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Trends in e-commerce for the food marketing system

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Trends in e-commerce for the food marketing system 1
Carlos E. Carpio and Kelly Y. Lange

Address: Department of Agricultural and Applied Economics, Texas Tech University, Box
42132, Lubbock, Texas 79409, USA.
*Correspondence: Carlos E. Carpio. Email: carlos.carpio@ttu.edu

Abstract

E-commerce has emerged as a viable option for connecting agribusinesses and consumers
within the food marketing system. The purpose of this review is to assess the current status and
impact of e-commerce in the food marketing system. The review comprises issues related to
adoption and use of computers and the Internet by agribusinesses and the economic impact of e-
commerce for these businesses. The review also covers aspects related to the importance of
consumers’ e-commerce food purchases, the factors affecting its usage, and some new
developments in the use of e-commerce to market food products using social media and mobile
marketing. Regarding the adoption and use of e-commerce by agribusinesses, we find
heterogeneous rates of adoption, use and impact across sectors and countries. For example, in the
United States even though 67 percent of farms had access to the Internet in 2013, only 14 percent
reported conducting marketing activities over the Internet. On the other hand, U.S. Census data
shows that in 2012 the e-commerce value of food product manufacturing shipments accounted
for more than 50 percent of their total value. Data from the United States and United Kingdom,
two of the most advanced e-commerce markets in the world, indicate that food Internet sales
account for less than 4 percent of total sales. We conclude that while e-commerce has influenced
the food marketing system, its impact does not appear to have been as dramatic and swift as had
been expected. More research is needed in order to better understand the ways in which e-
commerce affects agribusinesses and consumers. The review also identifies a paucity of e-
commerce related statistical data.

Keywords:
Food marketing, Agriculture, Online food purchases, Internet marketing, Social media, Mobile
marketing.

Review Methodology:

Searches were performed in CAB Abstracts, AgEcon Search, Emerald Insight, and Google
Scholar using keywords searches (e-commerce, agricultural marketing, online food purchases, e-
commerce statistics, food e-marketing, food and mobile marketing), names of researchers
engaged in previous work on e-commerce and e-commerce in the food marketing system.

1
This material has been published in CAB Reviews 2015(10), No. 023, pages.1-8, the only accredited
archive of the content that has been certified and accepted after peer review. Copyright and all rights
therein are retained by CABl. CAB Reviews web site: www.cabi.org/CABReviews

1
Introduction

As e-commerce has been embraced by numerous industries over the last few decades, it has been

defined many times in a variety of ways. These definitions have tended to vary widely and

change frequently. From a business perspective, e-commerce is often thought of as a way to use

the Internet to market and sell goods and services to consumers [1]. This definition is quite

limiting as it refers only to Internet commerce. Another commonly used, yet narrow, definition

describes e-commerce as the use of computers and the Internet to buy and/or sell goods, services,

or information [2-3]. While succinct, this definition ignores the ability of e-commerce to aid

individuals and organizations which may not be directly and specifically involved with the

buying and selling of goods, services, and information [3]. Therefore, for the purpose of this

review we adopt a broader definition of the term which describes e-commerce as a means by

which businesses and consumers can obtain and transmit information, build and maintain

relationships, and conduct transactions of goods, services or payments through

telecommunication networks. These processes include transactions and communications

between businesses as well as transactions between businesses and consumers [3-4]. Moreover,

according to this definition, e-commerce does not only include activities carried out using the

Internet, a network connecting millions of computers together globally, but also other types of

smaller computer networks such as intranets, extranets or value-added networks [1, 5].

The purpose of this review is to assess the current status and potential of e-commerce in

the food marketing system which is assumed to be composed of five main sectors: agricultural

input providers, agricultural producers, food manufacturing, agricultural and food wholesalers,

food retailers and consumers. We use the generic name agribusinesses to refer to the first four

sectors of the system. To accomplish our objective we review the academic literature and

2
government agencies information on the use of e-commerce by agribusinesses and consumers.

However, it is important to mention that most of the available literature on the subject has

focused on only two sectors within the system, agricultural producers and final consumers.

Moreover, most of the literature concentrates on the situation of e-commerce in the United

States. Thus, our review focuses on the situation of e-commerce in this country but we add

comparative information from other countries when available.

