Will e-commerce take down the big food and beverage companies in favor of smaller entrants?

The e-commerce market was 1.25 trillion globally in 2013 and is projected to reach 1.5 trillion by the end of 2014. Amazon.com alone is projected to grow roughly 40% year over year through 2020. The channel has become commonplace for several industries changing the landscape for electronics, books, and music. While the food and beverage industry makes up only around 1% of e-commerce sales in the U.S., more and more consumers are turning to the channel to purchase their groceries.  Businesses like Fresh Direct and Peapod have shown tremendous growth since launch due to increasing consumer demand.

So where does that leave food and beverage companies? What is the opportunity for such packaged goods in the space and what should be their strategy going forward? If you just look at beverages, Pepsi and Coke essentially dominate the overall market and are entrenched in brick and mortar customers. At this point, the success of these food and beverage giants over smaller players is their distribution power, customer relationships, and resulting claim of shelf space. However, e-commerce is a digital shelf. The unlimited shelf space results in lower barriers to entry and bigger opportunities for niche players to grow. As traction strengthens in online channels, demand spills into offline channels, and brick & mortar retailers demand those products on their shelves. For example, Tea’s Tea is #2 on Amazon.com with Coke’s honest Tea and Pepsi’s Pure Leaf Tea ranking behind. This surge in demand for Tea’s Tea is now seen in traditional retail stores.

But the big players are aware of this niche growth. Coca-Cola is now bringing back a niche brand from the 90s, Surge, and selling it exclusively on Amazon. PepsiCo marketed and sold its new Pepsi with Real Sugar on Amazon.com as well and saw sales sell out rapidly. Perhaps the giants are approaching e-commerce with lower-volume products or products that have small but intense fanaticism. This will keep their skin in the game with innovation against new entrants, but the question remains how they will continue to combat the niche teas, coffees, water, and colas of the world as they grow in popularity online and, consequently, offline.