It is undeniable that e-commerce is becoming more and more widespread in the world and in Latvia. Pandemic restrictions no longer hinder personal shopping, but the habit of ordering products from online stores is not disappearing. Estimates suggest that in the most developed economies of Europe, grocery trade will reach 18-30% of the total grocery market in 2030. Euromonitor, in turn, predicts that e-commerce in Latvia will reach a 16.5% share of total retail sales in 2026. However, in the grocery sector, this seems to be a very ambitious target now. But, or unattainable? Retailers can realise their potential if they are willing to invest and are aware of the challenges they face.
Currently, food in Latvia can also be ordered online, from large retail chains to small, specialised grocery stores. According to SEB, in the last 12 months, food orders in e-stores increased 4.86 times compared to 2019
Grocery e-commerce is still a relatively new market in the Baltics, where new players can develop sustainable business models and offer the best shopping experience to customers. Existing grocery market leaders can leverage their well-known and trusted brand, experience, and industry knowledge to attract customers to e-shop, while start-ups can impress with innovative technologies, aggressive marketing strategies, and the ability to change quickly.
Biggest Challenge: Achieving Customer
Studies have shown that online grocery sales have high profitability when there are a high number of households but few supermarkets in a given region. According to Euromonitor, there were 333 food supermarkets per approximately 1.9 million inhabitants in Latvia in 2021, suggesting that food retailing should be able to compete with the usual and understandable face-to-face retailing. By comparison, Beijing has about 200 supermarkets for every 22 million residents, so demand for food deliveries is much higher.
However, it is not so easy to change customers' habits. E-commerce of groceries is hindered by customers' lack of trust in internet marketers. In the store, the buyer can look at the product and make sure it has no defects and the expiration date is known, but when shopping online, the customer must fully trust the merchant..
Going to the store is part of the everyday life of the population, and the associated costs (gasoline, public transportation) seem to be more acceptable than the delivery costs for an internet order, so merchants entice customers with very cheap or free delivery, which reduces the merchant's profit. The merchant must figure out how to increase the shopping cart to compensate for the free shipping and make a profit. This is a particular challenge for new merchants who have not yet achieved a large volume of orders and cannot get better payment terms and prices from their suppliers.
Advantages for growth
It is clear that ambitious growth projections do not mean utopia. Growth will consist of both expanding existing merchants, such as offering delivery to new cities, and creating new online stores. In addition, online grocery marketers have several advantages for rapid growth compared to already developed in-person retailing:
Availability of data
It is much easier to collect data on buyer behaviour in the internet environment. The experience of Ocado (United Kingdom), a developer of infrastructures for online grocery on the internet, shows that with the help of various systems it is possible to analyse the habits of customers in the e-store environment and use the insights gained to improve the customer experience in the online store. This can be data on the size of the shopping basket, the most popular products and the duration of the purchase, as well as more specific data, such as which goods the shopper puts in the basket first, which items they remove from the basket or put in the basket one minute before payment. Customer habits can be used to personalize the customer's shopping experience.
Cost reduction options in 'dark shops'
Internet marketers can provide order fulfilment from cheaper premises while employing fewer people. In addition, the warehouse can be made much more efficient by using robots to prepare shipments and manage the assortment 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 enables more accurate order processing, i.e., when only one warehouse is managed, more accurate information about the available assortment of goods is available. Likewise, such warehouses offer the possibility to prepare and deliver the order faster, which is especially important for the modern consumer.
Automating processes allows merchants to be less dependent on human resources, which is particularly valuable given staff shortages and rising wages. Finally, planning costs are reduced because there is no need to worry about the location, layout and presentation of the store.
Sustainability
Recent research says that when ordering food delivery to your home, the negative impact on the environment is less than traditional shopping. Suppliers can optimise logistics by delivering products to multiple customers at once, resulting in less emissions. There is also a trend that more and more suppliers choose to transport orders on bicycles or electric machines.
New revenue streams
Real Time Bidding (RTB) is a process that takes place when a buyer searches for a product in an e-shop. While the buyer enters the selected product category in the search box, manufacturers can compete by bidding the highest price for placing the product in the most prominent place in the e-shop. Such an e-shop can find additional earning opportunities with RTB ads. It should be noted that the merchant should find a balance between personalised and RTB ads so that the buyer is not shown products he is not looking for.
In summary, the rapid growth of e-commerce in recent years has shown that the public is ready for the digitization of shopping. In the Baltic States, e-commerce volumes increased by 23% in 2021, and it is likely that the rapid growth rate will continue in the coming years. Moreover, SEB data shows that Latvian residents bought 2.78 times more goods from e-shops in 2021 than in the pre-Covid period, and there is visible potential for direct grocery growth online. So this is a story about taking advantage of opportunities and benefits, including on the Latvian market..
Aleksandra Borcova
SEB Money Management Products Transaction Manager