E-Commerce for Agribusinesses

Starting in the mid-1990s the literature on the use of e-commerce by agricultural

producers initially focused on adoption and use of computers and the Internet. A governmental

agency effort worth mention within this literature is the United States Department of Agriculture

(USDA), National Agricultural Statistical Service’s (NASS) periodic collection of data on

farmers’ use of computers and the Internet as part of their annual agricultural survey. This effort,

which started in 1997, has allowed for the study of the dynamics of adoption of these

technologies in the U.S. agricultural sector. For example, results of the survey indicate that 40

percent of farms in the United States used computers for farm business in 2013, compared to

only 20 percent in 1997. In 2013, 67 percent of farms had access to the Internet, an increase of

more than five times the proportion of farmers reporting access in 1997 (only 13 percent). These

data have also revealed notable differences in rates of adoption across regions and farm sizes.

Larger farms have significantly higher rates of adoption of the technologies [6-7]. From the best

of our knowledge, similar data in terms of periodicity and time coverage is not readily available

for other countries. However, there is some data indicating a very wide margin of variability in

computer use in farms around the world (See Figure 1) [8, 13].

3
 Also beginning in the mid-1990s, another strand of literature focused on analyzing

factors affecting computer and Internet adoption among agricultural producers [9-12].

Differences in adoption rates seem to be correlated with several factors including farm size, farm

type (e.g., crops vs. livestock production) and also farm location. Larger farms have higher rates

of computer adoption and Internet use for business purposes than smaller operations [13].

Although crop and livestock farms have similar rates of access to computers and Internet, crop

farms have slightly higher technology usage rates for business purposes, due to more timely

weather, price, and marketing information [14]. These relations at the aggregate level are

consistent with studies using individual level data [15-18]. At the micro level, age and education,

financial management skills, familiarity with computer interfaces, access to reliable Internet

service, and off-farm employment have been found to affect computer adoption and

implementation by agricultural producers and agribusinesses. Older farmers are less likely to use

computers and the internet for business purposes, due to a lack of familiarity with the technology

in many cases. Higher levels of education correlate with higher likelihoods of using computer

technology for business. More recently, labor time spent actually working on-farm has also been

tied to increased computer and Internet use. Rural locality is becoming less of a factor in regards

to agribusiness Internet usage. As technology has improved, Internet services are now available

even in extremely rural areas. Higher household income and farm income also correspond to

increased computer and Internet use [14, 16, 19-20].

Producers’ adoption of computers and the Internet is only a necessary condition for

participation in e-commerce. An early study conducted by USDA NASS on computer adoption

and Internet use by U.S. farmers indicated that only 31 percent reported having access to a

computer with only 13 percent using the Internet for business in 1997 [7,21]. Recent reports

4
show that, especially in the United States, the situation has not changed considerably from these

early days. For example, even though 67 percent of U.S. farms had access to the Internet in 2013,

only 16 percent reported purchasing agricultural inputs, and 14 percent reported conducting

marketing activities (sales, auctions, commodity price tracking, and on-line market advisory

services) over Internet. In the United Kingdom, where about 94 percent of farms have access to

Internet, only about 46 percent of these farms report using the Internet to purchase or sell

materials for the farm, and 87 percent state they use Internet/Computer for submitting forms or

banking [22].

An alternative view of the importance of e-commerce for agricultural producers could be

obtained by looking at the volume or share of products sold through online agricultural

marketing channels including e-markets and online auctions; however, data on these marketing

channels is very limited. It has been well documented that e-markets in general have undergone

ups and downs over the last few years [23]. There is also some recent literature documenting the

co-existence of both traditional and online agricultural marketing channels [24-26].

The literature on computer and Internet adoption and use as well as participation in e-

commerce by agricultural input and service providers, wholesalers, and food manufacturers is

more limited. However, some studies and government data shows that the relative importance of

these activities is uneven across sectors. For example, a study of Ohio agribusinesses shows that

as early as 2000, 79 percent of surveyed agribusinesses comprised of farm equipment and service

companies had Internet access and 23 percent were already selling via the Internet [27].

Likewise, U.S. Census data shows that in 2012 the e-commerce value of food product

manufacturing shipments accounted for more than 50 percent of the total value (estimated at

about $750 billion), a significant increase from 10 percent observed in 1999, the first year e-

5
commerce data was collected [28]. On the other hand, from 2002-2011 e-commerce wholesale

trade sales of farm and raw products (except raw milk, live poultry, and fresh fruits and

vegetables) only accounted for about 4-5 percent of total sales [29].

