Ecommerce—The Fastest Growing Channel for CPGs

By May 26, 2011

Consumer packaged goods giant P&G has indicated a desire to source 10% of its sales online. Given that it currently sources less than 1%, that sounds like an aggressive goal but one that it is putting its formidable resources against delivering. Many other CPG companies from Kraft, J&J and General Mills to Pinnacle Foods are placing a strategic imperative on the etailing selling space.

CPG Sales in the U.S. have been growing exponentially and are projected to increase to $16 Billion by 2012. The U.S. online CPG market is currently the largest, however, Britain has almost double the penetration indicating that there is much more room for the U.S. market to grow.

Consumer online shopping behavior has rapidly evolved. Early adopters started buying books and electronics online but quickly realized that personal care, food, cleaning products and other household items were just a click away.

Close to 50% of online shoppers have purchased personal care products online within the last six months and 40% have purchased food items, according to an etailing solutions CPG eCommerce Study developed with Catapult Marketing.

The key drivers of online purchase (convenience and product selection) are similar to drivers of CPG purchases in brick-and-mortar stores. However, etailers are well positioned to deliver on convenience (what could be more convenient than shopping from the comfort of your home) and selection (the online shelf set doesn’t have to adhere to the space limits of the brick and mortar shelf).

Etailers can also provide a experience, enabling consumers to customize the online “shelf” in a wide variety of ways, such as by size, product feature, price, brand and manufacturer. In this way, online is not just an incremental sales channel but also strategic marketing medium that engages consumers.

Buying online has become a part of a growing number of shoppers’ weekly routines. Frequency of online purchasing has grown to 2.7 times per month, according to a recent Catapult Digital Shopper Marketing Study.

Amazon is currently the leader in online sales and has stated their intention to grow to $100 billion in sales through prioritizing CPG and fashion. Amazon’s strategic initiatives in the CPG arena dramatically increased ranging and activation, Subscribe and Save, Prime, Amazon Mom and their college program are placing formidable short and long term threats to trips and growth for brick and mortars.

There are a wide array of etailers that are making their presence known in this space. Industry insiders are making changes to how they do business in order to address this channel shift. Amazon has purchased Quidsi (Diapers.com, Soap.com). Walgreens has purchased Drugstore.com in anticipation of the shift of volume from bricks to clicks. Walmart has shifted focus to a multichannel approach focusing on and greatly increasing their online range of CPG products as well as a variety of appealing delivery options. It also recently purchased Kosmix, a social media search engine, which will operate as part of a newly formed group dubbed @WalmartLabs.

Brands that can quickly adapt their selling strategy will benefit from the shift. Others risk losing share and relevance.

Getting in Charge of the Online Selling Space

Factors that will determine optimal investment include:

1. Size of Prize—understanding the size of the opportunity will help determine how much should be invested.

2. Baseline—gaining intelligence on how your brands’ pricing, share of visibility, availability, branding, virtual merchandising compares to key competitors will help identify gaps.

3. Retailer \
Segmentation—understanding the etailer landscape will help determine where to invest.

4. Shopper Insights—knowing how online shoppers differ from brick-and-mortar shoppers will help determine how to optimize the 5Ps (product, promotion, price, place and publicity) of online marketing to increase visibility, availability and loyalty to their brands.

5. Organizational readiness—Working toward industry best practices and ensuring that the right resources and structure are in place to compete online (including marketing, sales, insights, logistics and finance).

6. Executional excellence—Ensuring that a brand’s online presence will be optimized via:

Expert digital execution

Optimized SEM/SEO

Incorporating mobile & social commerce elements

Bringing insights and shopper marketing rigor to the etailing space

7. Tracking—The ever-changing digital landscape requires monitoring and oversight to ensure a brand’s visibility, availability, loyalty and continued growth.

There is a sense of urgency for CPG companies to place a strategic priority on shifting their sales and marketing strategies to address this eCommerce tipping point or risk losing both share and relevance.

Angela Edwards is director, consulting services, etailing solutions.