With the recent announcement that Amazon is buying Whole Foods, issues of channel disruption — that is, the ways consumers purchase food — have been on the forefront of people’s minds. On June 1, at DWT’s annual food and beverage executive summit, Farm to Label, we discussed this very issue. We were joined by panelists Madeline Haydon, founder of nutpods, and Vamsi Komanapalli, founder of Figbo. Both started food businesses via e-commerce and each had a lot to say about how the ways consumers buy food are changing.

Ms. Haydon started selling her dairy-free creamer made from almonds and coconuts predominantly online in her first year, before pushing into traditional brick-and-mortar stores. Her company realized some tangible benefits of e-commerce: quicker market validation of a product, a more direct voice to the consumer without a distributor and retailer between the brand and the consumer, more favorable payment terms (Net 15 vs Net 30 or more), lower infrastructure costs, more easily scalable infrastructure, and data that is not captured via syndicated data (i.e., reorder rate, zip code concentration). Ms. Haydon notes that:

"Consumers have proven overwhelmingly they want what they want, when they want it.  E-commerce provides a broader selection of food, with often competitive or superior prices, with the convenience of home delivery making this channel one to watch for young brands who have a suitable product for e-commerce as well as established brands that want to capture the market growth of the future."

In addition, selling food online helps consumers more easily find specific foods for their tastes and diets. Mr. Komanapalli sees great opportunity for online food companies to provide a wider and yet more targeted array of global foods and ingredients to consumers. He noted that:

"The purchasing capabilities of consumers from various ethnic communities are getting better. Physical grocery stores may not be able to cater to these consumers because the demand may not always be there. Even if they carry a few specialty items, consumers may not be able to identify or search these items in grocery store aisles. Online food companies can build the intelligence to identify the consumer and show the right targeted assortment of products."

Ms. Haydon also sees the benefits of consumers being able to search out products that fit their dietary programs or tastes. To her, it is much easier to stand out online to the non-dairy, vegan, and paleo crowds that are searching for food products that meet their needs than it is to stand out in the grocery store aisle.

Mr. Komanapalli discussed some of the challenges of being an online only food retailer. He recommended companies consider, at the outset, how they will scale their businesses. Mr. Komanapalli had to shift his business plan as his business scaled and new issues arose – including warehousing and distribution needs. Accounting for how scale will change the business will help the company make the growth transition more smoothly. Further, for a company that sells local produce, Mr. Komanapalli had to figure out how to get consumers to purchase products through his company throughout the year, when local produce is not growing. To do so, he started adding other value-added, sometimes shelf-stable products to Figbo’s offerings – for example, wine and cheese.

Both panelists think that the proportion of consumers purchasing food online will only increase in the years to come. Many other food entrepreneurs agree. E-commerce has changed the way consumers purchase all kinds of goods, and has now turned its attention to food. We don’t yet know all the ways technology will change our food system, but we do know there are numerous opportunities for food entrepreneurs to take part in making that change.

Alli Condra focuses her practice on food safety, labeling, and other regulatory issues in the food & beverage and restaurant industries, representing clients in matters with the FDA, USDA, and state and local food and agriculture agencies. Alli can be reached via email at AllisonCondra@dwt.com or directly at 503.778.5261.