Does P&G need retailers anymore?
Through a special arrangement, what follows is an excerpt of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.
Procter & Gamble’s $89 million distribution center near Dayton brings jobs to the region, but as part of a supply-chain overhaul, it also represents the inevitable — and potentially dramatic — transformation of the retail landscape.
The distribution center would "dramatically innovate the way we supply our customers," global products aupply officer Yannis Skoufalos said when the news was announced, allowing P&G to "respond to customers and our consumers in a way we have never done before."
Coming after plans revealed earlier this year to put distribution centers within one day of 80 percent of U.S. consumers and other moves, the language might sound vague at first blush, but it couldn’t be clearer: P&G is scaling up its direct-to-consumer capabilities.
On Amazon, a 77 pack of Tide Pods goes for a $19.22 one-time price, or just $18.26 with a subscription. Target offers a similar five percent subscription discount. This price war between Target and Amazon increases savings for consumers, but eats away at margins for manufacturers like P&G.
It’s time for P&G to stop conceding these losses and launch a similar program. At the P&G eStore, that same 77 pack of Tide Pods costs $19.99, or 77 cents more than Amazon’s one-time purchase price. What happens if the P&G eStore adds a subscription service and co-opts what its retailer partners have found so successful within its own direct-to-consumer push?
One thing is true: The moment of truth is moving from shelf-side to screen-side. Shoppers preferred method of fulfillment is changing as well. Even customers who make their purchases inside stores are increasingly deciding what to buy beforehand using online reviews. Winning over the few customers who are "in play" for everyday necessities like diapers, paper towels, and shaving cream means reaching consumers where they spend their time: online.
Win wherever people shop, that’s what Alex Tosolini, P&G’s senior VP of global eBusiness, told eMarketer recently. "Our job is not to change consumer behavior," Mr. Tosoloni also said. "Our job is to follow consumers’ behavior and be present with our brands."
Have the stars finally aligned for a successful direct-to-consumer push by P&G? Consumers who are increasingly pressed for time and dissatisfied with stores have embraced online shopping. Amazon wants a distribution arms race and won’t stop short of air-dominance with a fleet of drones buzzing around its fulfillment centers, but P&G’s redesigned supply chain has put it closer to consumers than ever before. Consumers want it. The technology is there.
Discussion Questions
How big is the direct-to-consumer e-commerce opportunity for CPG brands? Will selling online change the balance of power between stores and CPG brands?
Right now the opportunity is small but growing. Deloitte research into this suggested that e-commerce direct sales were a growth opportunity for net-new business. The key was recognizing the difference in the opportunity to sell volume at the store shelf versus perhaps more niche/higher margin products directly. Or leveraging direct sales to test and launch new ideas more cost effectively before scaling sales in stores. If P&G has the capacity to ship/deliver products directly at scale, that could very well begin a shift in the marketplace. Yet it may also be a great point of leverage for them in their traditional retail relationships to mitigate the effects of trade spend and discounting. It may not tip the balance but it may very well force retailers to rely less on supplier trade dollars, and move more aggressively to understand their customers better and focus on improving the customer experience.
I admire P&G for making the costly and difficult supply chain investments required to adapt to evolving retail economics and distribution models.
Still, the last time I saw data (admittedly over a year ago), Tide.com got around one tenth the traffic in an entire year that Walmart.com got in a month.
P&G has an impressive portfolio of brands and categories, but for most everyday CPG products shoppers still shop at retailers that offer much greater breadth and depth.
I suspect these moves are more about the broader growth of e-commerce than a pure direct-to-consumer play intended to circumvent retailers.
The most recent forecast I’ve seen (from Steve Bishop) is that online for CPG might represent 11 percent to 17 percent in the year 2025. So yes, P&G still needs retailers. And there’s not a whole lot of evidence that people are checking out CPG products before going to the grocery store. Those who do, according to FMI, are typically looking for deals, not product information.
Big, but not so big that P&G won’t need retailers, therefore they need to walk carefully here. It’s a challenge every manufacturer who sells in the distribution channel faces.
P&G is right, it’s not their job to change consumer behavior, it’s to follow that behavior and be present with their brands. If that’s the case, P&G is right to offer their products direct to consumers. If P&G, via its website, starts to undercut retail prices, then we will see how a war plays out. Not many CPG companies can do this without fear of retaliation from retailers.
