The greatest opportunity to increase consumer packaged-goods sales in the retail environment is not happening in-store; it is happening online with the growing ecommerce industry. The expanding ecommerce channel is also changing how manufacturers, retailers and consumers interact in the buying environment.
To capitalize on this opportunity, brands and retailers need to better understand shopper migration; develop new selling strategies to satisfy the range of emerging online/offline shopping behaviors; and closely listen to consumers, who are the architects of their online experiences.
Advancements in technology — which are increasing consumer control of media consumption, information access and communication — are also increasing consumers’ ability to buy what they want, when they want it and how they want it.
Online sales growth is not, as we all know, being driven by an ever-expanding consumer economy. It is being driven by consumers who are migrating away from in-store to online because of technology trends that are changing their behavior and evolving their buying habits. Online consumer packaged-goods sales is at the intersection of four key technology and cultural conditions that make the ecommerce opportunity ripe:
Broadband Penetration. Broadband penetration is playing a major role in consumer packaged-goods sales growth online. Today, broadband penetration is above 65 percent, and provides the communication speed to shop entire categories, such as cereal or household cleaning products.
Convenience. Consumers demand convenience and expect universal availability of everything — including groceries. Ecommerce retailers fulfill this need by providing a wide assortment of products that can be quickly and conveniently shopped from home, eliminating the time needed to go to the store and the strain of lugging home heavy grocery bags.
Generation X/Millennial. These generations are internet natives. They have never known a culture without internet access to online information and buying. They are approaching the grocery-buying age and are comfortable doing so online.
Customization. People migrate to environments where they are comfortable and that cater to their unique tastes, needs and lifestyle. The online digital platform allows ecommerce retailers to create a personalized shopping experience.
A 2009 Nielsen study reinforces the importance that convenience plays in driving online shopping satisfaction. The leading drivers for purchasing groceries online include: avoid crowds or traffic, it’s easy, takes less time and less work. The study also emphasizes that availability is a key influence of online satisfaction including: find products I can’t find at local stores and better selection.
In order to provide shortcuts for consumers to buy everything from durable goods and electronics to basic household staples at the click of a computer mouse, retailers and brands are furiously building “buy now” navigational tools into their sites.
All of this making ecommerce the fastest growing sales segment in the retail industry, projected to grow at a 10 percent compound annual growth rate through 2014. And, within this industry, packaged-goods verticals — including food and beverage, over-the-counter/personal care and pets — are leading the way.
Meanwhile, consumer packaged-goods brands are faced with increasing loss of product availability in the brick-and-mortar shopping environment as retailers push to reduce costs and maximize margins through optimizing assortment. This is reducing available SKUs and sometimes eliminating entire product lines.
Adding to the loss of in-store availability, retailers are continuing to expand their private-label products while pushing brand-label products off the shelves. Where retailers were once content with building their brands in basic packaged-goods categories, they have continued to expand their reach.
Most recently, Kroger has more than doubled the number of items in its Mirra line of private-label cosmetics, shampoos and other beauty products, and plans to add more. The grocery chain is making store brands a priority, and already offers more than 20,000 store-brand items.
While packaged-goods companies recognize this trend, most have been slow to leverage the ecommerce solution because in many cases their current online sales are less than one percent. However, industry trends will motivate brands to explore, more seriously, the expanding ecommerce channel and identify more efficient digital-trade sales-routes to market.
Changing Retail Dynamics
The landscape of online retail is changing dramatically. Once dominated by pure-play e-tailers, the landscape now includes hybrid brick-and-mortar/online players as well as packaged-goods companies seeking a more direct connection with consumers.
Pure-play and hybrid e-tailers who offer a broad variety of items and an experience that saves the customer in time, and convenience have a decided advantage. Consequently, players like Amazon, Peapod and Drugstore.com, and brick-and-mortar e-tailers such as Walmart and Target, pull far more traffic than brand sites.
Pure-play e-tailers. Pure-play e-tailers concentrate on driving online traffic to a site, aggregating demand and capturing a significant market share in select categories. This is what drove Amazon to acquire Quidsi (Diapers.com and Soap.com) for more than $500 million in November, 2010. Amazon’s acquisition added 1.9 million visitors to its reach and frequency and 1.2 million unique visits, while also capturing the important “new mom” segment that represents a huge driver of future online buying.
Pure-play e-tailers also lead the way in shopper online segmentation and data management. They capture past online shopping behavior to create a more customized environment. However, they are less familiar with the packaged-goods retail fundamentals, such as the importance of product presentation, merchandising and solution selling.