There is a body of literature that has investigated the use of e-commerce by food retailers

(e-retailing). Statistical data related to the importance of e-commerce for this food marketing

sector is presented in the section devoted to consumers’ use of e-commerce but it is important to

mention that currently, food retailers’ e-commerce sales are only a very small proportion of total

food sales [30]. The literature on online food retailing has identified two business models: the

pure-play food e-retailing (e-grocery) business model, and the hybrid brick-and-mortar and e-

retailing model of traditional food retailers that have ventured online [31]. There is evidence

indicating that the hybrid business model has been more successful than the pure play business

model [31-32].

The academic literature on e-retailing also provides important information regarding

critical success factors and the pitfalls of engaging in e-commerce. One of the key factors for

success identified by several studies is a low operational costs structure [32-33]. In order to

compete with traditional retailing, e-retailing must offer consumers competitive prices and

effective delivery services [32]. Achieving low operational costs is not easy especially when

starting up an e-retailing service. Order picking is a significant cost that is only reduced when the

processed volumes allow for automation of the picking system. Similarly, the delivery system

must not only be cost-efficient, but also appealing and satisfactory for the consumers [32].

Another key factor identified for e-retailing success is the use of innovative, attractive, and easily

navigable websites [34-35]. As with any other business undertaking, e-retailing has its potential

pitfalls. The most common pitfalls of e-retailing are low bargaining power, especially in the case

6
of small and local businesses, burgeoning competition due to low entry barriers, and potentially

high exit barriers when investment has been made to keep up with demand [36].

Finally, electronic trade and auction platforms such as eBay have also provided

opportunities for small food businesses or even individuals to sell food products online [37].

Although the use of consumer auctions as a sale mechanism has declined relative to the use of

predetermined prices, auction markets for specialty food products such as coffee and wine are

still very active and have received some attention in the literature [37-40]. Most of the studies

related to action markets for food investigate the relationship between auction and product

characteristics on final auction prices [37-40].

The Economic Impact of E-commerce for Agribusinesses

Proponents of e-commerce in agricultural markets suggest that it could increase

agribusiness profitability by increasing sales and decreasing search and transactions costs. E-

commerce may also provide the ability to market a wide variety of products to a larger number

of potential customers, at competitive prices [27, 41-43]. However, there are very few studies

that have evaluated these potential touted benefits. The first study within this literature uses data

on self-reported benefits from a survey of 1,679 farmers conducted in 2001 in the United States

in the Great Plains states of Kansas, Iowa, Nebraska, and Oklahoma. Study results show positive

average financial returns of Internet use to obtain production and business information ($1,160),

positive average costs savings from using the Internet to purchase goods and services (14

percent), and positive increased returns of marketing their products online (20 percent).

However, these estimates were based on a very small number of respondents that participated in

these e-commerce activities [21].

7
 Two studies evaluating the economic benefits of e-commerce in agricultural markets

utilized contingent valuation which is a survey-based method designed to elicit the value (i.e.,

willingness to pay) that people place on goods and services [44]. Since producers’ willingness to

pay values for an input (e.g., broadband access) provide an estimate of the profit impact of the

input, the procedure can be used to estimate the economic benefit of using e-commerce [44].

Using contingent valuation procedures, a study in the state of Kentucky in the United States

estimated the willingness to pay for a one-time payment in additional property taxes to support

broadband infrastructure investments. Estimated willingness to pay values ranged from $0.20 to

$171 depending on the demographic profile of a “representative” farmer used to calculate the

value [45].

The other study using contingent valuation procedures assesses U.S. producers’

willingness to pay for the electronic trade platform MarketMaker [46]. MarketMaker is an

interactive e-commerce platform that provides food marketing information to agricultural

producers, buyers, processors, wholesalers, food retailers, restaurants and their customers.

However, the platform does not have a selling feature, meaning that users cannot purchase

products directly through the website. By December 2012, 19 states in the United States and the

District of Columbia had become part of this national network supported by Land Grant

Universities, Departments of Agriculture, and food and agricultural organizations [46-47].

Results indicate that producers are willing to pay $47.02 annually for the services they receive

[46].

Another study evaluating the economic benefits of e-commerce for agricultural

producers uses county-level data from the U.S. Agricultural Census. This study evaluates the

impact of the U.S. Department of Agriculture (USDA) broadband Internet loan program on the

8
U.S. agricultural industry. Starting in 2000, the USDA broadband program provides financing to

telecommunication providers in rural areas. The study shows that the USDA broadband program

is positively associated with high speed Internet use among U.S. farmers. Moreover, the program

is estimated to increase farm revenues and profits by 6 percent and 3 percent, respectively [43].

