It is an undeniable fact that e-commerce is becoming more and more popular in the world and also in Latvia. Pandemic restrictions no longer prevent people from shopping in person, but the habit of ordering products from an online store does not go away. Estimates show that in 2030, food delivery will reach 18-30% of the total food delivery market in Europe’s most developed economies. On the other hand, “Euromonitor” predicts that in 2026 e-commerce in Latvia will reach 16.5% of all retail sales.
However, in the food industry this appears to be a very ambitious goal at the moment. But, unreachable? Business people can realize their potential as long as they are ready for investment and aware of the challenges they face.
Currently, it is also possible to order food online in Latvia, from large retail chains to small specialty food shops. According to the data available to “SEB banka”, in the last 12 months orders from food e-stores have increased by 4.86 times compared to 2019.
Food e-commerce is still a relatively new market in the Baltic countries, where new players have the opportunity to create sustainable business models, as well as provide the best shopping experience to customers. Existing food market leaders can use their well-known and trusted brand, their experience and industry knowledge to attract customers to the e-store, while start-ups can surprise with innovative technologies, aggressive marketing strategies and the ability to change quickly.
The biggest challenge: to win the trust of customers
Studies have shown that online food sales have high profitability when there is a large number of households but a low number of supermarkets in a given region. According to data from “Euromonitor”, in 2021 there were 333 food supermarkets for about 1.9 million inhabitants in Latvia, which suggests that the food trade should be able to compete with the usual and understandable face-to-face trade. For comparison, Beijing has around 200 supermarkets for 22 million inhabitants, so the demand for food delivery is much higher.
However, changing customer behavior isn’t that easy. Food e-commerce is limited by the lack of customer trust in online retailers. In the store, the buyer can look at the product and make sure that it has no defects and what the expiration date is, but when shopping on the Internet, the customer must completely trust the merchant.
Going to the store is part of the daily life of citizens and the associated costs (fuel, public transport) seem cheaper than the costs of delivering an online order, so merchants entice customers by offering very cheap or free deliveries, which reduces costs trader’s profit.
The merchant has to think about how to increase the shopping cart in order to compensate for the free shipping and make a profit. This is particularly difficult for new merchants who have not yet reached large order volumes and cannot obtain better payment terms and prices from their suppliers.
Benefits for growth
It is clear that ambitious growth forecasts do not mean utopia. The growth will be influenced both by the development of existing merchants, for example by offering delivery to new cities, and by the creation of new online stores. Furthermore, compared to face-to-face commerce already developed, online grocery stores have several advantages for rapid growth:
Availability of data
In the Internet environment, it is much easier to collect data on buyer behavior. The experience of “Ocado” (UK), the developer of the online grocery store and food retail infrastructure, shows that with the help of various systems it is possible to analyze customer habits in the business environment. e-store and use the conclusions obtained to improve the customer experience in the online store. This can be data on the size of the baskets, the most popular products and the duration of the shopping, as well as more specific data, for example, on which goods the buyer first places in the cart, which goods are removed from the cart, or put an item in the cart. minute before paying. Customer habits can be used to personalize the customer shopping experience.
Cost reduction opportunities in “dark shops”
Internet merchants can fulfill orders from cheaper locations, employing fewer employees. Furthermore, the goods warehouse can be made much more efficient by using robots that prepare the shipments and manage the range of products available in the warehouse. This practice is often used in countries where e-commerce is more developed than in Latvia. The introduction of robotic warehouses allows greater precision in order fulfillment, that is, by managing only one warehouse, more accurate information is available on the range of goods available.
In addition, such warehouses provide the opportunity to prepare and deliver the order faster, which is especially important for the modern consumer. Additionally, the automation of processes allows the trader to be less dependent on human resources, which is especially valuable in the face of labor shortages and rising wages. Finally, design costs are reduced by not having to worry about the location, layout and design of the store.
Durability
The latest studies state that ordering food at home has a less negative impact on the environment than traditional shopping. Suppliers can optimize logistics by delivering products to multiple customers at the same time, resulting in reduced emissions. There is also a trend that more and more suppliers are choosing to transport orders with electric bicycles or cars.
New revenue streams
Offers in real time (Live bids – RTB) is a process that occurs when a buyer searches for a product in an e-store. While the shopper enters the selected product category in the search box, manufacturers can compete by offering the highest price for placing the product in the most visible place in the e-store. This way, the e-store can find more ways to make money from RTB ads. It is important to note here that the marketer should strike a balance between personalized ads and RTB, so that the buyer is not being advertised with products that the buyer is not looking for.
In conclusion, it should be concluded that the rapid growth of e-commerce in recent years has shown that the company as a whole is ready for the digitization of purchases. In the Baltic countries, the volume of e-commerce grew by 23% in 2021 and will most likely maintain the rapid rate of growth in the coming years. Furthermore, SEB data shows that Latvian residents bought 2.78 times more goods in e-stores in 2021 than in the pre-Covid period, and there is clear potential for growth in internet food sales. Therefore, this is a story about the use of opportunities and advantages, even in the Latvian market.
