For consumer packaged goods (CPG), a category that has seen little growth over the past few years—total CPG dollar sales increased just 1.5% last year according to IRI—the potential for e-commerce to drive incremental sales seems great.
And for good reason. While a recent report from the Boston Consulting Group and the Grocery Manufacturers Association puts CPG penetration into the digital channel at only 1% currently, it forecasts growth to 5% by 2018 and to 10% shortly after that. The GMA expects that online sales will represent half of all CPG growth over the next 10 years.
But for those traditional CPG leaders who see in such forecasts the answers to their growth prayers, be careful what you wish for. That’s because the emergence of e-commerce grocery could prove to be more of a boon to upstart competitors than industry giants if it is not approached correctly.
The reason is simple. Digital is not so much a new channel for CPG brands as an entirely different one. It is not just an alternative to the mode of selling CPG brands are familiar with, in many ways it is a more democratic one. Digital presents no built-in advantage for a brand whether it is a decades-long leader or a just-launched newbie.
What it favors are those brands who understand the unique characteristics of this selling environment.
Traditionally, big brands have dominated offline markets because they have been able to leverage scale and their relationships with the big retailers. This has helped them take the major share of limited shelf space available in physical stores around the country.
That could easily change in the online area, however, where there is no longer an actual planned and stacked shelf to pull consumers towards the dominant brands. In digital, market leadership will no longer be dictated by the amount of shelf space a brand takes up and where it is positioned on the shelf.
This makes the Internet a great leveler. In this environment, every product the consumer sees—category leader or a brand just launched—has the same amount of space on its landing page. This not only impacts how consumers perceive brand leaders versus upstart brands, but also offers an opportunity for smaller-format products to tell a more compelling brand story on their landing pages, instead of being limited, as before, by the size of their packaging.
For example, in the past cereal manufacturers were the envy of other suppliers because of the amount of space a cereal pack allows to tell a brand story and provide information to consumers. Online a small jar of baby food has as much brand real estate as does an extra-large box of corn flakes.
For evidence of how this democratic digital environment is already impacting the CPG hierarchy, a quick look at the Amazon best-sellers list shows that the brands that sell best online are not necessarily the one’s that dominate in-store.
Examine the Baby Formula category, for example:
Amazon top five Baby Formula items for the week of 10/27/14:
1) Earth’s Best Organic Infant Formula with Iron
2) Similac Go & Grow Stage 3, Milk Based Toddler Drink with Iron, Powder, 22 Ounces
3) Enfagrow Toddler Next Step Natural Milk, 24 Ounce
4) Gerber Good Start Gentle Powder Infant Formula, 23.2 Ounce
5) Enfagrow Toddler Next Step Vanilla, for Toddlers 1 Year and Up, 24 Ounce
Earth’s Best Organic comes in at No. 1 ahead of brands from Enfamil, Similac and Gerber, which completely dominated overall baby formula sales in 2013:
1) Enfamil Premium
2) Similac Advance
3) Gerber Good Start Gentle
4) Similac Sensitive
5) Enfamil Gentlease
Something similar can be seen in the shampoo category.
According to Grocery Headquarters, the leading shampoo brands in the U.S. by sales in 2013 were:
1) Suave Professionals,
3) Suave Naturals,
4) Clairol Herbal Essence Hello Hydration ,
5) Pantene Pro V Normal Thick
Again, an examination of the top sellers on Amazon for the week of 10/27/14 shows that the only brand that appears on both lists is Pantene:
1) Nizoral AntiDandruff Shampoo, 7-Ounce.
2) Pura d’or Hair Loss Prevention Premium Organic
3) Pantene Pro-V Expert
4) Pantene Pro-V Triple Action Volume
5) TRESemme Smooth & Silky Shampoo
So how are brands that would normally struggle in-store beating traditional leaders in the digital environment?
Leading brands have looked to manage how the consumer engages with their products in physical stores—developing specific product variants, creating shelf-friendly packaging and working with retailers to plan shelf layouts in order to maximize category sales.