Price differences in agricultural products have been found between online markets and

traditional markets. Using data from sellers in a U.S. Midwestern pig market, a study found that

pig sellers received higher prices (1 percent) and therefore higher net revenues (2 percent) when

selling in face-to-face auctions than when selling in comparable Internet auctions [24]. Another

study also found large differences between eBay and traditional auction prices for used farm

machinery. The study found that tractors selling for prices less than $20,000 can often generate

more revenue if sold on eBay; however, for tractors selling above $20,000, in-person auctions

were found to generate greater total revenue [48]. Finally, significant cost savings by food

manufacturers have been documented due to the use of electronic reverse auctions [49].

Internationally, computer and Internet use has been found to simplify business

management tasks and reduce costs [16]. Internet auctions have also provided a new avenue for

producers in several developing countries to sell their specialty coffee products to processors in

international markets. Prices in some of these auctions are reported to be an average of 4.5 times

higher than the International Coffee Organization composite price [50].

It is also important to note that some authors have identified some potential negative

effects of e-commerce for some groups of agribusinesses including businesses managed by older

individuals and small businesses. Since older producers tend to embrace new technology, such

as computer and Internet use, more slowly, they are less likely to engage in e-commerce and

could potentially lose competitive advantage. E-commerce could also increase competition for

9
small businesses and have a negative effect on their likelihood of survival [27]. In some cases,

agribusinesses have expressed concerns that Internet marketing impedes the development of

personal relationships with customers [51]. However, we are not aware of any study quantifying

or providing evidence of these negative effects.

This section has reviewed the literature and statistics of e-commerce use and impact on

the food marketing sectors involved in the production and distribution of food which can be seen

as the supply side of the food market. In the next section we focus on the other fundamental

component of the food market: the consumer.

Consumers and E-Commerce

Consumers’ access to food products via non-traditional channels has been in place for

several decades [52-54]. The Internet has expanded consumers’ possibilities initiated through

mail order food acquisition and has presented new ways in which they can learn about nutrition,

cooking, foods, obtain price information, and purchase foods from around the globe [55-56].

However, given the focus of the literature in the subject, this section mainly focuses on

consumers’ e-commerce food purchases.

In the United States, the U.S. Census Bureau collects periodic data on e-commerce and

total food sales from retailers to consumers, thus these sales data can be used to measure

consumer expenditures in food products [30]. Two types of food retailers are considered by the

U.S. Census Bureau, electronic shopping businesses and mail-order houses (also called non-store

retailers), and traditional food beverage stores. We analyze the importance of e-commerce

consumer purchases from each type of retailer.

Food and beverage consumer purchases from U.S. electronic shopping businesses and

mail order houses totaled $6.9 billion dollars in 2012. E-commerce purchases accounted for

10
about 68 percent of these sales. The annual growth rate of total and e-commerce purchases (in

real terms) through these non-store retailers averaged 13 percent and 30 percent, respectively,

during the period 1999-2012 [30].

Data from traditional U.S. food and beverage stores also show very high growth rates in

the value of e-commerce consumer purchases. During the period 2000-2012 e-commerce

consumer purchases from these businesses experienced an average annual growth rate of about

24 percent compared with an average annual growth rate of total consumer purchases of only

0.52 percent (both rates in real terms). However, e-commerce food consumer purchases are still a

very small proportion of their total food purchases. In 2012, consumer e-commerce food and

beverage purchases from these stores were estimated at $900 million which only represents a

0.14 percent of their total purchases estimated at $632 billion [29]. Even the combined e-

commerce purchases from traditional and non-traditional retailers equate to less than 1 percent

(0.88) of total food purchases from both types of retailers. These results also point to a

redistribution of household food expenditures across food marketing channels (store vs. non-

store retailers).

Data on the importance of consumers’ e-commerce food purchases is very limited for

countries other than the United States. In the UK, which has been considered as having one of

the most advanced e-commerce markets in the world, food Internet sales in 2014 accounted for

3.7 percent of total sales [58]. A common statistic used to gauge the importance of e-commerce

is the percentage of online users that buy products online. Figure 2 provides data on the

percentage of Internet users buying food and groceries across the EU. On average, 9 percent of

EU Internet users purchase food and groceries online. Within the EU, the UK is the country with

the highest proportion of food Internet shoppers (21 percent). In contrast, only about 1 percent

11
Internet users report buying food and groceries online in Romania Latvia, Cyprus and the Czech

Republic [58].

Existing consumer research on e-commerce food shopping has focused on the relation

between consumer motivations and other factors (i.e., demographics and situational factors) and

the usage of online grocery services, and the perceptions and attitudes of existing online grocery

shoppers [59-62].

