Despite accounting for a tiny proportion of total sales presently, growth is predicted in the UK’s online fresh produce retail market. Produce Business UK investigates how that expansion could be achieved and asks whether the example of blossoming produce-focused e-tailer Natoora might hold the answer
The internet is flooded with small start-ups offering a bewildering array of new ways of selling fine foods to consumers, from local restaurant takeaways to meal cookery services.
But one area, aside from organic box schemes, that few of these businesses have yet touched on specifically is the sale of fresh fruits and vegetables online.
Could this be about to change? According to a recent report from Rabobank, the answer is ‘yes’. Although online fresh produce sales are in line with or slightly below total online grocery sales, the retail analyst believes they will grow, predicting that the unconfirmed arrival of AmazonFresh in the UK would further drive online sales of fruits and vegetables.
Rabobank forecasts that online sales will double over the next five years and says they could reach as much as 25% of total grocery expenditure by 2025.
The analyst claims the magnitude of the change could mirror that of the rise of the hard discounters during the last decade and believes fresh produce companies who respond positively to this trend could “cash in”.
Challenges with fresh
One company that has responded to the trend and is arguably among the few already selling fresh fruits and vegetables online successfully, is London-based Natoora.
It may not have started out as such – the company was formed as an importer of French fine foods – but Natoora has evolved into a multi-armed business that combines direct sale to consumers and offline wholesaling, as well as retail sales through other online platforms.
As Natoora retail director Tim Ballard explains, the core of the company’s online business has been supplying fresh fruits and vegetables – as well as other foods – to high income expats based in London, those hailing typically from Europe and the US.
However, Ballard readily admits that successfully selling fresh produce online has been very difficult to achieve.
“Fresh produce is probably one of the hardest categories to translate,” he says. “Despite having relatively low item value, fresh food customers need to feel confident as regards to product freshness and their perception of quality, or even appearance.
“The weight to value ratio is much worse than any other fresh category and you have to be realistic about how complex you can make the offer.”
To address that, Ballard argues that fresh produce can work well online as part of a broader offer, via a larger grocery shopping service or box schemes, and he says convenience plays an important factor in both services.
“To overcome concerns, customers usually take confidence from the reputation of the grocery shopping service they are using or, in the case of box schemes, from the reputation of the service,” he says.
Despite this, Ballard believes there is reason to be optimistic about the potential that online sales can hold for fresh produce.
“Although our online sales are insignificant compared with the market as a whole, the fact that they have remained stable demonstrates that there is a lot of strength there and more potential for growth,” he says.
For those companies seeking to follow in Natoora’s footsteps, there are undoubtedly challenges and potential pitfalls to overcome.
However, Rabobank report author Cindy van Rijswick says there are some straightforward steps suppliers can take to benefit from the predicted growth in online grocery sales, particularly emphasising the need for effective screen management and marketing.
Tagging on-screen products correctly, providing good pictures and taking part in online promotions are all measures that van Rijswick says can help foster a positive impact. However, she cautions that product consistency, packaging and quality must be in line with the version presented to shoppers.
Companies looking to move or grow online need to consider a number of important questions before they go ahead with any plan, according to Ballard. They should first focus on the service and range, the methods for delivery and work out whether the business is scalable.
The recent downsizing of Good Eggs in the US shows how wrong it can go if these questions are not answered properly, he argues.
“There are a lot of sectors which translate well online, but trying to use the same learnings from other sectors in fresh food is flawed – it’s too simplistic and ignores the more fundamental questions,” Ballard points out.
“Good Eggs is a great looking site, with decent, interesting content. The shopping experience is decent and as a website alone it is clearly very well done. But the service clearly wasn’t meeting an unfulfilled need customers had on a scale that was needed to make it a viable business.”
Managing fresh produce on a product-by-product basis online, with low value items that may only have a short season can be costly, and it requires great effort to keep the content up to date, adds Ballard.
As well as factoring in the cost of packaging, companies seeking to sell fruits and vegetables online also have to control the way the product is stored and handled, meaning there would be limits on how many orders could be effectively fulfilled internally, he argues.
