The rise of online sales has “profound implications” for retailers, manufacturers and consumers, says the Online Bakery: Browsing for Bread report by analysts Rabobank, which expects online grocery to account for between 20% and 25% of grocery sales in Western Europe by 2030.
“Whether producing branded or private label, fresh, frozen, or long-life bakery products, sooner or later producers will have to learn the ropes of selling online,” states the report.
And it adds that those manufacturers who do not acquire such skills run the risk of losing sales, or even supply contracts.
Closer collaboration between bakers and retailers
To deliver a fresher product to consumers, closer collaboration between bakers and retailers will be key, according to Rabobank.
While bakers face additional costs for delivering small amounts of product to dedicated online fulfilment centers – also known as dark stores – these costs are set to fall as online grocery sales increase and bring with them an increase in drop sizes.
Rabobank also suggests time-stamping a freshness guarantee on products could help to reassure shoppers, and that online grocers may set up bake-off facilities or bakery lines in order to help mitigate consumer concerns over freshness.
Analsysts said they know at least one industrial bakery that has started to produce fresh baked goods in the proximity of a distribution center of an online retailer, and almost exclusively for that retailer.
Importance of getting logistics right
"Getting the logistics right is very important for online delivery, especially for fresh," Rabobank global strategist for consumer goods Cyrille Filott told BakeryandSnacks. "So proximity to the distribution center is key. Bakeries need to be flexible and be able, in time, to produce to order."
The industry must also be aware of the need for shipping-proof packaging, says the report, which points out that options may include reusable bags and one-way insulated boxes.
And businesses will need to develop approaches tailored to different markets, suggests Rabobank. In France, where online retail is predominantly click’n’collect, several retailers are piloting pick-up windows where shoppers can collect freshly baked bread ordered online. In The NetherIands, where consumers often put fresh bread in the freezer for later consumption, a Dutch online grocer is offering frozen freshly baked bread.
US online market is growing fast
And while online retailing is only at the beginning of its life-cycle in the US - with a 1% market share in grocery - it is growing very fast, said Filott.
"There is money behind the growth - Walmart has committed several billions of dollars to roll out online grocery shopping," he added. "Now is the time for US bakeries to get involved."
Rabobank said that, while private label dominated many European markets, branded products are more important in the US, and producers of branded baked goods need to make sure their assortment and packaging is right for online sales.
And US bakers may need to rethink their distribution processes.
"Many US bakery companies still use direct store distribution, which works fine for click-and-collect orders that are picked up at a store, but orders that are delivered to homes and offices may come from a distribution center which needs to be supplied differently," said Filott.
Pictures and product descriptions
In order to help shoppers find products online, manufacturers should invest in product pictures and the right product descriptions, says the report, and need to understand how a retailer’s online product classification system works.
Up-to-date knowledge of health and diet trends is also essential key, and Rabobank suggests a good starting point is monitoring social media and asking shoppers’ opinions.
The performance of morning goods such as bagels and croissants in some markets suggests the potential for online bakery.
According to the report, data from consumer researchers Dunnhumby showed that in the established online grocery markets of France, the UK and South Korea combined, multichannel shoppers — those who buy their groceries both offline and online — already buy 11.9% of their morning goods online.
In general, says Rabobank, the percentage of morning goods bought online is higher than in the offline channel, while online sales of sliced or prepacked bread are similar to offline sales, and sales of fresh bread/in-store bakery items roughly 50% less online compared to offline.
For the full Rabobank see here (Rabobank business client log-in required)
Online bakery retail: Taking a category approach
Rabobank’s report Online bakery: Browsing for Bread distinguishes three major bakery product categories and their challenges and opportunities:
Fresh (shelf-life of a day)
“In terms of online consumer uptake, we would expect some initial hesitance from consumers, especially in countries like France, with a sizeable artisanal channel,” says Rabobank, adding that retailers and manufacturers would have to work closely to realize the opportunities of fresh baked goods online.
Just as important, suggests the analysts, will be offering unique products that help differentiate retailers as pricing becomes more transparent.
Limited shelf-life (up to a week)
In this category, it is important for retailers to convince consumers about product freshness, quality and how long the product can be stored before consumption, said Rabobank, adding that the latter is particularly important as online grocery purchases are often not intended for immediate consumption.
Long shelf-life (up to several months)
Long shelf-life products face substantially fewer challenges than their fresh and limited shelf-life peers, according to Rabobank.
“Compared to offline assortments, online products do not require materially different packaging or extensive freshness guarantees,” it added. “Production batches can remain relatively high, with costs low, as products can be stored before being replenished.”
This flexibility helped offer marketing opportunities such as promotions and combo deals with products in other categories.