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Covid-19 pushes SMEs to bridge the digital divide

Could the small business nightmare that is the coronavirus pandemic also be the kickstart to get more SMEs working digitally? And could that, just possibly, provide a much-needed kick up the butt for our sometimes dismal productivity?

March 25 2020: New Zealand goes into Level 4 lockdown and Jill and Adrian Walcroft have a big - and relatively unique - problem: too much cheese. Or more precisely, rounds and rounds of delicious artisanal cheese and no way to get customers to buy it.

The Walcrofts own Cartwheel Creamery - a cheese-making company in the beautiful Pohangina Valley near Palmerston North. He’s the cheesemaker, together they run the business. They’ve done it for six years and they know people buy cheese at Easter.

Cheesemakers Jill and Adrian Walcroft had no choice but to sell online when we went into lockdown. Photo: Supplied.

So at the end of March the Walcrofts were prepared. With Easter less than three weeks away, they had a chiller full of cheese.

Hundreds, if not thousands, of cheeses. Goats cheeses, camembert style, creamy blue, halloumi. About a third of which needed to be sold relatively soon, or they were going to be over-ripe.

But suddenly, at Level 4, virtually all Cartwheel Creamery’s usual sales avenues disappeared. No markets, no shows, no festivals, no specialty food shops, no cafes, no vineyard restaurants, no face-to-face farm shop sales.

It was a potential disaster for a small business.

The only avenue left was online sales. The only problem: Cartwheel Creamery was not set up for online sales.

“We had a website that we’d helped design and run. It was a front door and we did have a bit of web traffic - our contact page, our story page.

But setting up an e-commerce site was still on the to-do list.

“We were a bit naughty, we weren’t using the website particularly well. Our business mentor had been on my case about setting up an online shop and we’d found a man who could develop it. But I was dragging my heels.

“The goal the mentor had set was Easter, but there was no hope I was going to meet that.”

Covid-19 changed that. Suddenly the Walcrofts had more time and huge motivation - all that unsold cheese in the chiller.

One of the first calls she made after Jacinda Ardern’s Level 4 announcement was to web designer Anthony Behrens of SwampThing

Three weeks later, just a few days after that deadline originally written off as unattainable, Cartwheel had a workable online sales capability.

“If there was one good thing came out of the lockdown, it gave us time and motivation to set up online sales - something we should have done ages ago.”

And by the end of lockdown, all the perishable cheese was sold. The company didn’t make profits - there was a lot of discounting, offers, even competitions to move the bigger, wholesale cheese rounds. But the online business kept cashflow going and they didn’t have to throw any of Adrian’s yummy cheese away.

Most importantly, they learnt one hell of a lot about e-commerce. Fast.

“If there was one good thing came out of it all, it gave us time and motivation to do something we should have done ages ago,” Jill says.

A two-year digital boost

The Walcrofts aren’t the only ones. Vodafone NZ national acquisition sales manager for SMEs Christina Magan believes the Covid-19 lockdown has pushed digital adoption forward by at least two years.

Vodafone's Christina Magan believes the lockdown has accelerated digital adoption for SMEs. Photo: Supplied

“There have always been businesses that were used to customers using physical sales channels and have been hesitant to move to the cloud and other digital technologies,” she says.

“Many hard-working business owners perhaps felt they didn’t have the time, the budget or the resources to make the move to a new technology. However, where technology may not have been a high priority in the past, companies are now realising they need it if they are going to survive.”

Magan says in the early stages of lockdown, many business owners had time to think about what digital technologies would help their businesses function. And they knew they needed to adapt.

"Overwhelmed with choice"

Jill Walcroft says the process of moving online was necessary, but it wasn’t easy. The worst thing was there are just so many options.

What to do with the existing website? (They decided to keep it and lock the sales engine onto it. After all, they liked their website.) Which e-commerce platform to use? How did they connect the new online sales facility to other business systems the company used - like their cloud accounting platform?

Then there was the decision about which payments system to use and what the ongoing costs would be (there are several payment options,Walcroft says).

One of the hardest decisions was around courier options - which platform to pick, and whether an automated delivery system was worth the extra money. (They decided not for the time being, but might change that later, Jill says).

After all that there was all the photography to do of the different cheeses, writing the descriptions, getting everything looking enticing, and making sure all the buttons worked.

