Are CPG Companies Underestimating Online’s Potential?

Dec 06, 2013

According to a new study from Deloitte, consumers’ intent to purchase food, household and personal care products online is far outpacing CPG executives’ expectations.

Separate surveys found that executives expect 35 percent growth in CPG-related categories in the next year and 76 percent growth in three years. In contrast, consumers expect their online purchases in those categories to expand by 67 percent in the next year and 158 percent in three years.

The study identified "indifferent" consumers as potentially the biggest driver of a massive shift in CPG category spending. Of the consumers surveyed, 41 percent neither like nor dislike shopping at supermarkets for CPG products. These "indifferent" shoppers, combined with those who dislike shopping at supermarkets, are most likely to consider e-commerce for CPG products with no particular attachment to the physical shopping experience.

Researchers concluded that CPG executives are underestimating the degree to which consumers could be incentivized to buy CPG products online.

Furthermore, while most executives correctly estimate that the majority of consumers dislike grocery shopping due to the time it consumes, fewer executives give credit to other factors such as inconvenience (47 percent), the crowds in stores (42 percent) and traveling to and from the retail store (39 percent).

Also, although touching and physically viewing products are important, the report identified a number of factors enhancing the online experience more so than in the past. These factors include free at-home delivery (84 percent of consumers state this as very important or important), pricing similar to or less than traditional physical stores (80 percent) and free in-store pickup (67 percent).

"The importance of e-commerce to CPG companies has not, in most cases, translated into a fully-developed strategy for capitalizing on this channel," said Pat Conroy, vice chairman, Deloitte LLP and consumer products sector leader.

Is everyday online buying of CPG categories close to a tipping point? How would you quantify the tradeoffs for consumers buying CPG products in stores versus online?

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16 Comments on "Are CPG Companies Underestimating Online’s Potential?"

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Ed Dunn
3 years 10 months ago

Consumers choose different CPG brands to fit their lifestyle and preferences. The CPG online solution would be best facilitated by a vertical e-commerce entity delivering multiple CPG products (Amazon, Walmart, etc.) directly to consumers.

Ben Sprecher
Ben Sprecher
3 years 10 months ago

Online grocery shopping has been “just around the corner” for years (predicted to be $60B by 2007 in this 1997 AdAge article).

That said, the stars seem to be aligning to make the long-anticipated vision a reality. Ubiquitous broadband, smartphones, and tablets make adding items to your online order just as easy as adding them to your paper shopping list. Improved pick-and-pack and delivery logistics have made businesses like Fresh Direct, Peapod, and Amazon Fresh viable, and 3rd party services like Google Shopping Express and BufferBox (also owned by Google) help brick-and-mortar retailers solve the last mile program without massive investment in their own delivery infrastructure.

Vast improvements in purchase-history-based personalization and behavioral targeting allow for truly helpful product and coupon suggestions. And improved digital payment and couponing tech makes for a more seamless customer experience overall while delivering true closed-loop marketing and measurement for CPGs.

There are tons of experiments today and although the jury is still out on many of them, I believe the future is bright for online CPG!

Max Goldberg

I don’t think we are at a tipping point for CPG categories, but consumer interest in buying CPG products is growing. As much as consumers dislike shopping in grocery stores, they are equally hesitant to buy non-CPG items online. Amazon and its companies, as well as other specialty online retailers, have been cutting into categories like pet food and baby care, but no one has significantly displaced meat and produce purchases.

As online CPG purchasing continues to grow, it’s more important than ever for brands to build dialogues with consumers to strengthen loyalty. Brands need name recognition and loyalty to ensure they are chosen online, where a consumer’s willingness to try something new may not be as great as in-store.

John Boccuzzi, Jr.
John Boccuzzi, Jr.
3 years 10 months ago

The tipping point may still be a year away. The move to consumers buying from a mobile device will have the greatest impact on the move from in-store to online.

Consumers want a exceptional shopping experience. What makes a shopping experience exceptional?

