Australia’s food and grocery sector is a $114 billion industry, but one that is mostly in the hands of a few major players.
Figures from IBIS World show that in most food sectors a handful of large corporates generate over 50 per cent of industry revenue with thousands of smaller producers generating less than half.
Alex Stefan believes he has the solution to this $50 billion problem. Stefan has been in the food industry for 25 years, and his family long before that. Having experienced first-hand the “overwhelming reliance” manufacturers have on large distributors and supermarkets, he decided to do something about it.
He founded Oomami, the world’s first social-marketplace for small food producers, which aims to bring the farmers’ market experience online and make it as convenient for consumers to source groceries direct from producers as it is to shop at one of the big online grocery retailers.
The marketplace, which is soon to launch in Australia, has even caught the attention of celebrity chef Matt Moran, an investor in the company and big believer in the farm to table approach, who calls small food producers the “backbone” of this country.
Stefan tells Inside FMCG what it’s all about.
“If a distributor or a supermarket doesn’t want to take on products [from a small producer] then they can’t grow their business,” Stefan says. “I’ve also seen situations where distributors have had their products stocked in supermarkets and then when that distributor or supermarket decides they no longer want to stock that product or brand, the company essentially goes under.”
“In 2019 that shouldn’t be the case given that we have these technologies where manufacturers can go direct to consumers and bypass the distributor.”
The relationship between manufacturers and retailers was thrown into the spotlight again recently when a supply issue between the “big two” supermarkets in April left many consumers without access to popular products.
“While [the big supermarkets] may take a lot of volume and a business could potentially grow quite rapidly, the downside is that profitability plummets because the prices that they pay are actually very low. And not only the prices but the payment terms are also quite onerous.”
Oomami operates on a similar model to that of e-commerce giants Amazon and eBay, charging a monthly fee to use the platform and commission on each product that is sold.
Manufacturers deliver product to a warehouse and then the customer determines the success of that product or range.
“It becomes a relationship exclusively between the manufacturer and the consumer. On Oomami they deliver whatever products they want to deliver, they price it however they want to price it, and then the market will determine whether or not that company or that product will be successful.”
But many brands already operate their own direct-to-consumer website, so how is this different?
“While most manufacturers do in fact have a website, the volume of products that they sell through that website is minimal. The reason for that is consumers are not going to go to 20 different websites to do their weekly grocery shopping and they’re not going to want to receive 20 separate deliveries and pay for them too.”
“What we’re trying to do is create a level of convenience that is comparable to going to Coles Online, for instance, where you have thousands of products all on one website, and when you place your order you receive it in one box.”
And it’s not just food – Oomami covers all categories that a traditional supermarket would, so that consumers don’t need to shop in more than one place.
Stefan says that Oomami is not designed to compete with the big supermarkets. In fact, none of the products on Oomami are available through Coles and Woolworths.
“If a product is being sold through one of the major retailers we actually won’t stock it. In that case, they’re already doing quite well anyway. We maintain a point of difference. We’re helping all the small producers that are actually trying to grow their brand and allowing consumers to access products that they typically would not be able to access anywhere else.”
The platform aims to open up the market so that consumers can purchase from any small producer in the country.
“A customer in Perth for instance can access a niche product made by a small producer in Melbourne that would typically only be available to people in Melbourne.”
Oomami has warehouses across the country and has outsourced all warehousing and logistics to third parties. It combines orders from various producers that are being shipped across the country to keep costs down.
Research from Roy Morgan released this week showed that food and beverage companies are struggling to gain consumer trust, coming in at the lower end of the trust scale with a score of below five. Stefan says this declining trust of big corporations was a huge driver behind Oomami.
“If you look at the stats for farmers markets over the last 10 years you can see they’ve been growing in popularity quite dramatically. People want to know where their food comes from. People want to support small farmers.”
He also point to the negative press in regards to the behaviour of big supermarkets towards farmers in recent times.
“The problem has been that whilst people have been aware of those problems and have had the goodwill to want to support the producers, the technology has not kept pace and there hasn’t really been a way for consumers to conveniently access products made by small producers or at least as conveniently as going to a Coles online for instance. But now there is.”
The social aspect
What makes Oomami different from other online grocery retailers, beyond the fact that it offers products only from small food producers, is the social connection it supports between consumers and producers.
“That’s an aspect of the platform that I’m very proud of,” Stefan says of the communication tool. He wanted to bring the farmers’ market experience to consumers online.
“The difference with shopping at a farmer’s market is that [consumers can] interact with the people that actually make the products. On the Oomami platform we wanted to recreate a digital or online version of the farmer’s market experience where [consumers] can actually become friendly with the producers.”
“We believe that that interaction will actually result in more sales. It’s both a utility in terms of making the experience more enjoyable as well as a way to help the producers better promote their products and their brand.”
So how does it rate on the delivery front? As the big retailers know all too well, today’s consumers demand a fast and cost effective delivery system.
“Delivery is typically within 48 hours and all deliveries come from the local warehouse. When you’re browsing the site you would typically only see products that are in your local warehouse.”
There is a $15 flat fee for retail orders, with free delivery for wholesale orders over $200.
Stefan expects the marketplace to go live within the next three months and has plans to expand the platform beyond Australia.
“We are currently in beta testing, we have about a thousand products on the platform at the moment. We’re wanting to grow those numbers of products to several thousand.”
“Early next year we’re planning to launch in New Zealand and Singapore, and then we’re looking at North America beyond that,” he added.