E-Commerce Strategies for Fast-Moving Consumer Goods

The Path to Purchase Institute held a one-day symposium for brand, retailer and agency executives on Nov. 19, 2015, in New York City. Attendees heard presentations on a range of topics including the future of online grocery, full-basket sales, click-and-collect and on-demand delivery. Matt Pierre, director of e-commerce at General Mills, was the event chairperson. Here, we provide a summary of the presentations.E-Commerce Is Proving IrresistibleDisruption is looming, warned Matt Pierre, who leads General Mills’ strategy development, retailer activation and integrated marketing programs. Most CPG executives still view e-commerce in terms of a “spearfishing” shopping model, where consumers are focused on one-off purchases like books, gifts and clothing. But the game changer for CPG brands is “full basket” purchasing in the grocery channel.As external forces coalesce around e-commerce like never before – especially in the grocery space, which is in a “high challenge/low growth” mode right now – it has become “the most interesting time” of Pierre’s 25 years in marketing and definitely “not for the faint of heart.”Disrupters, he said, are coming from many directions with heavy funding from the venture capital industry. The grocery business now faces revolutionary – not evolutionary – technological change. But at its heart, the disruption is being driven by consumers who find the advantages offered by e-commerce in terms of their planning, shopping and living to be irresistible.E-commerce can offer a more personalized shopping experience for consumers. The average grocery store has 40,000 SKUs, and the average family is buying less than 1.5% of those SKUs on an annual basis. They spend a lot of time hunting through things they don’t want, and that problem can be solved for them online. “They don’t want to hunt for SKUs, they want to buy solutions.” Pierre said. “It’s hard to sell solutions in a brick-and-mortar environment. It’s easy in an online environment.”For the most part, however, the grocery industry is still behaving the way it did 50 years ago. Only about 35% of consumers presently have a solid option for a full-basket grocery shopping experience. And in terms of their primary grocer, only 10% of consumers have access to e-commerce. But within the next 24-36 months, Pierre predicts, this figure will move up to 60-70% as more retailers jump into the game aggressively. He expects “50% of the growth in this industry” to move online.Because of the fixed cost nature of the grocery industry, if a retailer loses 5% of volume, it can represent a 20-25% profit drain. And there will be losers. There’s a gap between how retailers play online and how they play in-store, but they are working to fix it; too many manufacturers, however, are still thinking about the old game. CPG companies will need to fundamentally adjust how their organizations operate to compete in this new space, Pierre told attendees.“You, as pioneers, will spend most of your time right now trying to integrate your efforts internally across your organizations. Silos are great for farmers, but not for large organizations trying to cope with these changes.”— Bill SchoberWalmart Is the Game-ChangerRich Tarrant, CEO of MyWebGrocer, which he founded in 1999, was an early believer in the viability of the online grocery business and developed the company’s first generation e-commerce platform. He has a data-driven observational post because MyWebGrocer manages solutions for more than 130 retailers representing more than 10,000 stores and 500-plus major consumer packaged goods brands.And he believes something really different has started happening in the last 12 months. “First and foremost, it’s due to Walmart, which has been experimenting with e-commerce in various iterations over the past six years but only recently has begun a ‘click-and-collect’ model,” Tarrant explained. “This is a major development in e-commerce and digital. Only 10% of the population currently has access to full basket e-commerce, but Walmart is going to change that. They have enough stores to effect behavioral change.”Tarrant thinks that as Amazon Fresh pushes into various new markets, it will be a disrupter in this $600 billion industry. One of Amazon.com’s distribution centers already does a half billion in grocery sales, he said, and it is capable of pulling so many sales out of a market that it could prove catastrophic to some existing retailers.Another key factor are Millennials, who Tarrant says represent “a generation that’s on the today side of the digital divide.” As these mobile-centric shoppers head into their family-formation years, they will have an enormous impact because mobile shopping behavior changes throughout the day. “You see it in online grocery orders from desktop computers in the morning for pickup later in the day, and then mobile usage – building grocery lists, for example – that picks up in the evening.”“Only 10% of the population currently has access to full basket e-commerce, but Walmart is going to change that. They have enough stores to effect behavioral change.”— Rich TarrantTarrant declared that the following nuggets of conventional wisdom are actually false:“E-commerce isn’t a profitable channel.”“Online grocery selling will cannibalize in-store sales.”“Shoppers insist on touching their food – especially produce – before purchasing, so e-commerce is mostly about center store items.”“Customers expect delivery.”Managing “the last mile” of the e-commerce proposition will remain a huge challenge. Tarrant said that car-sharing-service Uber may have potential as the delivery service of the future. But operational problems loom such as the delivery of alcohol: “Are Uber drivers going to be checking IDs? High school kids will be trying hard to beat that system.”Tarrant also wonders how many of the “last mile” startups like Instacart and Shipt will manage to stay in business. But there’s one service to watch closely, Google Express, because “Google doesn’t care about economics. Google needs to stay ahead of the ‘search’ game, and that means being in the middle of consumers’ search for products, even at a loss.”