In March of this year, Boston Consulting Group (BCG) reported on the accelerating penetration rate of e-commerce in Consumer Packaged Goods (CPG) markets, from 1% in 2014 to a predicted 5% average or higher by 2018 and beyond. The report estimates that half of all growth in CPG sales between now and 2018 will come from e-commerce.
So far, says BCG, growth is keeping pace with predictions, and this e-commerce evolution presents a unique, time-sensitive opportunity for CPG brands. It could mean the difference in millions of dollars in business gained or lost over the next few years.
Here are some winning e-commerce strategies to have in place before it’s too late.
Plan your route
Keith Anderson, of e-commerce analytics company Profitero, says manufacturers first have to decide “where to play.” Direct-to-consumer strategies can help brands drive loyalty and offer a premium experience, but online retailers offer built-in demand and pre-established sales and marketing capabilities.
Retail
Within the “online grocery and consumables” retail segment, Anderson says, manufacturers can choose from national ship models like Amazon Prime Pantry (for shelf-stable foods like pasta or cereal) or “full-basket” models for local delivery or pick-up of fresh, frozen, and chilled groceries.
Depending on a food manufacturer’s product portfolio, all of these models can be high-potential, but, Anderson says, it’s important to prioritize where you’ll be most active and allocate resources (both human and financial) accordingly.
Direct-to-consumer (D2C)
As local food availability grows, larger manufacturers must find ways to compete with the options already on the ground. Many choose D2C routes, often in addition to their retail partners.
According to NetSuite’s Ranga Bodla, D2C e-commerce appeals to manufacturers for a range of reasons, from building loyalty to lowering overhead. Bodla cites a PwC financial benchmarking survey, which found that 70% of U.S. consumers already purchase directly from manufacturing brands, up from 52% in 2013. PwC also reported that 59% of retail survey respondents follow favorite brands on social media, 51%have interacted with the brands, and 56% have posted comments about those brands. Bodla says cloud-based management suites are making it easier, faster, and more cost-effective for manufacturers to integrate e-commerce into their own operations.
Consider your audiences
You’ll direct your energies differently, depending on where your customers are finding you. What you offer and how it’s marketed must change to fit various e-commerce platforms.
Decide what to sell
Understanding the right products to carry is key, says Anderson. In national ship models (like Amazon facilitates), the price-to-weight ratio is critical, as heavy, low-price products face profitability challenges, given the costs of shipping one to five items at a time. Packaging durability also needs to be tested for air freight.
Full-basket models create less pressure on individual items to be profitable, since customers typically order 20+ items at once, creating a basket of goods. When orders are fulfilled from local stores, less supply chain adaptation is required, as the same products available in-store are often sold online.
Convert consumers
Winning at the digital shelf requires attracting, engaging, and converting shoppers and balancing growth with profitability. Anderson suggests five strategies for brands hoping to grow their online stores–strategies that require different focus and skills than brick-and-mortar marketing.
- Discoverability in search results and category listings is key to attracting page views on product detail pages.
- Product content should be complete, accurate, and compelling. Hi-resolution product images, detailed titles and descriptions, and enhanced content like video or product comparison matrixes.
- Ratings and reviews are increasingly influential. While food manufacturers have less control over these than product content, they can use sampling programs and other tactics to incentivize authentic reviews, and can monitor for negative reviews and respond directly on retailers’ sites.
- In-stock availability is fundamental. No matter how discoverable a product is or how compelling its content is, if it isn’t in stock when shoppers are ready to buy, there’s no sale.
- Pricing and promotion are other key factors. Are promotions being executed as planned? How do prices compare to other online and offline retailers for similar products?
Use the right tools
A vast range of cloud-based tools can now help companies drive performance and stay ahead of their competition by adapting their supply chains to changing consumer demands.
Logistics tools
Freightview is a cloud-based freight management software that offers API plug-ins with WooCommerce and apps through Google Chrome and Salesforce.
In the e-commerce arena, an API can integrate shipping and logistics operations directly into a company’s online store, so customers can see their shipping costs as they check out. The API’s connection with the company’s carriers and brokers instantly pulls and displays up-to-date rates.
Marketing tools
Companies like HookLogic, a pioneer in performance marketing, are increasing the opportunities designed for digital spaces to help CPG brands and online retailers compete for small-screen shelf space.
HookLogic partners with both brands and retailers to target high-intent shoppers in real time and accelerate sales. They’re rapidly expanding into food markets to keep pace with increasing digital demand.
Data management tools
Garrett Mehgruth of Directive Consulting recommends a website analysis tool called Hotjar. With Hotjar, companies can create funnels to view customer drop-off rates, analyze carts, record users, visualize heat maps, and conduct user surveys right in the store.
Look at the data
Anderson emphasizes that market size, growth, and category share typically drive decisions about where to play and how much to invest. These can be essential for defining “the size of the prize” and motivating executives to invest.
Shopper data including demographics, attitudes, and behaviors helps manufacturers understand who is shopping online and why. Digital shelf analytics help brand manufacturers maximize their performance online.
Salesforce, a large CRM software company, is breaking into the food industry by working with companies like Sprouts, Sysco, and a few major grocers to help them build mobile applications, consumer engagement programs, and internal IT help desks.
Salesforce just released new consumer data in its 2016 Connected Consumer Goods Report that outlines what it takes to create loyal consumers. Here’s some of what they found:
- A majority of respondents prefers to use online retailers when purchasing by price, but when pricing is not a factor, the majority still prefers to shop in brick-and-mortar stores.
- Millennials are five times more likely to rely on social media interactions when researching a brand than Baby Boomers.
- Forty-one percent of millennials would be willing to share personal info with a brand in exchange for more personalized service and discounts, compared to only 22% of Baby Boomers.
Stay ahead of the curve
In a market that’s seeing such rapid growth, it’s important to anticipate developments and adopt new technologies that can help you succeed. The food and beverage industry faces unique challenges and shows slower technology adoption rates. Early players like General Mills will be in the best position to adapt once they’ve established a viable e-commerce presence.
It’s clear from the BCG study that brick-and-mortar shelf space does not necessarily translate into digital sales. In the winner-take-all climate of digital commerce, those who lead the way will reap the biggest rewards, both in the short and the long term. Younger, more nimble competitors with disruptive approaches and skills are coming alongside established players to stake out leadership positions in this new economic arena.
Over the coming months and years, watch for more ways to aim your e-commerce strategies toward innovation and growth.