1) Convenience
2) Ease
3) Price

Online shopping, especially through mobile has the largest opportunity to make all three exceptional experiences for the consumer.

The trade off up front for consumers buying online will be not purchasing everything they need from one location.

Bill Davis

I think in the next two to three years, yes. Once Amazon Fresh emerges in other parts of the country, now currently only available in Seattle, San Francisco and Los Angeles, it will force other grocers to offer more complete eCommerce capabilities because they will be forced to compete or lose share.

Richard J. George, Ph.D.

Maybe not a tipping point but certainly a challenge to CPG manufacturers as well as the center of the store (COS). Success leaves clues. Amazon’s online business is based on three simple components: price/value, selection and convenience (customer centric). These attributes represent the ante for CPG manufacturers as well as food retailers.

Similarly, these organizations need to be thinking omni versus multi channel. Omni channel is not about channels, it’s about customers. To lead the market you need to follow your customers!

Diana McHenry

I agree with Ben. This has been around the corner for ages. But, we do have a great convergence of Big Data and computing to handle the information for better shopper insight, and experiments are blossoming. I am certainly an early adopter to get some specific items delivered to my doorstep – my Method hand and dish soaps, a case of Kind or Clif Bars or the one elusive SKU configuration on a favorite P&G brand. I live 5 minutes from a great drug store outlet and prototype grocery store, and 30 minutes from my alma mater P&G…still UPS brings the goods I can’t easily get.

Mark Heckman

Clearly the more experience and comfortable the shopper becomes with the entire online purchase process, many will soon or later begin to consider ordering certain grocery categories the same way, given the price and delivery charge continue to represent a value. If we are not at a tipping point, we soon will be.

Ironically, many CPG companies have long been in search for a means to bypass the retailer and develop a more profitable and efficient relationship directly with the consumer. The emerging online shopper represents the first meaningful opportunity for that to happen.

However, shoppers are still much more likely to purchase, whether it be online or in the store from a retail source that can provide all or most of their shopping needs. To that end, CPGs will still need retailers and online aggregation sites (like Amazon) to provide an efficient and popular delivery system.

James Tenser
Until the perspective shifts from, “How will we sell our products online?” to “How will we help households better manage their pantries?”, I believe this business will continue to be “just around the corner” for CPG. Certainly, splintering the grocery shop into dozens of weekly decisions, transactions and deliveries is no way to help shoppers streamline their consumption routines. This was then and remains now the fallacy of the “consumer direct” concept. Disintermediation is bunk. A re-consideration of the grocery basket and how it arrives to the home is another story. That requires a solution orientation on the part of the service provider (the retailer). Never-run-out tools, bulk shipments of high-consumption items, and secure unattended delivery have all been well-received in the past. Rapid delivery mechanisms from and others may add traction in areas with urban density, but the relevance will vary widely by location and purchase occasion. Unfortunately for brands, these emerging concepts will not simplify the in-store shopper marketing imperative in any way. It does add, however, a whole new set of required practices for brand promotion and interfacing with online channels and shopper marketing outside the store. Set against the hard reality of somewhat inelastic total… Read more »
Joel Rubinson

I think we need to rethink what online means when it comes to CPG. For non-CPG, you can send stuff via UPS to arrive in days or even a week later. The “gratification cycle” is much faster for CPG. If “online” includes ordering online with your order ready for pickup or delivery, I think we can say yes, there will be more online ordering of CPG.

Roger Saunders
Everyday? The answer is Yes, No, and Maybe. Yes – based on the Prosper Insights & Analytics Monthly Consumer Survey, there is no question that more and more consumers are making the Internet their first choice for the place that they shop MOST often for selected CPG categories. Examples include .7% of Adults, 18+ choosing online over brick & mortar in purchases of Personal Care products in 2013 vs. .3% in 2012; Hair Care items .9% (2013) vs. .7% (2012; Oral Care .5% (2013) vs. .3% (2012); Baby Care products 1.7% (2013) vs. 1.4% (2012); Skin Care 1.4% (2013) vs. .7% (2012). As in most merchandising categories, consumers’ buying patterns shift between brick & mortar and online given needs of convenience, quality, price, and selection. And, selected brands in many of these categories are seeing 5% – 15%+ being sold online, especially in the Skin Care category. No – Certain CPG categories are not showing up on the radar screen for Online Shopping MOST often compared to brick & mortar. Frozen food items, laundry detergents and household cleaning aren’t a significant part of the online mix to date. Maybe – perhaps the larger threat to large CPG firms lies in… Read more »
Ralph Jacobson

