Are CPG brands ready for e-commerce?
Among consumer packaged goods (CPG) industry professionals, there are few topics as perplexing as direct to consumer sales. Even so, many are dipping their toes into e-commerce waters as the industry continues to face slow growth, more competition, and pricing pressure.
Urgency is leading many to hastily consider direct sales channels — despite how it might affect retail partners. Clouding the picture are new entrants offering a fast-path to e-commerce like Amazon. Growth-starved brands have little choice but to "follow the money" in the new omni-channel landscape.
Amazon has the potential to disrupt the retail industry while keeping CPG makers fenced out of a close relationship with consumers. It’s the very issue many brands are trying to overcome with digital marketing. CPG executives need answers fast — a framework for how direct sales fit within their existing model.
Research from Deloitte presented in a webinar recently sheds light on these critical questions.
- CPG e-commerce is growing, but represents a small percentage of sales. Amazon’s moves suggest uptake will accelerate, making it a mistake to assume a steady state, small opportunity. Deloitte’s research validates this, with surveyed consumers expecting to make a larger share of purchases online in the future.
- Deloitte identifies a segment of shoppers — nearly half — as "indifferent" in that they neither like nor dislike shopping in a brick and mortar store. You can imagine currying favor with this segment with the convenience of online channels paired with timely and low-cost delivery.
- There is overlap between direct and retail channels, but an incremental opportunity does exist — the key is to figure out where, while maintaining mutually beneficial relationships with long-time retail partners.
Deloitte makes several recommendations around targeting and personalization:
- Target indifferent consumers with convenience items and capture impulse purchases.
- Establish new or niche brands while accelerating sales volume for established brands.
- Attack the new product introduction challenge through targeted trial via social media.
The findings include suggestions for working with retail partners to implement direct sales alongside both retail brick/mortar and online operations.
- Convince online retailers to stock many items, while saving physical shelf space for popular SKUs. Resolve to decide which variants should be sold online only.
- Plan assortment on physical shelves around SKUs with the highest productivity, with a rotating inventory of new or niche products.
- Pursue direct sales of profitable, low volume SKUs such as "niche flavors and fragrances unable to gain shelf space in traditional brick and mortar outlets."
- Fast-Rising E-Commerce Could Jolt Package-Goods Giants – Advertising Age (tiered sub.)
- Target sends sharp message to P&G over Amazon deal – RetailWire
- P&G invests 30% of media spend in digital – Marketing Week
- Digital Commerce in the Supermarket Aisle – Deloitte
- How Adaptive is Your Product Innovation and Launch Process? – Teradata
Do CPG vendors have the right visibility into channel activity to form and then implement a confident e-commerce strategy? Are the risks lessening around disturbing brick & mortar relationships? How does Amazon’s push into CPG alter channel relationships?