Most CPG companies would like to sell direct to consumers. The ability to control the presentation, transaction and all of the revenue is tempting. Over the next few years we will see how this plays out.
Technically P&G defined First Moment of Truth as the seconds after a “consumer first encounters a product on a store shelf” so it’s probably not fair to say it has moved online, which is why Google coined the Zero Moment of Truth. But your observation that much of the pre-shopping process has moved online is absolutely true.
I’m sure P&G (and other CPGs) will continue to get better at direct-to-consumer, and they should. The trend of manufacturers going direct via digital is happening in most product categories, and CPG is a clear laggard. But it’s doubtful that their DTC will ever be more important than wholesale distribution to P&G.
For starters a manufacturer’s site is usually the worst place to buy a given product (assortment is limited to their own products, they usually comply with MAP, are the least promotional and only get traffic when their product is missing where a customer usually shops). Manufacturers need visibility on retail sites and retail shelves to maintain their brand awareness. Manufacturers are addicted to the quick sales they get as retailers fill their supply chains (something you don’t get when you sell direct). And in CPG, the majority of purchases are not “considered” and so don’t drive huge online traffic (at least compared to an auto manufacturer or an HDTV).
As a result, I suspect DTC will be a growing portion of CPGs’ go-to-market strategy but not the crown jewel.
Sales of consumer products have traditionally been a partnership between manufacturers and retailers. Manufacturers focus on building better products and retailers worry about how to get the products into the hands of the consumers. This was beautiful because it eliminated the need for the product manufacturers to do a lot of the grunt work in getting products to customers.
This is obviously changing because it is getting easier and easier to get products into the hands of customers. For some manufacturers like P&G with deep pockets this may be an easy decision but for many, this is probably a competitive disadvantage. Diverting valuable resources to retail operations when they should be focused on their core competencies in building better products.
I suspect this move from P&G is to capture the higher margins from P&G’s loyal customers by going direct.
Coming Soon! P&G will eliminate wholesalers and deliver assorted products directly to mega-stores as well as direct-to-consumer via e-commerce.
Things change and P&G will continue to take advantage of their size, lesser variety, technical competence, brand superiority and innovative leadership.
I think direct-to-consumer selling for brands has a lot of potential. It’s already happening of course, but if this move is successful for P&G it will grow much more rapidly. Once again retailers and CPG brands are going to have to hash this out and figure out how to work together and/or retailers will need to refocus their efforts on private label brands and improving the in-store experience.
Based on Mr. Tosoloni’s statements I don’t think P&G is maximizing their e-commerce opportunity. It appears they are planning to stay behind the curve and win consumers who want to buy directly from the manufacturer.
Here is the P&G strategy from the article: “Our job is not to change consumer behavior. Our job is to follow consumers’ behavior and be present with our brands.”
At the same time the article points out that P&G is not offering a price advantage.
We know that consumer behavior is changing. And for the most part it’s changing because innovative marketers such as Amazon, Google Express and eBay are offering options that create new expectations and purchase decisions among shoppers.
The direct-to-consumer e-commerce opportunity is huge. For the time being CPG brands are reacting and reaping some rewards, but are probably not ready to take the lead.
Consumers shop, educate and communicate more online than ever before. Manufacturers of the future have to do the same. How much more simple can it get?
There’s probably an opportunity. But history teaches us it is small. Catering to the high-volume, subscription-style purchasers might offer a small amount of profit, but it also is a distraction to the company whose success only comes by succeeding with the casual purchase habits of the far, far larger group of retail purchasers.
Going direct to the consumer has become quite easy these days. The thing of CPG products is that they can be in both brick-and-mortar locations and on the web. It’s all about pricing! And the consumer is always watching.
Wait. I may be the only naysayer here.
This story suggests that to shave a few cents off each purchase, consumers may visit manufacturers’ own websites. What’s the chance that busy women (yep, that’s redundant) are going to visit dozens of websites per week to make the purchases they need, rather than making a single visit to a grocery store? Direct-to-consumer will remain a niche opportunity.
As noted this is a huge opportunity. Ray Kroc of McDonald’s once stated, “We lead our industry by following our customers.” Today’s consumers are looking for value, but not by the old definition of “quality divided by price.” Instead their definition of value is “benefits received divided by burdens endured.” Online shopping provides additional benefits and reduces the burdens endured.
