The best channel for your food & drink business: retail vs e-commerce

Angus Murray, a business development expert who's spent over 17 years with UK Trade & Investment, explains how to weigh up the options - and decide what works best for your company.

Retail

On the positive side, establishing a retail presence, especially with a large multiplier, allows a food & drink company to achieve scale and create brand awareness - to a greater extent that they'd be able to do online, alone.

It's worth bearing in mind that, if you have an overseas buyer, they may ask you for a reference point - i.e. which retailers you're listed with in the UK and beyond. This allows overseas retail buyers to make comparative assessments about potential placement, and brand owners to access range review data.

Significant opportunities exist for UK companies that can deliver a unique proposition to buyers and help them expand their retail categories. This can include volume of products, listing more SKUs (stock-keeping units), in-store promotions etc.

On the other hand, retail can be expensive, depending on how much leverage a UK company has and the margin the retailer is charging. Many retailers will also expect companies to help support in-store promotions and charge additional listing fees.

Some overseas retailers will buy direct from UK suppliers, but in many cases, UK brands will need to work with an in-market distributor, who will also add a margin. This then becomes a three-tier system.

One example of a brand that's successfully expanded its retail presence overseas is Kiddylicious. It used its strong presence in the UK retail market to leverage success internationally - including a listing with Walmart Central America.

E-commerce

Food & drink companies that sell online have a great opportunity to boost their brand and, in many cases, enjoy improved margins.

Selling online, both in the UK and internationally, has also helped many food & drink brands to be resilient during the pandemic.

In addition to selling from their own websites, there are several B2C e-trading platforms that companies can use to reach consumers around the world. Although these platforms will obviously take a margin - and in some cases charge listing fees - it can be a cost-effective way of connecting with international consumers. Well-known examples are Fruugo, OnBuy.com, Ankorstore (B2B), 1688 and Amazon's country platforms.

The Department for International Trade has links and agreements in place with many of these e-trading platforms and can help you navigate which one is best for your products.

Some companies, owing to the wider situation, have seen their sales collapse - but some managed to reinvent themselves overnight. Raise Bakery, for example, used to supply airlines. When sales fell off a cliff, it started selling its stock of flours to consumers online.

Other retailers have seen their bricks and mortar models crash, but their online presence grow massively.

Online consumers, for their part, have changed - and companies must keep on top of trends. Customers are aware of brand value and adaptability - gin producers that have pivoted their model to make hand gel, for example, will strengthen their long-term customer relationships.

As we move forward, customer shopping experiences will be even more key. Brands that identify and react to changing trends will have a competitive advantage.

Brands that sell online need to understand the importance of branding and communication, supported with consumer activation via social media, key opinion leaders and influencers.

Conclusions and recommendations

Firstly, being small is often an advantage. During the pandemic we saw that smaller companies were quicker to react. They also tended to be more adaptable on customer service and delivery times.

The post-EU transition period will bring some challenges to traditional overseas distribution and retail, in terms of labelling and documentation. UK companies must ensure their freight carrier is up to date with the latest regulations for cross-border sales. For B2C sales, companies will need to use the right customs Incoterm to ensure relevant taxes and duties are paid at the right point.

Companies selling to consumers online will also need to check if they need to register for VAT in the countries they supply, and consider the extra costs involved. They will need an EORI (Economic Operators Registration and Identification) number, which is needed to move goods between the UK and non-EU countries. The Amazon FBA (fulfilment by Amazon, where your products are shipped direct to the end customer) model will also cease to be an option for UK companies after 1st January.

Our strong recommendation is that companies seek advice as soon as possible. Next year, UK companies will be responsible for finding a registered importer to import their products into the EU.

Generally, it's advisable for UK companies to adopt a multi-channel approach, meaning a blend of different channels to market (online, distribution/wholesale, direct), so as to spread their commercial risk. Some companies opt to start online, so as to create brand awareness first, before approaching buyers or distributors.

Consumer attitudes to buying online are shifting; customer experience is therefore key. This is especially true in times of industry disruption, such as during the pandemic, and the ongoing Brexit-related uncertainties.

Discover more about expanding your business online, distribution and retail by connecting with Angus.