— Bill SchoberSuccess for ShopRite From HomeWhen Wakefern Food Corp. launched its e-commerce business at ShopRite in 2002, not everyone was confident in its success. “I remember our former president saying to me, ‘Good luck with that,’” recalled Cheryl Williams, vice president, digital commerce & innovation, Wakefern. “I remember celebrating when we reached $1 million in sales.”Today, the ShopRite From Home (SRFH) online ordering/curbside pickup service exponentially drives the company’s overall volume and sales, explained Williams. “We’ve begun to look at ShopRite From Home as another tactic now in our tool kit. It’s just another tool for us rather than a channel.”On average, SRFH shoppers have a basket size that is 3.5 times larger than an in-store basket. Moreover, when brick-and-mortar shoppers convert to omnichannel, they spend on average 17% more a year, she said, with SRFH customers spending more on key categories such as coffee, pet food, water, carbonated and non-carbonated soft drinks, and yogurt.“So all that debate of whether it is profitable [and] who’s going to use it … when you start to look at your own numbers and you see numbers like this,” said Williams, demonstrating a chart comparing category growth online versus in stores, “you know it’s the right thing to do and you just have to figure out how to do it efficiently.”“When you start to look at your own numbers and you see numbers like this, you know it’s the right thing to do.”— Cheryl WilliamsRanking its 400-some SRFH categories by sales, Williams noted that:SRFH customers spend 30% more in the paper category versus in-store and online customers combined.the wholesome snacks category ranked seventh in total sales from a SRFH sales percentage.the baby category ranked 16th in SRFH sales versus 27th in overall sales.When approaching the retailer and its category managers, brands should come in with a multichannel strategy and understand that what might be best to promote in-store may not be the right thing to promote online, Williams suggests. Comparing brand share by channel, for example, Williams noted PepsiCo’s Gatorade captures higher dollar share online versus total brand share. “And I will share with you that there’s a specific SKU of Gatorade that, in one of our highest volume ShopRite From Home stores, 46% of that one SKU’s volume is done through ShopRite From Home. Think of the implications of that. When I start to think about that it’s mind boggling.”Sharing Campbell Soup Co.’s portfolio of top-ranking products on SRFH, Williams noted that a 32-ounce carton of Pepperidge Farm Goldfish ranks second on SRFH versus 10 in total rank of the product.— Cyndi LozaFaultline Solutions' Andreas Schulmeyer Which Models Will Be Sustainable?Andreas Schulmeyer believes there is no shortage of great ideas floating around to make online shopping for groceries a reality these days. The challenge for retailers, CPG brands and service vendors alike is figuring out exactly where they fit in, said the founder and principal at Faultline Solutions LLC. (Prior to that he served as the CFO for Walmart’s global e-commerce business.)Lately, Schulmeyer has been focusing on the obstacles to implementation, and he believes that a fundamental question must always be asked: “What is the consumer’s purpose for her shopping trip?”While the “ideal” might be total and routinized home delivery, “we’re a long way off from that,” and many of the models in play strike him as being either ahead of their time or economically unsustainable. For example, Ocado, a British online supermarket that has no stores but two massive warehouse/picking centers serving the high-density population area of London, “is making it work, but just barely. Fresh Direct is making it work inside New York City. But what’s the chance of making this model work in Kansas, or even New England? Very, very low.”“Fresh Direct is making it work inside New York City. But what’s the chance of making this model work in Kansas, or even New England? Very, very low.”— Andreas SchulmeyerLikewise, Schulmeyer doubts that the Amazon Fresh home delivery model works economically because it has no store base, which provides scale purchasing. So why is Amazon investing in Amazon Fresh if groceries remain a loss leader? “I believe they are trying to get customers hooked so they’ll buy other things and Amazon can develop route efficiency,” he said. Eventually, Amazon’s loss-leader pricing could create major headaches for traditional grocery retailers, but he added that Amazon Fresh does not now seem to be rolling out as aggressively as previously thought.“Service models” such as Blue Apron and Dollar Shave Club pose a special competitive threat to existing retailers too, Schulmeyer said. A key part of making grocery shopping trips work profitably is building up basket sizes with a mix of high- and low-margin items. What happens if the high-margin items like gourmet ingredients or shaving accessories are pulled out by third parties for special delivery?“Click-and-collect,” however, represents “a big part of the future of the online grocery business.” The economics are “phenomenal” and data now shows that it is the fulfillment mechanism that consumers prefer. Some retailers are experimenting successfully with “pick-up spots” that are located away from the stores such as subway stations, factories or schools where behaviors or tasks are performed routinely.Schulmeyer said that in the U.S., the number of people starting to shop online has begun to increase rapidly in just the past 12-18 months. One key factor is that online shopping via mobile is finally beginning to truly complement the desktop experience. Another key driver supporting online grocery’s growth over the next 10 years will be the emergence of digital natives. But retailers will have to improve certain performance aspects to capitalize, including:Improve the user interface to make online product selection easier. That’s essential to getting shoppers to build that all-important first digital list.Make a variety of delivery and pick-up options available.Convince shoppers that they are not overpaying for the service. “They’re willing to pay a bit of a premium for some conveniences, but the overall trade-off cannot be too large,” he said. Schulmeyer believes that Walmart’s decision to offer grocery pickup in 30 cities represents a tipping point for the U.S. market, and that a national race has begun involving, most notably, Kroger and Amazon. In most local markets, however, only two online players will be supportable.