Packaged-goods marketers. A handful of packaged-goods marketers are developing sites that sell products directly to consumers. Generally, outside ecommerce providers handle fulfillment and technology functions for which marketers are not equipped. This is creating competition among ecommerce providers to land the largest number of packaged-goods marketing/sales sites to achieve both incremental revenue and data collection.
Consumers who buy through a packaged-goods site tend to have greater loyalty, as they have had an opportunity to experience a richer engagement with the brand via the site. Recognizing the richness of these engagements, brands such as Pop Tarts/Amazon and Nature Valley/Alice.com are building “store-within-a-store” concepts on their sites.
Hybrid retailers. Many hybrid online/brick-and-mortar retailers such as CVS are just beginning to determine the balance between offline and online buying. Nielsen Research has shown that consumers who shop a retailer in both the online and offline channels are 30 to 60 percent more valuable than consumers who shop only one channel.
Hybrid retailers are focusing on digital technology and strategy and determining how best the buying and logistics process will work. Among the important questions are: Do online and offline have separate buying groups? How are buyers best credited for online and offline sales? What is the best model for fulfillment and product assortment?
The Online Opportunity
Online is an opportunity to gain back a percentage of lost in-store sales over the next 3-5 years. This is why more and more packaged-goods players are beginning to embrace ecommerce. However, the majority of brand retail marketers are not approaching this channel of trade strategically and this will result in lost opportunities.
Develop a Strategy. Developing an ecommerce strategy calls for recognizing the entire online ecosystem that a brand has created and identifying how it will feed into a customized buying solution.
Consideration must be given to the manufacturer, brand and e-tailer websites, as well as customized buying portals and social sites such as Facebook, Twitter, and so forth. Each of these assets offers an opportunity to capture an increasing percentage of online sales.
Ensure Visibility. Product visibility is another factor that greatly affects online sales success. Go to Amazon or Drugstore.com and conduct a search for oral health, eye care or disinfecting wipes. If your product does not appear on the first page, chances
are you won’t be seen at all.
Optimizing visibility is a balance of decoding the descriptor algorithm that drives search-engine rankings and developing a strategic merchandising plan with retailers to spotlight your brands.
Merchandising in the digital environment can parallel the retail environment with lobby displays (homepage), end caps (category landing page) and even in-aisle displays (brand-level pages). These displays offer brand value and online retailers are beginning to maximize brand revenue in this space.
Plan for Product Availability. Manufacturers must make sure they have the appropriate products readily available for consumers to buy online. The benefit of online is “virtual shelves” that can hold a limitless number of items. Over the next 12 to 24 months, as manufacturers increase their investment in e-tailing solutions, this focus must include:
Sales Audits. Develop an understanding of your current product availability, share-of-choice, branding, promotional tracking, ranking and reviews. Establishing a benchmark of current performance will allow the business to measure success and better understand sales drivers.
E-tailing Strategy. Create a size-of-prize analysis, ranking online retailer importance to the brand, developing a broad-based e-tailing ecosystem and selling strategy.
Sales Support. Establish a comprehensive sales planning and forecast model, identifying the best sales support structure and route-to-market.
Digital Shopper Marketing. Work collaboratively with online e-tailers to plan annual or semi-annual digital shopper-marketing plans.
Shopper Research. Map out a comprehensive research strategy that provides shopper insights, digital environment studies, segmentation analysis and loyalty studies. Every category and retailer is shopped uniquely and one size does not fit all. Understand the unique dynamics between the brand, the shopper and the buying behavior.
Marketers who take one step back to survey their digital ecosystem before jumping into ecommerce will save themselves countless hours and dollars redoing their online selling strategy.
Ecommerce is not necessarily a zero-sum game. Both brand and online e-tailers are reaping the rewards of collaborating in the digital and retail shopper-marketing arenas. To enhance online sales velocity, brands and retailers are already starting to create annual and semi-annual plans that capitalize on seasonal selling periods.
Ecommerce is just emerging in the consumer packaged-goods space and will continue to affect the buying dynamic between brands, consumers and retailers. The winning brands and e-tailers will be those that develop solutions based on consumer demand. They will include customized experiences, broad product availability, continuous replenishment, and consistent product delivery.
This will propel online sales growth at double-digit rates for the next five years to achieve a 3-5 percent share of consumer packaged-goods sales. For a multi-billion dollar industry, that is a lot of clicks.
