Transcript – Episode 2: Understanding the EU e-commerce market

Welcome to the Canada2Europe Trade Chats, the podcast dedicated to helping Canadian companies export and expand their business to the European Union. Every month, we invite experts to provide market and sector insights as well as practical tips to help Canadian companies do business in the European Union.

Aliénor Fagette Welcome to the Canada2Europe trade chats. The aim of today's podcast is to provide guidance to Canadian SME's on how to navigate the EU e-commerce market. A market of 450 million consumers, of which almost seven out of ten are online shoppers. I am your host Aliénor Fagette trade commissioner for Digital Industries at the Mission of Canada to the European Union. Today I will be discussing the opportunities and challenges in the EU e-commerce market with Sara Lone. Sara is the research director for the E-commerce Foundation. She has worked with a variety of stakeholders in the e-commerce world, including national associations, logistics providers, SMEs and international organizations such as the United Nations and the World Customs Organization. Hello, Sarah. And thanks for your participation in this podcast.

Sara Lone Thank you for having me.

Aliénor Fagette So the EU is an attractive market for e-commerce, but it's also a diverse and complex market, especially compared to North America. So one of the first questions that any Canadian company would really need to look into is what are the characteristics of the EU e-commerce market, but also the specificities of each Member State? Over to you, Sara.

Sara Lone All right. For this one, I will need everybody to hang in there with me because I'm going to give you some data. I would like to share with you some insights from our most recently published European reports to explain how the EU market is doing, but also how individual countries are doing. And by the way, as you'll learn quickly, my personal mantra in e-commerce is that there is no one size fits all to this European e-commerce business. All right. Just to start off for the EU leaders in B2C e-commerce turnover, which, by the way, in 2019 hit around six hundred and thirty six billion euros. So it's a quite a massive market. It actually compares pretty well to the United States and to China so it's a great region to consider, or continent, I should say. For the regions that are leading. Western Europe, as you might imagine, is definitely leading. Those are countries like the United Kingdom, France, Germany. They're definitely the leaders. In fact, they've got 70 percent of the total share of e-commerce turnover in 2019. But that's not to scoff at some of the countries that are still growing. In fact, Romania is one of the leaders in growth with 30 percent growth in e-commerce turnover. Bulgaria follows with also 30 percent, just a little less, though Spain is also growing, with twenty nine percent in North Macedonia as well, with 28 percent. So we do have some leaders in some southern and Eastern European countries, which is really great for the e-commerce market. Because I wanted to make it specific for Canadian retailers and particular companies, I should say. I wanted to focus also on the cross-border statistics that we have. So you might not know this, but actually Malta is the leading country in buying from other EU countries as well as sellers abroad. That's eighty six percent and 96 percent, respectively. And then also Iceland is the leader in the rest of the world purchases. So what's interesting for Malta and why I thought it might be great for anybody who's listening. One of the official languages of Malta is in fact English. The only trend we can uniformly see throughout Europe is actually that every country has positive growth rates in B2C e-commerce sales. Everyone's market is continuing to grow, though, some faster than others, and it's likely to continue, particularly in light of Covid 19.

Aliénor Fagette And we will get back to the impact of Covid 19. But first, let's talk about consumer preferences. So the general trends that you just highlighted already show that the EU market is very diverse. And data also show that consumer preferences vary a lot from one EU country to another, for example, if we look at delivery of payment methods, sustainability of privacy concerns. Can you give us a concrete illustration of this variety of consumer preferences?

Sara Lone So if you look at the security concerns limiting or preventing individuals from ordering goods and services online, this might shock you that actually 33 percent of French consumers are quite concerned with this, whereas in Bulgaria, it's only four percent. And to give you another frame of reference here, Germany is 14 percent. The UK is 13 percent. So the point here is that there is no one size fits all solution. These countries are very different. So you need to know the specifics to know the market.

Aliénor Fagette Well, hopefully the data you provided will convince the companies that listen to us that it is absolutely necessary to undertake in-depth market research. Now, I just want to pick up on something that you mentioned, the impact of Covid-19 on e-commerce. So as you mentioned, with the Covid-19 crisis, we saw a massive increase in online shopping. Would you say that transition to e-commerce is here to stay? And what were the other effects of the Covid-19 crisis?