But in the online grocery store the consumer interacts with products and brands in a completely different way. There is no shelf layout to draw the eye, no physical product to hold and no packs to touch, feel and read. In fact, despite the illusion of choice presented by the endless aisle of the online store, consumers actually tend to choose from a smaller “consideration set” online.
In the offline world brands are focused on optimizing metrics such as Distribution, Assortment, Packaging, Shelf Placement, Price & Promotions – online the emphasis should rather be on Availability, Portfolio (or online listings), Content, Search Placement, Price and Rating & Reviews.
Availability and Portfolio
Instead of just trying to sell the same portfolio of products online as they do in offline stores brands should consider approaching things differently. After all they will likely face new as well as traditional competitors in online stores, while also needing to accommodate different formats, pack sizes or multi-packs that suit the delivery model better.
One thing, however, that doesn’t change from offline to online is the primacy of ensuring enough products are in stock to satisfy consumer demand. While in-store consumers can only buy your products if they are available, the beauty of online is that manufacturers can track availability more readily and adjust delivery to ensure optimum availability.
An analysis of baby formula brands Enfamil and Gerber on Amazon.com bears this out and shows a certain amount of volatility.
Gerber has a larger selection of products available for sale on Amazon than Enfamil, but both brands’ availability falls off in the 8 days from Oct. 21 to Oct. 29, with higher levels of out-of-stocks. However, Enfamil is doing a better job of managing its smaller portfolio achieving an Availability score of 85.5% as opposed to Gerber’s 77.8%.
Two of the biggest influences on consumer choice online, where buyers use search tools to find products rather than trawling the aisles, are information load and search rank. If products don’t appear on the first page of search results it’s very unlikely that the consumer will add them to their basket.
In addition to impacting immediate sales, poor search rank in online stores can also impact brand value as consumers attribute a qualitative measure to search results. They tend to assume that search leaders are the most popular and therefore better.
For example, a search for the key term “Baby Formula” on Amazon.com returned five products from Baby’s Only, three from Earth’s Best, three from Enfamil, two from Gerber and one each from Similac, Baby Brezza and Vermont Organics on the first page of search results.
But getting into the first page of search results isn’t everything—you still need to close the deal. High quality content and images are an essential part of the equation informing the consumer and providing them with the essential information they need before they will click to buy.
With its representation on the home page of search you might be surprised that Baby’s Only is not one of the top sellers on Amazon. However, clicking through to one of the Baby’s Only products explains why it’s not up there—it is missing content. The Baby’s Only product page has little or no content while the pages for Earth’s Best products have descriptive bullet points and images that show ingredients, nutritional facts and directions for use.
Rating & Reviews
Rating & Reviews have an understandable impact on buying patterns online – not least because the ratings are accessible during the shopping process. On Amazon in particular it’s not just the rating score that has the power to influence the buyer but also the number of reviews.
Taking a look at the baby formula category again, Good Start Gentle Powder Infant Formula actually has a slightly higher rating score than the category best seller Earth’s Best Organic Infant Formula with Iron with 4.5 out of 5 versus 4.3, however the Earth’s Best product was reviewed 740 times versus 176 reviews for the Gerber products.
The price of products online is moving constantly. Again, looking at baby formula for the week of Oct. 14-21, the prices of products for both Gerber and Enfamil brands changed almost every day with Enfamil products selling $0.21 cents lower on Oct. 29 than on Oct. 21, while Gerber products initially went up in price they ended up $0.29 cents down on Oct 29th.
Grocery e-commerce certainly does hold the potential to provide the next wave of growth that CPG brands are looking for. But as an analysis of the early days of this channel shows, digital can’t be approached as if it were just another account.
Digital truly is a whole new world. If not treated as such traditional category leaders may find that the advantages they believe had been built up over years of working with offline retail no longer exist and that a whole new crop of savvy competitors await to effectively challenge them on equal terms.
Clavis Insight tracks the marketing of consumer packaged goods on e-commerce sites.