European online ag retailers’ new market share has room to grow – McKinsey

Partner Nicolas Denis says covid-19 has helped erode European farmers’ skepticism of buying inputs and equipment online, which only accounts for annual sales of €150m to €200m in a €138bn market.

Investors can capitalize on European farmers’ increased online acquisition of inputs and equipment by helping suppliers accelerate their transition to an “omnichannel” approach, said a McKinsey food and agribusiness practice partner.

The addition of online sales tools that address user experience and connectivity concerns quickly, while allowing incumbents to maintain their established businesses, will be a key opportunity area, said Nicolas Denis.

“By nature, some of the pure digital players tend to be faster to change, because they are inventing their business and others actually have to manage the existing [business],” he told Agri Investor. “That has a tendency sometimes to be a challenge to speed, but some are learning how to do that.”

McKinsey’s May update to its August 2019 survey of 1,000 farmers across seven European countries found the share of respondents who had completed an online purchase over the previous 12 months had risen from 13 percent to 24 percent.

“It’s actually a quite massive shift,” said Brussels-based Denis, who explained that covid-19 left many European farmers with no choice but to overcome longstanding skepticism regarding purchasing online. “They were forced to experience it and now some of those features will stick, because they found them convenient.”

The report described a “paradox” in finding that a greater percentage of respondents reported a willingness to buy online than have been able to do so (see chart below). The gap between the aspiration and the reality, McKinsey wrote, highlights the growth potential of digital retailers within a broader European ag input and equipment market with annual revenues of €138 billion, of which only €150 million to €200 million is currently sold online.

Most of the feedback collected from farmers in the report suggested that poor user experience at each stage of the decision-making and purchase process was the key challenge to wider adoption of online purchasing.

McKinsey’s report described a lack of enthusiasm even among those farmers who reported having switched to online channels, with most complaints focused on confusing pricing information and a difficulty in comparing products.

Another key complaint was difficulty connecting directly with retail agents and the fact that many of those agents were not already familiar with the histories of farmers’ individual operations to inform purchasing advice.

“As consumer companies trend more and more toward 24/7 customer service, farmers too are likely to shift toward a more “instant” mentality,” Denis and co-authors wrote. “It is important for players in the market to start thinking and working toward 24/7 service, or as close to it as possible.”

Other suggestions for building trust in online platforms in the report included third-party product comparisons and university research partnerships to help inform customer decision-making.

The May update found 36 percent increases in respondents’ interest in utilizing online channels for both informing product-purchase decisions and carrying out actual purchases. McKinsey wrote that those increases translate into the addition of four million more farmers across Europe who are now willing to use online channels.

The online markets for agricultural inputs servicing those farmers in Europe, according to Denis, have thus far been populated by companies with varying degrees of connection to traditional players in the ag supply chain. While some are purely digital companies, he explained, others have been launched by traditional input suppliers already active in Europe.

Denis declined to address directly the implications of anti-trust concerns raised by other businesses pursuing online input distribution in North America, and said investors would be well-served to work together with incumbents within the existing ecosystem of input providers.

“I would encourage them to broaden the approach,” he said. “Think about how existing distributors or input providers – in niche or a very generic segments of agriculture – can actually benefit from the omnichannel value proposition.”