Sara Lone Yeah, that's a great question. So when coronavirus first hit Europe, it was not yet realized how important e-commerce would actually be for both shops and consumers to stay afloat. There are both negatives and positives to the story, of course, so I'll try to just list a few. So firstly, e-commerce became a lifeline for many people who were unable to go to the grocery store or get any necessities that they needed. This is likely to continue, particularly as we don't have a vaccine yet at the moment of recording and we're continuing to go on and off lockdowns in Europe. So we're actually seeing more shops realizing that this is really important and opting to open a shop online. Maybe if they've never even done so before and having a much more omni channel approach, they're starting to realize that that's really necessary. Second bullet point, one of the least likely groups to shop online is always and always has been and always seems to be in every country that I researched research is the older population, due in large part to the lack of digital skills, as well as a higher level of actual distrust for putting their information and payment card details online. We're now seeing that older folks are shopping online and they've discovered the convenience it brings. Which means they're likely to continue shopping online, particularly as we're not done yet with the pandemic. Actually, I'll just give you a data point on this. A survey conducted on U.K. consumers showed that 44 percent think they'll continue shopping as they've begun to do so now with Covid 19, which bodes pretty well for European e-commerce. OK. So for third bullet point, I'll continue on. We have some huge disruptions and delays and logistics chain, particularly with our supply chain for any products coming from outside the EU, namely China. But also for EU cross-border supply chains. France, as an example, in March. Sixty three percent of retailers said the activity of their supply providers was disrupted. Forty one percent had supply problems. So because everything basically slowed or came to a halt, the retailers who remained as local as possible throughout their supply chain and within the country, were definitely more successful in conversion of customers, especially in Western markets. Consumers are accustomed to fast delivery. So what we're seeing now is that consumers are looking to continue the trend of buying locally despite the lifting of restrictions recovered. There's also this strong sense of collectiveness and togetherness within each of the countries, which has contributed as well to the idea of purchasing online locally rather than just from massive marketplaces. And the last point is that the increasing and decreasing of purchasing online of certain product categories. So key in here if you are selling certain product categories, we saw a massive increase in grocery, in some cases over 100 percent growth rates, along with Home Office, DIY and sports. So that's what's increased substantially. And I want to just quickly point out that the biggest online grocery market share was previously in the U.K. and France, both only at around six to seven percent of total e-commerce market share. So it was not massive at all, but it's definitely grown. The severe drops that we saw were in fashion, particularly fast fashion. Think of the H&M of the world. We also saw decreases in the services category, which usually encompasses events and travel tickets. Many e-commerce markets actually have a split, a 50, 50 or 40, 60 of goods and services. So some markets were really hit hard. If they have more services as e-commerce turnover rather than goods. So to sum up, the effects of Covid-19 on European e-commerce markets will be felt for quite some time. Older populations have higher rates of adoption and will likely continue to shop online for convenience. More shops realized the necessity of omnichannel selling and are exploring innovative ways to sell more. Consumers are looking for local options to support local businesses, but also due to heavy logistics disruptions. Grocery sales have increased substantially and will likely remain high for consumer convenience.

 Aliénor Fagette I just want to come back to a very interesting point that you highlighted the increasing preference of EU consumers for local solutions. Do you see that necessarily as a barrier for Canadian exporters?

Sara Lone Actually, no. I don't see this as a barrier, especially because when you come into Europe, there's so many opportunities for you to make yourself local. You can have distribution centers in the country that you're looking at. You can have local staff. It's actually quite easy to get together a small staff of people for running something and e-commerce in the country itself. So I don't find it a barrier at all. And in fact, I think a lot of countries and consumers in those countries would actually welcome more so a company coming into the country and really having a foothold there. So it's not necessarily just for companies that are homegrown in France, let's say. It's about whether you making an effort to make yourself in this country to build up that in this country?

