As the Coronavirus pandemic started, economic downfall made society face threat of unemployment and loss of incomes. Drastic decrease of incomes is directly connected to purchasing capacities and considering tendency of growing prices on food products, the picture is not that pleasant. It’s a fact, that this situation hits low income families the most who spend the majority of their incomes on food.

When compared to the previous year, prices on food globally increased by 14% in 2021 (World Bank, Food Price Index 2021), Georgia did not fall behind this negative tendency. In April of the current year, ACT got interested in the impact of increased prices and inquired respondents on the dynamics of costs spent on food and frequency of using different products over the past 6 months.

Growth rates 

In the spring time, social media was overflowed by record growth of oil price and this became a popular topic for discussions or jokes. Even though the price of oil reached its historic maximum price since 2008, unfortunately, oil was not the only main character in this story and the pandemic appeared to be pushing prices up and up on food products. Based on National Statistics Office of Georgia, prices in food category went up by 0.3% in April compared to the previous month which was reflected in 0.1% growth in 7.2% inflation rate. In good categories, prices of fruit and oil, fish and sweets showed the biggest growth rate:  

The majority of 401 respondents we inquired, confirmed drastic increase of prices and declared that they have to spend more and more on food recently. If we look at data in age perspective, the picture is similar for all age groups – the majority of respondents (averagely 75%) in 18-34, 35-54 and 55+ age groups report on noticeable growth of prices in food category over the past 6 months.

According to the study results, the most frequently used products (everyday, several times a week) include bread and bakery, vegetables, fruit, dairy products and sweets for the majority of respondents. Relatively less frequently consumed products are frozen and canned meals, fish and oil, butter, sugar and cheese. If we compare this list to the dynamics of prices provided by GeoStat, we’ll see that most frequently used food products are now more expensive. The products listed below take the majority of space in consumer basket according to frequency of use.

Impact of the shock

To sum up briefly, the pandemic and its negative effects on the economy was not unexpected – breach in food supply chain and delaying processes logically follow similar crisis. The Coronavirus pandemic caused delays in functioning of global food value chains, which affected every phase of food supply. This all originated from the restrictions and regulations set in forth by governments of different countries.

For now, food prices have to cope with the shock caused by the pandemic. Prices increase from month to month, as well as annually. Even though developing, food importer countries are number one target for price growth caused by the pandemic, however, in import-depended Georgia where other external economic factors are actively making impact, including depreciation of the national currency, growth of prices on food products is even more evident and noticeable.

Crisis caused by new Coronavirus accelerated pace of digital transformation even more and forced businesses to include remote work and development of e-commerce into the “agenda”. The other side of the market – consumers remained without digital influence. E-commerce became a replacement or filler of physical shopping for them and presumably, these changes will make deep roots in their behavior and will continue in post-pandemic period as well. However, background of these processes is even more interesting – did every business mange to timely and properly respond to digital challenges, what do international statistics say and what is the vision – did the pandemic landscape of retail trade give businesses time and resources to adapt?

International trends – are businesses ready for digitalization? 

It’s been a long time since change in consumer behavior and their readiness to engage in e-commerce processes became one of the main focus of studies conducted by international organizations. For example, United Nations Conference on Trade and Development (UNICTAD) annually measures B2C e-commerce index, which combines levels of internet consumption by individuals, share of protected internet servers and data on owning accounts in financial institutions. Similarly, International Tele-communication Union (ITU) offers information and communication technologies (ITC) development index [1], which is also oriented on online shopping behaviors of consumers and channels utilized in this process. This list also includes statistical data gathered by Organization of Economic Cooperation and Development (OECD).

If we have a look at e-commerce report called “E-commerce during the COVID-19 pandemic” conducted by OECD in October of 2020, we will clearly see that online commerce is very quickly developing. According to the report, retail sales (orders) made through e-mail and internet in EU member countries increased by 30% in April of 2020 compared to the previous year. Trends are similar in USA, where e-commerce orders increase by 14%-16% (see chart N1). The said report also highlights dynamic development of e-commerce in Europe, Northern America and Asia-Oceania regions in the first half of 2020.