Obviously, P&G’s initiative has the potential to provide the manufacturer with more clout vis-a-vis brick-and-mortar stores. However, the risk is the potential alienation of these stores resulting in fewer P&G SKUs as well as less in-store promotional support. Now if P&G can collaborate with retailers to ship directly to consumers, there is the possibility of a win-win situation.
For a manufacturer the grass has always looked greener on the retail side in terms of getting that extra margin. The balance of power between the retailers and the brand owner have changed over the years as well, with shelf space allocation being the more recent determining factor.
Now with an endless aisle and direct-to-consumer shipping the balance may change again. The reality of course is not so simple. I’m sure P&G may need to carefully balance the direct-to-consumer offerings that compete with its retail customers with the extra sales/margin it might get vs. just making a brand statement. In the end perhaps they will be managing shipping direct-to-consumer for their retail customers as drop ship fulfillment for the retailers’ websites as well as some of their own. If they offer that program (as well as their own) the retailers will probably not feel too disadvantaged.
It seems that direct-to-consumer sales for staple categories is adding layers of complexity to the life of the consumer. Online is supposed to be a simplification tool. Other than as a niche, this is not likely to become a significant player.
I heartily applaud this effort, but reiterate: “As long as shoppers live in bricks-and-mortar houses, they will be shopping in bricks-and-mortar stores!” It doesn’t mean that online cannot, or will not, play an increasing role. Especially given the serious operational irrationality of bricks-and-mortar stores. See. “The Problem: ‘Parked’ Capital.”
I can’t confirm this for certain, but I’ve heard the phrase “A world without retailers” has been uttered in the halls in Cincinnati. It’s but a dream, alas, since even the mighty P&G needs distribution for its products to maintain market power.
Most shoppers won’t have the patience to order numerous individual items direct from the manufacturer, although there are some exceptions, like Dollar Shave Club, that seem to have influenced behavior. (Have you noticed that P&G’s Gillette brand is now also offering a competing subscription option for blades?)
Power brands notwithstanding, P&G can’t risk alienating its large accounts by competing online, so I think we’re not likely to see it undercut them on price. I suspect its direct-to-consumer activities will be mostly confined to thwarting other online sellers, in order to preserve market share.
The naysayers seem to be holding their own in the comments section, and that fine with me, because I agree with them. Direct-to-consumer has always been a possibility for every company, and the fact that almost none ever did anything with it is not due to the lack of an internet (at least not entirely). In others words, online changes many things, but I don’t think it changes everything (shopping habits, distributional efficiencies, etc.).
In today’s market, not so big. IMHO. It’s all about convenience as well as price. If I have to jump on the web site of every CPG brand that I buy from, this is terribly inconvenient and I really doubt they will all give free shipping. Lots of packages, shipping charges and orders to manage.
Another issue that comes to mind is new products. Are CPG brands ready to ramp up their online marketing and outreach in order to get new products to market? This is quite different from just selling to retail buyers and having them merchandise and market the products. Just sayin’.
So yes, they may be able to get the distribution and logistics down but this is far from the whole picture. It’s a smart thing to have the capability however, I’m just not sure my 2 cents sees a big market share…not yet!
With the development and disruptiveness of e-commerce and omnichannel marketing, the direct-to-consumer opportunity for CPG brands was inevitable—and it’s a huge impact for both the retailers and the manufacturers.
Only a few CPG companies have the product line depth to efficiently sell directly to the consumer. Only the larger companies with broad product lines will be able to do this unless they force consumers to buy cases.
The other issue driving CPG direct-to-consumer efforts is the lower product distribution on the shelves. When I worked for a CPG company, we were striving for 95% distribution. Today that is not possible when you consider all the formats that sell supermarket products. So if a supermarket does not carry a product or size because Walmart does and there’s no Walmart near some consumers, what are they to do?
Also, the American public is the most mobile in the world. If I like a product but move to another area, CPG direct-to-consumer is the answer. CPG direct-to-consumer will likely achieve 15% of company sales in the next 10 years. For smaller CPG companies, it could be higher.
The balance of power changed in the ’80s and CPG will never call the shots again. This basically means the buyer is king.