Packaged-Goods Marketers Wade Warily Into E-commerce

In 2013, online buying comprised only 1% of the $666 billion in consumer-packaged-goods sales in sales in 2013. Online sales of food and beverages will account for only 2.3% of the $304 billion that will be spent on e-commerce retail in 2014, according to projections from eMarketer.

By looking at this data, the relevant question is why have the big brands been so slow to implement e-commerce strategies?  Three main factors have influenced this behavior:

1. Executional challenges of online grocery selling: The e-marketer operates in a world where search is the new shelf space and the online retailer controls the consumer relationship.
2. Low price points: Home delivery only becomes economically feasible once price points hit $20 to $30, which is a lot higher than the average grocery item
 
3. Planned vs. impulse purchases: A significant portion of CPG sales come from impulse purchases.

  

However, on the retail side, players have demonstrated commitment to boost packaged goods e-commerce. National giant Amazon and regional players such as Fresh Direct and Peapod are investing heavily in grocery delivery. While the bricks-and-mortars stalwarts such as Wal-Mart continue to invest on their online business. Ready or not, CPGs companies would have to focus their efforts on implementing e-commerce strategies. Players that fail to do so, would face a risk of stagnation, loss of share and even shrinking sales. Early movers would have the opportunity to establish positions that will be difficult to dislodge.

 

What's next for CPG companies in e-commerce?

 

On the next years, I would expect huge advertising investment switching from the traditional distribution channels to e-commerce.  Digital investment would be no longer perceived only as an awareness and brand loyalty strategy, but also as a robust revenue generator tool. This phenomenon would be accompanied with the development of exclusive SKUs designed to meet online buyers needs and address some of the channel's challenges (higher price points).

 

The biggest challenge ahead is the shifting balance of power towards retailers. As the search ranking on e-commerce is considered the new "shelf space", online retailers gain more power on determining the potential revenues of packaged goods. So it is critical for marketers to get their brands to display on the first page of search results, which accounts for 81% of consumer clicks, according to One Click Retail data published in a recent report by Sanford C. Bernstein.

 

However, marketers run the risk of upsetting their traditional retail partners such as Wal-Mart and Target if they invest too much in Amazon. So an integrated multichannel strategy (offline and online) would have to be implemented simultaneously in order to leverage the opportunities that e-commerce has to offer, while revisiting traditional offline channels' potential.

 

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Source: AdAge-"Packaged-Goods Marketers Wade Warily Into E-commerce"- E.J. Schultz      Published on September 16, 2014