to supply customers and the retail business model are being reassessed.” According to the calculations of the mail order association headquartered in Berlin, internet revenue for groceries grew to EUR 361 million in the first quarter of 2020 or by 28.1 percent compared to the same quarter last year. The increased revenue was realized for the most part in March – the month in which the lockdown began in Germany.

Food lags behind in the digital world

Online share of food and nonfood in retail in percent (Source: “HDE Online Monitor 2019”)

Online share of food and nonfood in retail in percent (Source: “HDE Online Monitor 2019”)

Despite this high level of growth, one should maintain a sense of perspective, according to Volker Brokelmann, trade expert in Hamburg Commercial Bank’s research team. The current high growth level is based on the low initial numbers: For years, groceries ordered online have only made up little more than 1 percent of sales in the Germany’s food retail market. Brokelmann is convinced: “The corona pandemic is unlikely to change this situation long term – even if some consumers are currently turning to online orders with personal delivery or shipping because of fears of infection at supermarkets or supply bottlenecks for certain products.” Current surveys, like one from (M)Science of 1,000 people over the age of 18 commissioned by media agency Wavemaker, will not change this fundamentally. According to this survey, 10 percent of respondents want to continue shopping for groceries online after the crisis.

In 2019, Hamburg Commercial Bank experts established in their study “Food Retail: Freshness Makes the Difference – Can Retail Deliver?” (German) that online food retailers only existed in niches of the larger market .

“According to many consumer surveys, there is a growing general willingness to shop for groceries online, however there are still strong reservations. Consumers continue to want to check and pick fresh produce such as fruit and vegetables, as well as meat, themselves, before purchase. They want to see the range of goods for themselves at the fruit and vegetable stall and the meat counter. No online shop can offer this. For fresh products, stationary retailing is still the optimal sales form,” says Brokelmann.

A further hindrance over the long term is shipping. Delivery windows over many hours, uncertain delivery and shipping costs are hardly acceptable for consumers if they can get the same products at the supermarket or discounter in the neighborhood quickly and simply. In other words: Stationary food retailers will reign supreme even after the corona crisis.

“Delivery services are, and will remain, an inner city phenomenon in large urban centers like Berlin, Hamburg, Munich and Cologne, where distances are short and customer density high.”

Volker Brokelmann, Handelsexperte im Researchteam der Hamburg Commercial Bank

While hundreds of thousands of companies in other industries have currently registered for reduced working hours, food retail markets are desperately seeking new staff and are also giving their employees bonuses because of the increased workload.

Freshness continues to make the difference and is the main competitive advantage of stationary retailers. Over the last weeks, we’ve seen that online food retailers are able to deliver in accordance with their existing capacity. But are they actually willing to increase it? Expert Brokelmann doubts this: “Limiting factors are not only reluctant consumers but also the vendors themselves. Investment in a nationwide network to supply groceries from the internet is just not worth it. Due to the high density of stationary food retailers, few customers are willing to pay an adequate premium on the price.” He also sees a big urban-rural gap: “Delivery services are, and will remain, an inner city phenomenon in large urban centers like Berlin, Hamburg, Munich and Cologne, where distances are short and customer density high.”

A bag of fresh orange

Bigger areas lead to a disproportionately high outlay for logistic processes and the associated high personnel costs. And consumers would be unwilling to pay for that. They would simply head to the supermarket round the corner instead. Brokelmann thus sees bigger potential for online sales in the next years for gourmet food, higher-priced branded products, specialties and other niche dry goods products, wine and spirits, as well as pet food and non-food articles like drug store products.

Some manufacturers are seizing the opportunity of the corona crisis to sell their products – whether whiskey or high-quality chocolate – directly to consumers. Is a new and more direct distribution channel emerging here that bypasses both stationary and digital food retailers? Brokelmann is skeptical: “Some brand and niche products may succeed in isolated cases. Many are already active in this field or even started directly as online shops. However, I don’t see a wide-scale verticalization of the business model of food producers. Consumers don’t want to shop in many individual shops. They prefer stationary or digital shops with a wide selection.”