[1] The ICT Development Index (IDI)

Source: OECD, E-commerce during the COVID-19 pandemic, 2020, October. Calculations are based on EUROSTAT statistics. 

UNICTAD report “COVID-19 and E-commerce” published in summer of 2020 shows quite an interesting picture, incorporating experience of 257 companies from 23 less developed countries [1]. Some of the identified trends truly deserve our attention:

• Fully digital business models (60% of third party online marketplaces) turned out to be more resistant to the pandemic than e-commerce companies that appeared relatively less prepared for new challenges.
  
  
• Use of social media and number of web-pages definitely increased in focus countries. Rapid growth of these sales channels started in the beginning of the pandemic crisis. In this direction, Facebook platform turned out to be particularly important.
  
  
• The pandemic intensified problems previously existing in the ecosystem of e-commerce. Delays in supply chains and logistic processes, absence of internet access appeared to be main challenge for more than 60% of respondents.
  
  
• As noted by more than half of inquired respondents, improvement of e-commerce development policy and strategy is the top priority and needs to be actively handled.
  
  
• The pandemic challenges affected investment capacities of companies in ICT direction. Respectively, company representatives believe that out of all support programs offered by their governments, update of the national e-commerce strategy and its promotion in the society is the most important one.
  
  

[1] These countries mostly cover Africa and Asia – Pacific Oceania regions.

Source: UNICTAD, COVID-19 and its impact on e-commerce of businesses, 2020

ACT’s role – experience from even broader geographic area 

The 2020 pandemic and economic crisis enabled ACT through cooperation with different countries and international organizations (EBRD, World Bank, UNDP, USAID) in various projects to contribute globally in increasing sustainability of business sector and identifying pandemic channels affecting them. The said projects enabled us to study e-commerce development issues in focus regions (Caucasus, Western Balkans, South-East Europe, Central Asia and South and East Mediterranean) and do a research on the impact of the pandemic on businesses. As expected, business operating in focus regions shows different types of readiness for digitalization (chart 3). However, regardless of such different results, it is important to mention the overall attitude inquired respondents had in common – small and medium-size businesses have a desire to involve in e-commerce but they hesitate because of lack or complete absence of information and digital tools.

Source: ACT Research, 345 SMEs inquired in Caucasus, 827 SMEs inquired in the Western Balkan region 

Our team had a chance to additionally study challenges of small and medium business operating in Central Asia, South-East Europe and SEMED countries during the pandemic within the scopes of the EBRD-sponsored project “Impact of COVID-19 on small and medium businesses”. As a part of the given study, we asked respondents representing small and medium-size businesses what percentage share of the company’s sales switched to online platforms after the pandemic started. Overall picture is also very interesting, as declared by the majority of small and medium businesses from the listed regions, sales did not switch to online shopping at all, while only a very small part of companies managed full digitalization. Businesses operating in South-East Europe (chart 4) appeared to be the most prepared for such transformations, this can be explained by the fact that logistic services were already well-developed and organized in this region and already established practice of e-commerce.

Source: ACT Research, 570 SMEs inquired in SEMED, 598 SMEs inquired in Central Asia and 184 SME inquired in South-East European region 

Unplanned changes with long-term results 

The new Coronavirus pandemic turned digital development into inevitable reality. When searching for answers, we clearly saw that this seemingly simple way is actually quite complex process and to pass this road, only “desire to digitalize” is not enough. Businesses had to cope with all the problems which already accompanied the process of switching to a new platform: absence of relevant experience, lack of resources or infrastructure. Even though supporting business became main migraine for every government, the majority (more than 50%) of businesses participating in different studies unanimously admit that unfortunately, their government, when working on development of priority sectors, left this part behind and online commerce still remains as unsolved issue.

It’s a fact – digitalization has not entered our lives just temporarily. These are more unplanned changes which will bring prolonged, long-term results.