What’s old is becoming new again thanks to developing e-commerce fulfillment and delivery programs, says The Boston Consulting Group.
An analysis from the firm entitled “The Digital Future: A Game Plan for Consumer Packaged Goods” offers a status report on how online shopping is changing the way consumers expect to buy and receive groceries and other items. Consumer packaged goods, or CPGs, include packaged food, cosmetics and cleaning products, and they are typically purchased at supermarkets or general merchandise retailers.
In one sense, the rise of digital shopping and purchasing links today’s consumers with their parents, grandparents and even great-grandparents, the report suggests.
“Some consumers can remember the days, a half-century ago or more, when milk, eggs, and butter were delivered daily to the door. A few might even recall horse-drawn, ice-cooled carts on those old milk runs,” the report says. “What goes around, comes around—horses and ice are no longer involved, but millions of people today, in cities from Austin to Boston and from San Francisco to New York, live an updated version of home delivery from such e-commerce services as AmazonFresh, FreshDirect and Google Shopping Express, as well as start-ups such as Instacart. Millions more receive regular deliveries of household staples through online subscription services such as Amazon’s Subscribe & Save.”
Boston Consulting Group anticipates that as more e-commerce operators offer convenient deliveries and more consumers become comfortable with buying groceries online, more dollars will flow to e-retailers and manufacturers selling those products. The report bolsters that idea by stating that while online penetration for the grocery industry in the United States stands at a meager 1%, that rate grows to 3% in France, 4% in South Korea and 5% in the United Kingdom. “While digital change may disrupt the U.S. market at different rates across the country, the history of the market economy teaches that consumers almost always prevail—sooner or later,” the report states. “We expect rising penetration rates in the U.S. CPG market to follow those of these early leaders.”
The report offers some advice for companies hoping to make more money from the web:
• Consumer packaged goods providers need closer relationships with consumers. “At a minimum, manufacturers must take basic steps to keep their digital presence relevant to consumers by, for example, providing an ‘add to cart’ purchase option on their brand web sites that connects to their preferred retail partners,” the report says.
• Find the price at which home deliveries become profitable. “For consumer packaged goods, home delivery for individual SKUs starts to be feasible at a price point of $20 to $30, depending on weight and turnover rate. This is much higher than the average price point for most CPG products, which is precisely why widespread proliferation of digital commerce has yet to occur,” the report says.
• Understand the fulfillment threat—in this case, as in so much of e-commerce, that means watching Amazon.com Inc., No. 1 in the Internet Retailer Top 500 Guide. “Since 2010, for example, Amazon has invested $14 billion in 50 new facilities. It is believed to be targeting widespread same-day reach: By locating fulfillment centers nearer to the top 20 markets, the company could provide 50 percent of the U.S. population with same-day delivery. Amazon has confirmed plans to expand its AmazonFresh grocery service from Seattle, Los Angeles and San Francisco to other cities; according to some reports, the company is targeting up to 20 new markets,” the report says, adding this warning: “Amazon will continue to gain share from brick-and-mortar retailers. In the near term, we expect club, general-grocery and mass-market stores to come under the biggest threat as online retailers target weekly replenishment and monthly stock-up shopping.”