With respect to consumer motivations to buy food online, convenience has been found to

be a driving force behind the motivation to shop online for food products [52-53]. For example, a

survey of consumers in the United Kingdom found that the benefits of time savings as a result of

shopping online outweighed delivery fee costs. Thus, the time saved by not stopping by a

traditional food market strongly influenced some consumers to order food electronically and

have it delivered to their residences [59].

A survey study of online grocery shoppers conducted in the United Kingdom found that

situational factors are also very important triggers to start online grocery shopping. In fact, this

study identified two main triggers to start shopping online: having recently had a baby (13

percent of respondents) and developing health problems (17 percent of respondents) [57].

In terms of demographics, online food shoppers have been found to be younger, better

educated and with relatively higher incomes than the general population. They are also

predominantly female and lived in households with children [61]. However, some studies report

senior and/or disabled individuals as an important segment of online food shoppers [54, 61].

Regarding consumer perceptions of online shopping, focus group investigations in the

United Kingdom and Denmark have found that the ideal of online grocery shopping is seen as

more convenient and time saving, more relaxing, and providing a better product range from

12
stores around the world. Prices are often believed to be better when shopping online. However,

consumers do not want to potentially miss out on sales and specials that may be offered in

traditional food markets. Consumers have concerns about purchasing perishable items, such as

eggs, meat, and vegetables via the Internet due to freshness and packaging concerns. In these

situations, shoppers often continue to purchase some groceries online, but modify their

consumption of perishables based on these perceptions [62]. Findings also suggest that

consumers perceive online grocery shopping to be a complement to traditional shopping

experiences rather than a substitute [57].

Recent E-Commerce Developments in the Marketing of Food Products

During the past decade, impressive growth in the use of social media applications and

mobile devices has provided food retailers with new opportunities to provide information to the

public [63]; however, just like the technologies themselves, academic research on the subject is

still in its early stages, especially with regard to the overall importance and impact of these

developments for agribusinesses and consumers. Regarding the use of social media by the food

industry in general, a study conducted in Australia revealed that in 2012 only a small percent of

Australian food and beverage companies (including food manufacturers and retailers) were

actively using social media: 15 percent reported using Facebook and 2.3 percent were using the

microblog service Twitter [63]. This study also shows that larger companies were more active in

applying social media for marketing purposes [63]. Large international food and beverage

companies have also been found to engage in viral marketing activities, which involve the

development of online marketing messages that stimulate customers to forward the message to

members of their social network [64]. Within the food sector, the wine industry seems to be

among the early adopters of social media as part of their marketing strategies and several studies

13
have been conducted evaluating social media use by producers and consumers in several

countries [65-67]. For example, a survey conducted in Germany in 2012 showed that

approximately 70 percent of wineries with web presence in Germany used Facebook, 14 percent

used Twitter and 15 percent used YouTube [65].

With respect to the impact of social media on consumer food choices, a recent study was

conducted on the effect of social media use on carbonated soft drink demand in the United

States. This study found that both consumer exposure to word-of-mouth information obtained

via social media as well as consumer exposure and conversations about brands and nutritional

aspects of carbonated soft drinks on Facebook, Twitter and YouTube have significant impacts on

demand [68].

Another new development in the marketing of food products is mobile marketing which

refers to a set of practices used by companies to communicate and engage with customers using

mobile devices or networks [69]. As with the case of social media use, the wine industry seemed

to be pioneering its use within the food sector, and at least two mobile marketing practices are

being actively used by the industry: mobile purchase and information applications (apps) as well

as quick response (QR) codes to access product information [70]. A 2012 survey of United States

wine consumers determined that 20 percent of the sample regularly used wine related apps and

7.4 percent indicated that QR codes were a desirable extrinsic characteristic in a wine bottle [70].

Conclusions

Even though e-commerce has influenced all the sectors of the food marketing system, its

impact, based on the literature review, does not appear to have been as dramatic and swift as had

been expected. More work is definitely needed to: 1) Evaluate the economic impact of e-

14
commerce in the food marketing system, and 2) Better understand the mechanisms through

which e-commerce affects agribusinesses and consumers.

A common theme throughout the review has been the lack of basic statistical data on e-

commerce use by agribusinesses and consumers. This type of data is essential to study the

dynamics and impact of e-commerce; however, it is only available in very few countries.

15
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Acknowledgements

The authors would like to acknowledge research assistance by Luis Sandoval Mejia and Manuel

de Jesus García Chaclan.

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