I believe that comparing consumers’ expectations metrics with industry executives’ expectations metrics can prove to be very misleading. With the intense, multi-year drive toward Direct-to-Consumer (D2C) business models by CPG manufacturers at its highest effort levels to date, I also believe that we are very much nearing a tipping point in online shopping for CPG as evidenced by the past Black Friday/Cyber Monday shopping trend.

Where packaging costs and transportation are typically exceeding the cost of producing the products, I believe CPG companies will continue to dive into online selling D2C.

Jonathan Marek

When I can get my toilet paper by drone helicopter, I am totally doing that!

More seriously, the key unlock here will actually be shipping. Amazon spends billions of dollars per year and makes no profit. One of the largest shipping entities, USPS, is a quasi-governmental bureaucracy with huge room for improvement. Data, analytics, and technology to drive improvement are growing rapidly. Meanwhile, consumers would love having many CPG products delivered to their door. The world will change a lot in the next 3-5 years.

For CPG companies, the key to be knowledgeable, nimble, and ready to test aggressively.

Anne Bieler
Anne Bieler
3 years 10 months ago

It’s definitely getting closer. For some of us, the convenience of buying the everyday things we use online continues to increase. We trust the labels we know, so driving to, parking at, spending time in, and driving home from the store is just more time out of the day. Of course, we pick CPG products up as we shop for things, but if it comes down to the choice between a few keystrokes and it’s off the list, or taking all those steps for in store shopping…it’s not hard to decide.

Dan Frechtling
The tipping point is about trial. Once a CPG consumer buys online, repeat rates are high. In fact, retail executives in this survey see repeat purchases as the #1 benefit of digital commerce. It only makes sense, given the increased convenience of repurchasing online once a profile as been set up. So rather than looking at what shoppers dislike about in-store CPG shopping, how about looking at what they dislike about online CPG shopping? Based on surveys from Forrester, Simmons, ComScore and others, a few reasons are primary: #1 is inertia. Adopting a new way to solve an old problem. Habits are hard to break. People like to see, feel, and smell produce. Grocery shoppers will tolerate long lines because for the instant gratification of completing a trip. #2 is shipping. Free shipping does away with part of the problem. But any “shipping” is a barrier to perishable products like meat. #3 is complicated selection and checkout processes. This is especially true when considering new products. Retailers can also overdo it with price incentives. Coupon code fields are more likely to prompt cart abandonment than coupon code entry. What if retailers offered in-store shoppers more options to buy online? Retailers… Read more »
Bob Hilarides
3 years 10 months ago
I am always frustrated by this kind of extrapolation of data to make the consultant’s point. Of course consumers would love to have as high quality product in a full assortment at the same price delivered for free to their home. As Beck Bennett’s kindergarten focus group tells us, more is better than less. But the economics of delivering that last mile are still a work in progress, and manufacturers recognize that. The consumer has been afforded much more control over their purchasing of most other products through digital and mobile, but most of those categories are higher ticket and less perishable, making the home delivery more manageable. Amazon lockers, store pickup, and myriad other solutions help, but won’t get people all the way there. Players need to figure out what kind of convenience they are offering for whom – unlimited assortment, bundling multiple retail visits (f/d/m/dryclean/pet/hardware), eliminating the store picking chore, saving the drive, etc. – and solve that. Lots of good folks are experimenting with solutions, and hopefully a few of them deliver at least a promise for positive margin. And I’m not holding my breath for Amazon’s drones to deliver three temperature zones, bulky paper products, or… Read more »

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