The blog is part of a generalistic analysis of the current situation in the food-e-commerce market. This blog series consists of 3 parts, from problem setting to solution setting, and forms an experiment. So any valuable feedback or engagement is really valuable for FunFoo.
The food e-commerce market has turbulent times. Due to a decade of low-interest rates, Corona policy with Central banks splashing money onto the market, and investors desperately looking for high return investments, the market faced skyrocketing valuations. Now it’s facing reality.
The valuation of those new food e-commerce businesses was built on the hope of unstoppable growth, and the winner takes it all belief. High food and energy prices and more formal and expensive labor arrangements are the leading causes of worse times. Soon probably also stabilizing demand.
Unviable growth strategy
One of the main facilitators of this pessimistic outlook is their focus on a quick growth strategy with fierce price competition instead of focusing on sustainable growth with differentiation and value creation. For several reasons, some of those industry players are more acquisition addicted.
- It’s more gratifying to get “more new” customers.
- Retention strategies are considered too difficult.
- Investors are overly concerned with acquisition data.
On the contrary, we all know it’s 5–25x cheaper to retain an existing customer than to acquire a new one. Nowadays, CAC (Cost of Acquisition) > CLV (Customer Lifetime Value) is common but unsustainable. The customer must make multiple recurring purchases to earn back their initial marketing acquisition cost.
While in the food sector, customer mobility is very high due to high price transparency, lack of differentiation, and many new entrants screaming for attention. The acquisition battle is on price with discounts. Heavily discounting doesn’t only decrease the perceived value of your offering, but it’s also market standard and insanely expensive.
The necessity to create customer value
The most influencing driver in making recurring purchases is offering customer value. Higher value creation for the customer decreases their price focus and sensitivity. It generates differentiation with current and more habitual alternatives such as doing groceries.
Their razor focus on differentiation through optimal processes and transactional convenience is valid. But it’s the bare minimum, as CX expert Steven Van Belleghem says. It doesn’t make a customer relationship emotional and doesn’t increase your order’s perceived value. Many people are already used to the current concepts and know what to expect. So it’s time to develop more value-created solutions instead of discounts or standard marketing expenditures on digital platforms.
This forms the context for part 2 and part 3 of our industry-related blog series, where we dive deeper into ”why loyal customers are so important for food e-commerce” and “how to make a customer more loyal to your food product”.
FunFoo is a start-up that cares about the food sector and is discovering ways to improve companies’ loyalty by creating value for their customers.