“Building an e-commerce website isn’t for the faint hearted,” Walcroft says. “We were overwhelmed with the number of choices there were for how to do it.”

But in the end, the site worked. “There were no glitches”.

“We didn’t shout out to the world in the first week, just tested it out on a few customers who got in touch.”

And then they moved to the rooftops.

“We used every network we had.” Chamber of Commerce, customer newsletters, social media (Facebook, Instagram, Twitter), a list of rural suppliers in women's magazine Shepherdess.

Jill got creative - Mothers Day gift boxes, a Facebook competition where she asked for people’s best cheese jokes, Instagram pictures of her cheese and crackers lunch, a hashtag (#culturedhappiness), a contactless farm shop click and collect system in an old milk vat stand.

And it worked. “Everything sort of exploded. There was so much support from other businesses. People were sharing our story. Anyone who could support a local business was doing it. We built a community.”

These days Cartwheel has 1400 Facebook followers, and rising.

Facebook has been a key way for the Walcrofts to keep customers engaged with their cheeses.

Engaging customers digitally

This increased digital adoption will reap benefits for the companies involved, says Craig Hudson, New Zealand and Pacific Island managing director of accounting software company Xero.

“Conversations we have had suggest businesses which were connected digitally navigated the lockdown more easily and reached customers faster than those who weren’t,” he says.

If there’s a silver lining to the pandemic, he says, it's getting many more small businesses past the hurdles that have kept them from adopting digital technologies - worries that it's too expensive, too time-consuming, too scary, or just unnecessary.

Vodafone's Christina Magan says it is surprising how many small businesses in New Zealand don’t even have a website, let alone e-commerce or social media capabilities.

“One of the first things most people do today when looking for a new product or service is to search online,” she says. “Having an online presence allows customers to find your business, interact with your business and buy from your business.

“However having a website is no longer enough. Social media has become crucial to business, not just for the connection with customers but the insights it can provide – the posts that resonate with customers, the first-hand accounts of customer experience, and the engagement that builds brand loyalty.

"It is these interactions that create opportunities to make sound business decisions based on customer-led data analysis”

An MYOB survey conducted in June 2020 found SMEs' use of social media to communicate with customers rose 39 percent over the initial lockdown period. It also reported 15 percent of businesses set up an ecommerce website for the first time (on top of the 31 percent that already had one).

Global consultancy McKinsey estimates a decade of e-commerce growth has been forced into three-months of Covid-related digital adoption - in the US at least. 

“If you’re feeling whiplash, it might be the 10 years forward we just jumped in 90 days,” the company says.

Collaborating remotely

A Xero/NZIER report published just as Covid hit New Zealand, estimated a 20 percent increase in companies’ uptake of cloud computing would increase our GDP by between $3.5 billion and $6.2 billion (1.2 percent - 2.1 percent) and boost business outputs by between $4.1 billion and $7.3 billion.

Another piece of Xero research suggested 65 percent of Kiwi SMEs saw their productivity increase after implementing cloud-based tools.

For example, six-person property valuation company Greenland Valuers uses Vodafone cloud and mobile services to keep the team together when they are working from home, to access property records no matter where they are working, and make sure they don't miss calls from customers.

Founder Geoff Green says the technology allows for a greater level of flexibility, with his team able to work no matter where they are.

“We had remote working set up and it was absolutely brilliant. If we hadn’t had all this digital technology we would have had to close down until we could get back into the office.”

MYOB research found SMEs recognise the value of technology for their business.

Magan says it can be tough in the short term, But adopting digital technologies will produce efficiencies for companies which will last even once Covid is gone.

“Customers expect us to be able to deliver to them like Uber does. They want to be able to order a product without leaving their seat, receive a notification and have the product delivered to their door. It should be effortless.” Vodafone's Christina Magan.

It will also help companies move towards the sort of quick and easy digital interaction their customers are increasingly seeing as normal, Magan says.

“Customers expect us to be able to deliver to them like Uber does. They want to be able to order a product without leaving their seat, receive a notification and have the product delivered to their door. It should be effortless.”

That’s no easy feat - even when you use technology. Without it, it's impossible.

When Instagram just isn’t enough

Jane Smith is a young mum with a pre-schooler and (as of July) a new baby. She and her husband worked overseas for a while, and when they came back to New Zealand a year or so ago, Smith started a floral design business from their Taupo home. Some of her business is wedding flowers, but more and more she works with dried flowers. Bouquets, flower crowns, hat bands, name wreaths.

