‘As eCommerce’s share of overall retail sales shot past an estimated 25% (up from 17% in 2019), the consumer packaged goods (CPG) industry has rushed to adapt to a rapidly changing business model. ‘ BARE shares an article by Kiri Masters for Forbes discussing the rise eCommerce among grocery shoppers.
‘CPG and grocery as a category has historically been one of the most challenging to migrate into an online environment, due to the product assortment often being heavy, low-priced, bulky, or perishable. Compounding the logistical challenges, eCommerce as a channel is generally one of the least profitable avenues for these brands to sell through. As a result, developing an online marketing and distribution capability has been fairly low on the priority list for these brands, until 2020.
At CommerceLive, a virtual conference for eCommerce practitioners, several themes rose to the surface. The struggle for profitability in online channels, getting their wider organizations focused on the right metrics, and how to capture customers who are trying their brand for the first time.
HABITS FORMED NOW MAY STICK AROUND
Halee Patel, Senior Director of eCommerce and Business Development at Califia Farms, told how the brand identified new habits among online shoppers who were searching for “boxed milk”. As volume for this query surged in the early days of the pandemic, Califia Farms acted quickly to position these items as stock-up worthy pantry items. “Now that we have acquired these customers on a trial basis, we need to work hard to retain them through content and retargeting mechanisms,” Patel said.
Research from McKinsey supports the notion that habits may stick round after the pandemic. Many shoppers have switched retailers or brands during the crisis, and about half expect to continue after the crisis.
AVOIDANCE IS NOT AN OPTION
A key discussion among attendees was around how to make eCommerce a viable channel from a financial perspective.
“What the consumer wants is most important. But right now, consumer behavior is ahead of the unit economics of the channel,” says Jason Goldberg, Chief Commerce Strategy Officer at Publicis, adding that a lot of retailers are not getting the same margins out of these new channels compared with traditional channels.
Laura Hyland, VP of eCommerce at Henkel, has a brand portfolio that includes laundry detergent brands – a product category that is heavy and bulky, both of which make it difficult to ship profitably.
“Previously, brands pushed customers to purchase these kind of products in the store,” Hyland said. ”They refused to give Click & Collect as an option.” But today, while customer are often avoiding stores, brands need to be where customers want to be. “The days of pushing people into stores is over,” Hyland said.
Kelly Odin, Head of Global eCommerce Acceleration at General Mills GIS, said that the role of eCommerce executives is to figure out how to partner with retailers and figure out how to make these new channels serve the consumer, as well as be work for the CPG firms.
THE THREE MODELS OF DIGITAL GROCERY
Elizabeth Bennett, VP Global eCommerce at The Kraft Heinz Company, posited there are three modes of digital grocery:
- Pure-play, ship-to-home. The ecommerce model where the customer completes all stages of purchasing digitally, from discovery, to transaction, to in-home delivery. Marketplaces like Amazon AMZNand some aspects of Walmart WMT’s marketplace offering fit in this category.
- ‘Last mile’, where a shopper completes the discovery and purchasing portion of the journey online, but an intermediary like Instacart is responsible for in-home delivery.
- Click & collect or buy online pickup in store (BOPIS) where a customer transacts online and then collects their order from the retailer.
The change in growth between each model will be critical to track, because it has material impacts for all companies in this category. “We’re doing a lot of thinking and planning around those models,” Bennett said.
MARKETING MIXES NEED SHAKING UP
Given that most CPG and grocery brands are seeing unprecedented demand for their products while consumers spend more time at home, a question is raised around whether brands can pull back on marketing spend.
Laura Hyland of Henkel argues that the mix of spend needs to change. A lot of brands are choosing to not accelerate demand through top-of-funnel marketing activities like traditional TV advertising, display advertising, and shopper marketing within stores.
But bottom-of-funnel marketing activities require continued budgeting in order to convert the incoming demand.
The laundry detergent brands under Hyland’s purview were in the ‘single digits’ of sales penetration online, which rose through April to north of 20%. While Hyland expects that number to come back down, she says that it’s imperative for the products to be discoverable while shoppers are actively searching for these products and in a mindset of trialing new brands. “Marketing spend around discoverability and bottom-of-funnel should be turned up right now,” she said.
As bullish as the eCommerce professionals are on the outlook of the growth of online channels for the CPG and grocery category, most practitioners expect that the share of online sales will come down from the current 25% penetration.’
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