Aliénor Fagette Thanks Sara and thanks to you, we now have a much better idea of the longstanding but also the emerging trends on the EU e-commerce market. And now I would like to have your views on marketplaces. What do you recommend to businesses that decided to sell their products via a marketplace? Because when we look at statistics, well, Amazon often ranks first. So would you say that this is necessarily the best and most obvious choice for Canadian exporters?

Sara Lone Great question. So the elephant in the room always is Amazon when it comes to e-commerce and maybe somebody will not like be saying this. But It is true that they are in Europe in several markets with their own domain. So we've got a lot of Amazon.es or Amazon.fr or Amazon.de. And they're expanding actually even to Sweden next year, which is the first time that they're going to be seen in the Nordics. I think quite often that Amazon is sort of the complete package if you want to enter a market online. But that's not necessarily the case in Europe. And that's something it's taken me for four years to learn. And it's important to know which local marketplaces are also the leaders. Take Bol.com, for example, if you want to sell in the Netherlands, where I'm now located, and then to Belgium, Bol.com Is really the marketplace to be. We have Amazon here in the Netherlands. They also have it in Belgium. But the adoption rate has been abysmal because consumers are they just know and love bol.com. So I'll just give some examples for where there is healthy competition for Amazon, as well as where Amazon is actually not the leader. And I'm talking about data here. So stay with me. This is with page visits. So when we look at where the eyeballs are going in the world of e-commerce, Bulgaria, 44 percent of the eyeballs go to marketplaces. The leader there is actually Ali Express. So if we look at Eastern European countries, that tends to actually be the case. It's also the same case in Serbia, 13 percent goes to Ali express. Amazon is in second place with 12 percent. But actually and this is where it gets interesting. In third place for Bulgaria is is a marketplace called Emag. And that's number one actually for Romania with 24 percent. So if you are looking to expand into, let's say, two specific markets out of Romania and Bulgaria, which are right next to each other, you could have maybe one fulfillment center. Emag might actually be your best bet because Bulgarians do shop at Emag and it's number one for Romania. So doing this research is quite important to find that out. And I'll just give you one last one. Lithuania, 38 percent of eyeballs go to marketplaces. And of that, 38 percent, 15 percent go to Ali Express. And that's in first place. So it's just to give you some examples of European countries and how they differ. Now, granted, it's true that in the English speaking countries in the United Kingdom and indeed in Malta, Amazon is number one with around 25 percent of the eyeballs. So to conclude: amazon is, of course, a massive player in the world of e-commerce, and it can be utilized in a market entry strategy. So you have to decide if that is the right marketplace for the country that you're targeting or countries that you're targeting. Think carefully about your market entry strategy if it involves a marketplace. But I cannot stress this enough. Get advice from people and organizations who know European e-commerce and at a country wide level because every country is different. And that's one of the most important things that hopefully you'll take away from this.

 Aliénor Fagette So you already mentioned several times the importance of having a good market entry strategy. And, of course, for that, exporters would need to take into account the advantages, but also the drawbacks of selling via a marketplace. Maybe you can tell us a bit more about the different pros and cons and also how they should be integrated in a market entry strategy.

Sara Lone Yeah, there are obviously some pros and cons to marketplaces. One pro being that you have all the availability of their services. So that's like the AI, the big data, quick shipping and all that jazz. But the tradeoff can oftentimes be high costs for you with cuts into your profit margins. Some marketplaces will be more brutal than others. So it should be part of your market entry strategy to figure out for your specific product categories, because that also impacts how much of a share they collect, i.e. if you're selling fashion versus baby versus sports equipment, they will collect a different percentage there. In fact, some marketplaces will even have a focus in your specific subsector, whatever that may be. So if you're going to use them in the beginning as a part of your market entry strategy, try to incorporate a winning period where you can successfully bring your traffic to your own website. Again, all part of your glorious market entry strategy.

Aliénor Fagette Thank you very much for your time, Sara. It was a pleasure to have you with us today and also to benefit from your expertize.

For more information, please contact the Canadian Trade Commissioner Service. We have more than 25 offices across Europe that can help you to identify opportunities and grow your business in all 27 Member States of the European Union as well as the rest of Europe. We encourage you to visit our website at tradecommissioner.gc.ca and get our extensive network of business development professionals working for you.