Jane Smith found managing lockdown sales of her popular dried flower name wreaths without an e-commerce-enabled website was a nightmare. Photo: janesmith.co.nz

Pre-Covid, Instagram was Smith’s main marketing tool. She posted pictures, and people got in touch with enquiries and orders.

Which was fine when the business was small - “puttering along”, as Smith puts it. But then the Covid-19 lockdown arrived. And in its wake, came the Kiwi online shopping phenomenon originally called New Zealand Made Products and later renamed Chooice

And suddenly Jane Smith’s manual too-and-fro-ing using social media messaging became untenable.

“I posted some images of my work on Chooice, particularly my name wreaths, and I started getting thousands of comments on that post. Most people wanted to know the same things - the price, how many letters could they have in their name, could I ship to their address? It was really time consuming and I was replying to people with the same questions.

“I thought if I went online with a website that had all the information and lots of photos of the options and contact details and shopping options it would be much easier.”

Smith didn’t have a big budget, so she went to the Women in Business New Zealand Facebook group and found a designer - Emily Wong from Concept & Code - willing to swap web design for floral design.

And lo and behold, Jane Smith was e-commerce enabled.

Like Jill Walcroft, the decision-making was more complicated than Smith was expecting - particularly when it came to working out shipping charges. And she’s still coming to grips with search engine optimisation.

But it’s working really well, she says.

“During Covid people were spending more time purchasing online and that meant I could work through that time. My customers are savvy and pushed me to go online, but now I’m set up it makes me more accessible to more people.”

The digital divide for SMEs

“With Covid, it’s become clear which companies use online technology well and which don’t,” Vodafone’s Christina Magan says. “That’s the business digital divide.”

In July, Xero and The Entrepreneurs Network think tank in the UK produced a report looking at closing the digital divide for SMEs.

The report argues “small firms should make better use of digital technologies to tackle the sluggish productivity which characterised the pre-Covid economy and bounce back faster post lockdown.”

While the report is talking about the UK economy, the situation in New Zealand is no different. In 2019, the Productivity Commission put it like this:

“New Zealand’s poor productivity performance has been a persistent problem over decades... [It has been] a key characteristic of New Zealand’s relatively weak economic performance. The economy is like a car stuck in first gear, where faster growth comes from revving the engine rather than driving more efficiently.

“Lifting productivity would shift the economy into higher gear and put economic growth on a more sustainable footing.”

"There is massive opportunity to boost productivity by increasing the rate of digital adoption among small firms."

The Xero/Entrepreneurs Network report is both optimistic and pessimistic about the impact of Covid on productivity and digital adoption.

“There is massive opportunity to boost productivity by increasing the rate of digital adoption among small firms,” the authors say.

Firms that can overcome the three major hurdles - lack of knowledge, skills and finance - will do well.

Covid could also increase the digital divide.

“As Covid-19 has forced businesses to go remote and adapt to social distancing measures, digital adoption has become even more important,” the Xero/Ten report says.

“Businesses that fail to adopt digital technology, whether e-commerce or cloud storage, will increasingly struggle.”

Part of the digital divide has traditionally been to do with business size. Source NZIER/Xero.

Meanwhile research suggests digitally connected companies also have access to more information to allow them to make decisions about the viability of their businesses during and following the pandemic, and what changes may be necessary.

The MYOB survey suggests Covid-19 has prompted a permanent digital change. Over half (56 percent) of business owners surveyed said they will initiate flexible working hours for employees and 49 percent said they would allow employees to work from home at least part of the week. A large majority (61 percent) of SME owners said they are likely to look at new opportunities to use technology as a result of their business’ experience during the Covid-19 pandemic.

Vodafone's Christina Magan says going back into lockdown was the catalyst for some businesses to go digital. Photo supplied

Although the first lockdown saw a huge number of businesses move online and to remote working, some businesses waited until the second wave of restrictions in New Zealand to adopt more permanent digital solutions, says Magan.

“Business owners are realising that some of the effects of Covid-19 and the lockdown are here to stay. Employees and businesses have experienced the benefits of a more flexible workplace, customers have become more digitally-savvy, and we are all realising that business disruption of some form is inevitable so the best we can do is be prepared.”

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