Why CPG brands must make eCommerce a priority
eCommerce sales for consumer goods companies have risen by 42% in the last year, a substantial figure in an industry that is experiencing only 2% growth overall.
Some consumer packaged goods companies (CPGs) have been naturally well positioned to thrive in this channel as consumers are comfortable buying things like electronics online.
But CPGs that primarily sell consumables and impulse items (e.g., snacks and beverages) face more challenges online. These brands often rely on unplanned, in-store purchases so it becomes harder to encourage people to add these products to their online baskets without the visual reminder in the aisle.
CPGs are also unable to implement traditional in-store trade spend activities (e.g., end-caps, in-store signage, etc.) to drive sales.
Despite these challenges, they must prioritise selling through eCommerce channels to achieve long-term success, as consumers continue to increase their online shopping behavior.
Use data to innovate
According to a McKinsey report, online sales are predicted to account for 10-30% of industry sales in the next five years. eCommerce is especially prevalent in the UK, as three-quarters of consumers reportedly have shopped online for groceries and 40% of those shoppers do so regularly.
Because of this, companies like Mondelez are striving towards ambitious goals to increase eCommerce sales by tenfold in the coming years.
If approached correctly, the growth of eCommerce can also be a boon for CPGs, as they can take actions based on insights from the expanded consumer data available through online channels.
This wealth of data can help CPGs experiment with new innovations in their online channels to understand which programmes truly drive incremental sales.
Two key growth areas for CPGs in eCommerce are:
Partnerships with online retailers
CPGs should partner with online retailers and delivery service companies to provide targeted online promotions to consumers in lieu of in-store promotion signage.
For example, Sainsbury’s continues to see growth in its click-and-collect and home grocery delivery segments, offering a great opportunity for a partnership with suppliers.
Since each consumer has a distinct online profile, CPGs could work with Sainsbury’s and other retail partners to customise offer types specific to each consumer in one of two promotional types.
The first type is a promotion based upon past purchase behavior. For example, if a consumer has purchased a specific cereal type numerous times before, the CPG could offer her a discount on a variation of that cereal in order to increase purchases in the category.
The second promotion type is based on purchases being made in the current basket.
For example, if a consumer had selected a single box of crackers for purchase, a notification could automatically bring to her attention that she is missing out on a promotionor for related products.
It is unlikely that direct channels will outpace traditional retail distribution for CPG products any time soon. However, a number of direct-to-consumer options are gaining in popularity, and it is in the best interest of each CPG to explore the options available to them.
Some CPGs are experimenting with delivery orders directly through the brand website.
Patner with large distribution providers
Others are partnering with large online distribution providers. For example, in the US market, Amazon has introduced ‘Amazon Dash’ buttons, which are Wi-Fi enabled devices that are set to re-order a specific product with the push of a button.
Leading CPGs such as Kraft-Heinz and Kimberly-Clark have seen notable sales lifts through the Amazon Dash programme.
It is important to note that each new promotion and foray into direct-to-consumer channels carries with it significant risk. Each promotion, if targeted to the wrong consumers, may simply subsidise existing purchase behavior instead of driving truly incremental sales.
Direct-to-consumer channels run the risk of converting consumers from in-store shoppers to digital shoppers, which decreases the likelihood that they will purchase additional products from the CPG’s portfolio on impulse.
Also, in cases like the Amazon Dash programme, it may actually be detrimental to the CPG for the consumer to purchase a fixed quantity with each order, as there is not an opportunity for increasing total basket sales for the CPG’s products.
With the increasing prevalence of eCommerce purchases comes a wealth of consumer and sales data, yielding an opportunity to mitigate risk through empirical validation of each new programme.
By first testing each new idea with a subset of consumers or locations prior to broad rollout, executives can accurately determine which programmes work, which do not, and which need to be fine-tuned prior to broad rollout.
CPGs don't need to feel threatened by the growth of eCommerce, regardless of the type of product they market. Rather, the ability to quickly and accurately optimise eCommerce strategies means they can succeed in this new channel.