Amazon’s push into the UK grocery and fresh produce markets isn’t unexpected, and it might not even appear like a major shift in the food industry… but appearances can be deceiving. The growth of the online marketplace has thrown the old conventional wisdom of wholesalers and supermarkets out of the window for many SME food producers. There’s a fair bit of new thinking in this area, called ‘hybrid sales’ and ‘surgical marketing’ in the US, which is winning increasing support in the UK, as direct-to-consumer digital players like Amazon Pantry and Amazon Fresh continue to grow.
It’s an area where the small independent, family owned, local, organic, fair trade, micro-brewing, farm-to-table, direct-to-consumer SME business… are winning. These are the brands who are experimenting with the next generation of hybrid food sales and marketing strategies, and as Amazon’s figures show, making successful inroads into the digital food marketplace while the big brand retailers lurch from crisis to crisis.
The future of independent SME UK foods – brighter than it looks?
Over the last five years pretty much every aspect of the food chain has been through a crisis, from struggling dairy farmers to rising insolvency rates for bread, pasta and ready-meal wholesalers, as well as the poor quarter-on-quarter results for the ‘big four’ supermarkets (in their price war against the discounters). But, while the news is dominated by big names, and big money announcements like the €2.8bn tie-up between Carrefour and Google, or the £14bn Asda-Sainsbury’s merger, there’s been relatively little attention paid to the to the mainstay of British produce, the small, high quality, independent SME brand… and they’re doing very well without the help of the supermarkets who used to dominate the food chain.
- Sales of organic food and drink have soared to a record £2.2bn, that’s around 6% growth in 2017, and more importantly the sixth year of growth in a row (yes, sales growth, unlike the big four supermarkets over the same period).
- The Soil Association reckons around 30% of all organic produce sales are now online, or on the high street.
- Sales of organic products in supermarkets rose by 4.2% to £1.5bn, while independent local co-ops, food shops, specialists, farm shops, farmers’ markets and retailers such as (Amazon-owned) Whole Food Markets – enjoyed a 9.7% sales jump to £359m.
- Home delivery services including box schemes saw a jump of 9.5% to £286m.
- Consumers are also buying more organic beauty products (up 24%) and textiles (up 25%). Again, these tend to be direct-to-consumer sales via ecommerce and Amazon, rather than trad supermarkets or chains.
What’s really important to note about these figures, is how they are dominated by three elements: SME producers, online sales, and independent retailers. While this looks like a winning combination, the old traditional supermarkets are reducing product ranges, squeezing suppliers and wholesalers, cutting prices and losing margins… and launching more own-brand products to try and reduce their costs and improve efficiency. However, on these figures they’re failing to be as effective, or agile, as the SMEs. The SME secret, is hybrid sales and surgical marketing.
The growth of hybrid sales
Hybrid sales refers to a three pronged approach to sales. It’s proving highly effective for certain sectors of the UK SME food scene in 2017. It works by taking the traditional wholesaler out of the equation, and looking at a combination of digital retail options instead, like this:
- Supplement wholesalers with marketplaces. This replaces traditional wholesaler with markets that have drop-ship models, i.e. they buy bulk stock and sell it direct to consumer, like some Amazon Prime and Amazon Pantry sales. Like traditional wholesale, this means selling below the £RRP but there is a major advantage over supermarket wholesale: Amazon Prime customers pay a premium for convenience, which means the producer can often sell at a higher price point via this kind of digital channel than to traditional wholesalers.
- Engage with Third-party marketplace sales. Selling via a commision-based high traffic location (like Amazon, Ebay, Etsy etc.) and fulfilling direct-to-consumer. This offers the advantage of convenience for the consumer, but also gives the SME brand tighter control over pricing, to combat the race-to-the-bottom pricing wars of brick-and-mortar retailers.
- Sell direct-to-consumer (via e-commerce and independents). Although this is becoming an expensive option for many SMEs, due to the high cost of systems and Google Ads (see Surgical Marketing below about that), if it’s combined with first-party and third-party marketplace sales, it can prove very effective as a way to offer exclusive bundle deals, customisation via tailored hampers or promotions to shift less profitable product lines and overstocks. Similarly, point of sales promotions in delicatessens, farm shops and food festivals enables a similar opportunity.
