European Businesses Will Need E-Commerce Sites to Beat Recession

(Bloomberg Businessweek) -- Juan Manuel Caro Márquez used to spend his weekdays driving across southern Spain to his favorite fish supplier in the town of Ayamonte, where he would check out the day’s catch, place his bids at the auction, and then haul thousands of kilos of fresh seafood back to his hometown to sell to restaurants.

The stringent lockdown measures Spain instituted in mid-March to combat a surge in Covid-19 cases forced him to stop driving 3,500 kilometers (2,175 miles) each week to pick up and deliver the Atlantic Ocean shellfish. For the first time in his three decades as a fishmonger, Caro Márquez spends his mornings at home in the city of Málaga and uses the fish market’s revamped online auction to bid on shrimp and langoustines.

Even as Spain slowly relaxes confinement measures, Caro Márquez says he’s continued to work from home two days a week, saving himself about 20 hours of driving. He’s been so thoroughly converted to e-commerce that he spends the additional time building his own website to sell fish directly to consumers. “It’s innovate or die,” he says. “This crisis is going to be the push that people need to start selling online. We’re years behind the U.S.”

The threat from the novel coronavirus crisis has been particularly acute for businesses in Spain, where 4 out of 5 small and medium enterprises (SMEs) aren’t equipped to sell online. Per capita sales over the internet amounted to $275 last year in Spain, according to market research provider Euromonitor International, compared with $813 in Germany and $1,551 in the U.S.

In Spain and other parts of the continent, the coronavirus outbreak has accelerated what had been a hesitant embrace of e-commerce. Just 17% of businesses with 249 or fewer employees sell online in the European Union, according to Eurostat.

To help speed the transition, European officials are earmarking part of a proposed €750 billion ($847 billion) economic rescue package for investments in artificial intelligence, data and cloud infrastructure, and 5G mobile networks. “It’s an absolute necessity to invest in the digitalization of companies so that they are more competitive,” European Central Bank Vice President Luis de Guindos said in May.

Europe has a lot riding on the survival of its small businesses. Ninety-three percent of businesses in the EU employ nine or fewer people; that figure is about 80% in the U.S. The greater number of companies that go under, the higher the risk of an even deeper economic downturn that Europe can ill afford. The International Monetary Fund expects the EU economy to shrink this year by 7.1%, more than any other region.

Companies with a digital presence have a distinct advantage during a pandemic that’s forced millions of people to stay home, and they will continue to have a leg up as social distancing restrictions limit daily interactions for months to come. “We have clear evidence that businesses that were already digitally enabled, even with the basic use of platforms or tools, are weathering the crisis better,” says Lucia Cusmano, who heads the Organization for Economic Cooperation and Development’s SMEs and Entrepreneurship division.

Economists at Spain’s central bank say online purchases as a percentage of total sales rose to 22%, from 15%, during the country’s confinement.

Caro Márquez says he never considered using his fish market’s rudimentary online auction because he thought it would undermine what made him good at his job: talking in person with fishermen about the day’s catch and sizing up the shrimp and langoustines with his own eyes.

Alonso Abreu, manager of the fish market in Ayamonte, says that’s a common attitude among his clients and part of the reason he was never able to make inroads with the online auction before the coronavirus. “The world of fish markets is very traditional. It’s passed down from father to son in a lot of cases,” he says. “It’s really difficult to break with the system and put new technologies in place.”

Businesses that have added e-commerce capabilities may draw a more youthful clientele and become better able to weather the recession. The cumulative effect of these investments may, in time, nudge up productivity growth, which has been sluggish across much of Europe.

Manel Rodríguez, who helps manage more than a dozen municipal food markets in Barcelona, says he’d been warning vendors before the coronavirus crisis that they risked losing a generation of younger shoppers if they didn’t set up e-commerce platforms.

When the pandemic hit, the four markets that already had been selling online saw an average 15% increase in total sales compared with a year earlier, thanks to a big boost in online purchases, in part from younger families who had previously shopped at supermarkets or dined out regularly.

Meanwhile, the vendors at the 12 markets that didn’t have e-commerce had to scramble to coordinate sales with clients via telephone or WhatsApp, or turn to existing platforms that charge commissions of 12% to 35% a transaction, so their sales were much weaker. “The municipal markets that hadn’t bet on online before—obviously, now they regret it,” Rodríguez says. “It was expected that online sales would come to the food sector, just not so quickly.”

Rodríguez says he doesn’t foresee an enduring shift among Barcelona’s food shoppers. Elderly clients, who surprised vendors by quickly pivoting to digital shopping, are likely to forsake online purchases when Spain’s lockdown is fully lifted, he says. Many of them live alone, and their daily outings to buy Spanish ham and fresh vegetables are a vital part of their social life.

Still, he anticipates that some of the younger buyers who’ve been introduced to the appeal of Barcelona’s traditional markets will stick around. And those mercados that have reaped the benefits of online sales have been emboldened to keep improving their e-commerce platforms. “It’s given us the opportunity to compete against Amazon,” he says. “Many small businesses thought it was a lost cause.”

At many family-run firms in Spain and elsewhere in Europe, the Covid-19 crisis has triggered a shift in control from the older generation to the younger, more digitally savvy one. In Manlleu, about an hour’s drive north of Barcelona, Clara Bujons set up a website for her family’s restaurant in about two and a half weeks to ensure they would have some revenue during the lockdown and, as social distancing requirements continue to limit sales in their 40-person locale, its aftermath.

“If we don’t do it now, we’ll never do it,” the 22-year-old Bujons says she told her parents. Takeaway and delivery orders from L’Origen, which is known for the paellas that Bujons’s father makes, have been a bit better than what she and her parents expected. “It’s not enough to make you say ‘Wow!’ But we’re taking it one step at a time,” she says.

One hurdle is that food delivery companies such as Deliveroo, Uber Eats, and Glovo are nonexistent in Manlleu, which has fewer than 21,000 residents. People aren’t used to ordering their meals from a website.

But Bujons says that online food delivery wasn’t common in Barcelona when she lived there three years ago. Overnight, it sort of exploded. “I remember thinking, What are all these mopeds?” she recalls.

“Everything can change very quickly,” Bujons says. “We can’t close any doors.”
 
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