COVID-19 presents opportunity for online agricultural retailers, Mckinsey study shows
Oct. 13, 2020
COVID-19 is having a huge impact on farmers' purchasing practices, according to new research by leading global consultancy, McKinsey & Company. The survey of financial decision-makers at farms across Europe reveals that 95 per cent of farms are considering adjusting purchasing behaviour to minimise physical interactions in response to the global pandemic.
Digital purchasing may provide the answer, with McKinsey uncovering a 36 percentage point increase in both farmers' desire to use digital channels to make product-purchase decisions (up from 51 percent in 2019 to 87 per cent post-COVID-19) and their desire to use digital channels to make actual purchases (up from 33 to 69 per cent). Across Europe, that adds up to almost four million more farmers who say they are ready to use online channels as their main sources of ordering.
Nicolas Denis, Partner at McKinsey, says: "The agricultural sector has a long track record of innovation in many areas, such as yield improvement, sustainability and animal welfare. However, the sector has quite low online retail adoption, with only 22% of farmers having made an online purchase over the past 12 months as of May.
It is worth noting, though, that this is a large and recent increase over the 13% of farmers who claimed the same last August. As attitudes shift in response to the COVID-19 pandemic, companies in the agriculture industry have an opportunity to accelerate their online presence, work out omnichannel strategies, and perhaps even change their business models to better meet farmers' needs. Now is the time to capture it."
McKinsey estimates the European online farming market to have annual revenues totalling between €150m and €200m. However, this could grow to more than €10bn by 2025, out of a €138bn agricultural input and equipment market.
To capture this opportunity, McKinsey suggests that companies take the following four actions:
Improve the online experience. 33 per cent of survey respondents complain that it is difficult or impossible to compare products, and 31 per cent say pricing is confusing. Many of the farmers stop their online experience right there. The complaints continue even among those who continue on to purchase, with shared frustrations such as not being able to reach someone 24/7 (64 per cent), difficulty connecting with the right representatives (32 per cent), lack of real-time product availability (35 per cent), and unclear pricing (21 per cent). Companies need to focus on solving the biggest pain points as a matter of priority.
Focus first on the highest-potential markets. Such markets are those that are large, with big gaps between a stated preference for and actual online buying. For example, fruits and vegetables in Spain make up a €17 billion market in which 38 per cent of respondents say they are willing to buy online-but only 12 per cent do so.
Target consumers based on their stated propensity to use digital. Farmers who use agritech are almost five times more likely than those who don't to purchase online. Similarly, those who reorder online are twice as likely as those who don't to complete first-time purchases online. Companies should prioritise these cohorts and offer them specific digital services, such as bulk discounts, services and security.
Build trust. Many farmers appear not to trust company websites to provide complete information. While 68 per cent of survey respondents use a company website to identify new products, only 9 per cent use them to compare or evaluate products. However, trust can be built. If farmers have already used a product and trust that it is of high quality, 72 per cent are comfortable reordering the product online. Possible actions to build online trust include ensuring transparent pricing, embedding third-party product comparisons, and integrating university research-perhaps even partnering with universities to provide that information.
Julien Revellat, Associate Partner at McKinsey, concludes: "Retailers know very well that building a successful online strategy is complicated. It calls for new practices, the development of more sophisticated data analysis, and the implementation of seamless and cost-effective operations from the warehouse to the buyer. But such complexity is no excuse for delay. The COVID-19 crisis has already led to considerable changes in European farmers' behaviour - making the case for acceleration stronger than ever."
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