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Ecommerce upstarts navigate pandemic shopping reset

European ecommerce companies that grew quickly in the pandemic are having to adapt to a slowdown in both consumer spending and venture capital funding — forcing a rethink in strategy.

“We are not spending as aggressively,” says Daniel Kundt, chief financial officer of KoRo, a German online bulk food retailer. “In the past, as long as you grow, you can burn [cash] and no one cares how much you burn . . . VCs said we weren’t spending enough.” he recalls. “Now, they say we need to go to profitability.”

Businesses like KoRo surged during 2021 when ecommerce was the second-fastest growing sector in Europe, according to the latest FT1000 ranking of European companies.

As pandemic lockdowns propelled record revenues at established global players like Amazon and Shopify, so too small ecommerce platforms experienced dramatic growth.

But lower consumer spending and higher interest rates have led to job cuts at major players including Amazon, while the collapse of Silicon Valley Bank this month has further unsettled investors who had already started to show caution with a pullback in venture funding.

KoRo was among the fastest-growing ecommerce businesses in the FT1000, alongside UK start-up OnBuy, which launched in 2016. It is seeking to challenge Amazon by offering lower fees to sellers.

This low-cost model helped drive revenues from £300,000 in 2018 to £10.5mn in 2021 — making OnBuy Europe’s fastest growing ecommerce company in the ranking, despite only operating in the UK.

Cas Paton

“We’re the cheapest in the market for 10 per cent of what’s on the [OnBuy] platform and that’s climbing month by month,” explains founder Cas Paton.

Amazon still dominates — accounting for 20.5 per cent of ecommerce spend in western Europe last year, according to data provider Euromonitor.

But Paton says there is still space in the sector for other, smaller marketplaces to coexist. “We’re not looking to say to a retailer ‘don’t sell on Amazon’,” he says. “We’re saying ‘sell on OnBuy as well’.”

Venture capital is the lifeblood of start-ups like OnBuy and KoRo, which both raised cash in funding rounds last year. However, Dealroom statistics show that investment in European ecommerce dropped by half last year, to $10.3bn — down from $20.2bn in 2021.

In the UK, Europe’s largest ecommerce market, consumers are spending more online than before the pandemic, with internet revenues making up 27 per cent of all retail sales in January 2023, compared with 19 per cent in February 2020, according to the Office for National Statistics.

But sales volumes are falling back and “for a pure marketplace, the issue will be buyer retention”, says Jan Miczaika, a partner at HV Capital, a German investment group, whose past investments include food delivery start-up HelloFresh and fashion retailer Zalando. “You really have to bind customers to your marketplace to keep them returning.”

Kundt says sales growth at KoRo slowed in the middle of last year as the impact of Russia’s invasion of Ukraine started to be felt in slower consumer spending. “This was very new for us because we had strong growth before,” he says, “but then it came back and it’s promising at the start of 2023.”

Co-founded in 2014 by Constantinos Calios and Piran Asci, KoRo operates in 18 countries and sells about 1,400 health food products in bulk, such as 1kg bags of dried mango.

The company initially built its customer base through influencer marketing on social media, with the pandemic providing a springboard for expansion to eight new markets in 2021. It grew its revenue from €3mn in 2018 to €61.5mn in 2021.

It is now focusing on consolidating its position, with investors, including HV Capital, encouraging a pivot in strategy. “There’s no money for expanding so fast again,” Calios says.

Two men sitting by a table,  smiling at the camera, hands resting on the table
Constantinos Calios and Piran Asci, KoRo co-founders © Melanie Greim

As businesses adapt to slower spending and higher costs, companies that can support others to find efficiencies are well placed.

Dutch start-up Returnista, which provides insights to help retailers reduce the proportion of returned goods, was the second-fastest growing ecommerce business in the FT-Statista ranking.

It increased its revenues from €107,000 to €3.3mn from 2018 to 2021.

The shift to ecommerce made online stores more aware that “returns have a huge impact on their bottom line and the environment”, points out co-founder Olivier Muller.

The business works with more than 1,200 brands, including retailers Asos and Decathlon, with a focus on clothing companies that face high costs from returns.

“Even in an economic downturn there is a big demand for lower return rates,” says Muller. “Online stores are very much looking to become and stay profitable”, he adds, noting the clear change in approach across the ecommerce sector.