Cooperation is crucial
Likewise, van Rijswick believes the challenge of logistics costs mean – in spite of the success of online box schemes – that there are limited opportunities for suppliers to sell directly to consumers via the internet.
“In my view, a company needs quite some scale to cover the costs involved,” she says. “Many small online outlets will not succeed if scale is limited as logistic costs are too high.”
Instead, van Rijswick recommends cooperating with companies that are well-versed in online retailing and which crucially already have IT and logistics operations in place. “Supplying retailers with the right products and helping them with proper online marketing is more likely to be successful then setting up your own online channel,” she says. “The market is extremely competitive. You must be very unique to stand out in this fierce competitive playing field.”
In this vein, one of the biggest developments in Natoora’s progress as a business has been the signing of a supply deal three years ago with online grocery retailer Ocado. “For us to achieve our ultimate goal of getting the fruits and vegetables that we source directly to consumers, we needed to work with a company like Ocado,” explains Ballard.
Natoora approached the online retailer, which had only recently launched its ‘Shop in Shop’ initiative, and Ballard says the results to date have exceeded expectations, having grown steadily since the collaboration began.
“Ocado has been very important to the development of Natoora’s business,” he says. “They have the scale and reach to do something that only they and the multiples can do. We can also have great confidence in how the product reaches the customer.”
However, all of this is not to claim that the consumer-facing side of Natoora’s online business has become redundant. Although “for the time being” the focus will continue to be on the London area, Ballard says Natoora plans to renew its online offer early next year, while also placing a greater emphasis on convenience and simplifying purchasing. In the process, the site will move away from its current ‘à la carte’ format – a relic from its beginnings as an online marketplace.
Working with Natoora
So, how can an interested supplier go about securing a listing with Natoora? Ballard says flavour, sustainability and good agricultural practices all figure strongly when it comes to choosing who to work with.
“If we are looking for tomatoes, for example, we start from the basis of flavour, then worry about the supply chain and shelf life,” he explains. “That’s what the restaurants and our customer base are looking for.”
Natoora’s approach, Ballard says, is to approach growers directly to identify products and varieties where flavour – as opposed to any other characteristic – is the outstanding factor.
In fact, the company’s roster includes growers who were going to stop producing high-quality tomatoes because of high price points and low yields. Instead, they now exclusively supply Natoora.
Although the firm does not seek to sell strictly organic fresh produce, Ballard says great importance is placed on working with suppliers who make minimum use of pesticides and farm in a sustainable manner.
“In the supply chain, quite often the really good stuff doesn’t get to consumers – it’s either grown on a small scale or sold locally – we’re trying to show that it can be done,” he says.
Currently, Natoora sources the bulk of its fruits and vegetables from France, Italy and the UK, and more recently has begun bringing in small volumes from Spain. The emphasis on French and Italian products can be traced back to 2005 when Natoora was set up by company founder Franco Fubini as an importer to the UK of fine foods from France, and later, Italy.
Natoora now supplies fresh fruits and vegetables to around 400 restaurants around the London area, but despite its growth, the company has maintained its emphasis on serving the premium end of the market. Ballard describes the restaurant client base as Michelin-starred establishments and gastro pubs, with the Gaucho chain among its regulars.
The company has also latterly moved into direct retail sales, opening a shop in London’s Chiswick and with plans for a second outlet in the near future.
More recently, Natoora has started working with Whole Foods, initially with a ‘soft launch’ of 10 products, followed by the introduction of a much wider, Natoora-branded range in store.
“We’ve really worked on the brand to identify and differentiate – particularly on flavour – our products,” Ballard says. “Flavour is at the core of everything we are trying to achieve.”
Although Ballard admits that the consumer-facing side of Natoora’s web presence has changed very little for “three to four years” while the company focused on other opportunities, he says online sales will take on renewed importance for the firm in the 12 months ahead.
“For us, the plan for the next year is to focus on the online side of the business,” says Ballard. “We’re looking to change it to make the offer much broader, lower the minimum order requirement and expand the delivery area.”