The core thing to remember about hybrid sales strategies is… they work. It’s the reason why higher price organic produce is growing, and supermarket sales are slowing. It takes advantage of two core trends in consumer habits, the growth of home deliveries for convenience (which most supermarkets do) and the rise of online marketplaces with premium delivery services, like Amazon Prime, Pantry and Fresh (which supermarkets don’t… except Morrisons).
The growth of surgical marketing
Surgical marketing refers to the growth of highly targeted, data-driven marketing. Traditionally, SME food brands have invested in the usual above-the-line marketing (maybe TV, probably print) but below the line campaigns tend to be more cost-effective, like in-store point of sales promotions, advertorial features in magazines, and (of course) Google Adwords. However, in all of these cases, the ability to really home in on the right audience tends to be limited, either because the ad effectiveness is hard to measure (e.g. how many people watched the TV ad?) or because the words that describe your product, like “mayonnaise” or “kobe beef” is dominated by brands who outspend your SEO budget.
For the SME with a hybrid sales strategy, the key to effective surgical marketing is data…
- Ad platforms like Amazon Marketing Services (AMS) and eBay Promoted Services offer brands much more demographic data to target products and promotions more effectively.
- Targeting small farm shops or health food stores, or specialist chains like Planet Organic have enabled many SME brands to reach more of their brick-and-mortar target customers, with premium produce (and margins).
- The ability (of some platforms, like AMS) to identify the other types of product your customers buy, and build strategic promotional partnerships with other brands and retailers where there’s a good fit.
- Offering exclusive online-optimised packing, and experimenting with different product formats and measuring the response. This builds on the advantages of hybrid sales, enabling the brand to market products in formats that sit in-between single unit sales and bulk-buy discount packs. 2-packs or 4-pack offers can add considerably to online sales if the brick-and-mortar offerings are limited to single units or 8-packs. This kind of multi-format testing is what highly targeted surgical marketing is all about. Customisation of offer for the consumer, where supermarkets cannot go!
Don’t believe the hype, believe the numbers
The world of SME hybrid sales and surgical marketing is growing fast, so it’s still early days but overall, Ocado was the UK’s fastest growing supermarket in 2017, partly down to its partnership with Amazon’s new Pantry and Fresh UK operations. In the US, Amazon Fresh doubled in size in 2017. In the UK, sales of beers, wines & spirits via Amazon hit £60m and grew a whopping 96% in 2017, and there was more moderate (but still impressive) 10% – 21% growth from condiments and cooking ingredients, through to snacks, desserts and baking supplies.
Food sales are moving online in record volumes, and where the organic food business in the UK has grown by a strong 6% generally in 2017, roughly 25% of Amazon Fresh sales have the term ‘organic’ in the product title. That shows where the demand for higher price, high quality produce is headed, and it’s away from the premium supermarkets like Waitrose, and towards the online world. For the SME backbone of the UK food industry, there’s a new game in town… and it’s not wholesale, it’s not on the high street, it’s digital and delivered to your door, as you want it.
“Thanks for ordering Matt, here is your favourite variety pack of chilli based products, with a side of your favourite craft beer selection. Oh…. and based on your purchase history we thought that you would like to try a sample of our new product….”
Now that is what I call hybrid sales with surgical marketing.
If you’ve got questions about developing your own hybrid sales strategy, surgical marketing in digital marketplaces, and joining the other brands who are moving into the Amazon grocery world… that’s what we do so do get in touch. www.marketplaceamp.com or for launching new products try our sister marketing agency www.montagecomms.com
And thanks for the sources we used in writing this piece… here’s just a few if you want to read around the topic a bit more.
http://www.freshplaza.com/article/197906/UK-Lidl-and-Aldi-continue-to-win-ground-over-Big-Four
https://www.retaildetail.eu/en/news/food/five-supermarket-trends-2018
https://www.clavisinsight.com/blog/amazon-grocery-year-review