— Bill Schober7-Eleven's Raja DoddalaHelping With Last-Mile CommerceThe definition and expectations of convenience have really changed since 7-Eleven was founded in 1927. When it comes to omnichannel, though, “it’s not [that] different than our foundation mission: … ‘Give them what they want, when and where they want,’” said Raja Doddala, 7-Eleven’s vice president of omnichannel and ventures.Guided by its founding mission, the convenience store chain has been partnering quite a bit recently on various e-commerce initiatives. About 200 7-Eleven stores, for example, are part of the Amazon Locker program, allowing consumers to shop on Amazon.com and get their packages delivered to digitally enhanced lockers. The retailer is part of a similar program with FedEx and the United Parcel Service. “We think we play a role in helping with the last-mile commerce,” Doddala said.The retailer also has recently partnered with San Francisco startup Postmates and Palo Alto, California-based restaurant delivery service DoorDash to test on-demand delivery.— Cyndi LozaResults of Willard Bishop’s ‘SuperStudy’A significant portion of e-commerce sales at supermarket chains is incremental and likely represents the recapture of center-store sales that grocers had lost to mass merchants, club stores and other rivals over the years. That’s one of the more noteworthy findings from Willard Bishop Consulting’s recent “eCommerce SuperStudy.” And it’s a positive sign for a retail channel that consistently has been losing market share to a steady stream of competitors.At the moment, only 2.3% of “core” brick-and-mortar supermarket shoppers (the top one-third of channel spenders) have added e-commerce to their routine, according to the study. But those who have are already doing about one-third of their total spending online, according to Willard Bishop managing partner Paul Weitzel.Order fulfillment options currently present an interesting (but not unintuitive) dichotomy: Shoppers who utilize curbside pick-up at the store skew toward “soccer moms with two kids in the backseat,” while those who opt for home delivery tend to be older, Weitzel said. This contrast also is reflected in the items purchased: diapers over-index among pickup orders, while incontinence products are more prevalent with home deliveries.Only 2.3% of “core” brick-and-mortar supermarket shoppers (the top one-third of channel spenders) have added e-commerce to their routine.These early e-commerce shoppers are spending a lot more than their brick-and-mortar counterparts ($141 versus $102 per receipt), which primarily illustrates the fact that 90% of e-commerce orders are stock-up trips – versus just 15% of trips to physical stores. But similar to the brick-and-mortar environment, online shoppers are “visiting” the entire store, hitting about 20 to 25 categories per trip and freely buying frozen foods and produce. In fact, the 15 most-shopped categories are the same online and off, Weitzel noted.Shopping online also doesn’t seem to be broadening shopper purchase horizons, either: Fewer than half of the available SKUs are driving 95% of online sales. Contrary to what may have been projected for the industry, “It will not be the long tail” of product inventory that drives e-commerce success, he said.One significant area of the store that is showing a difference is health & beauty, which is under-indexing for online sales – probably because mass merchants have gained such a price and perception advantage in those categories, Weitzel suggested. On the flip side, package sizes – typically a strength of competing channels – are skewing larger (a trend also noted by ShopRite’s Cheryl Williams).Although Willard Bishop’s annual study covers only four grocers, it represents an analysis of 194 million online and offline transactions over the course of one year.— Peter BreenGartner Research's Stephen SmithUnderstand and Consider the ‘Things’Stephen Smith, a managing vice president at Gartner Research, threw some futuristic perspective into the mix by declaring that e-commerce is a “critical step [but] not the endgame” of “digital business,” the unification of information, mobile, social and cloud activity that will let companies reach new levels of customer engagement by “blurring the digital and physical worlds.”By 2020, there will be 7.3 billion personal devices in the world but 30 billion Internet-enabled “things” that companies, and therefore marketers, will need to understand and consider. “The bigger ‘customer’ set is actually going to be all of the things,” Smith said. “This is a different world that we’re going to face.”So how should marketers address this new world? Smith offered seven ideas:Get embedded in the “Smart Home”: The typical household soon will contain 500 connected devices. That will provide “a huge opportunity to connect with consumers. We can do almost anything with a network connection inside a home now.”Drive brand relevance digitally: Marketers will need to add “digital value” to their brand proposition – think medicine bottles that monitor pill consumption or food packaging that reports on the product’s shelf life.Broadly participate in digital channels: You now can bring the store to shoppers, wherever they may be – like the subway station – and deliver orders to them just about anywhere as well.Leverage customer engagement models: Forget in-store clinics staffed by nurse practitioners. Rite Aid is testing a digitally enabled “doctor in a box” that runs diagnostics, connects remotely to on-call physicians and instantly submits prescriptions to the pharmacy. It also “could allow consumers to interact with a larger digital footprint of the store.”Use the power of dynamic analytics: Ensure product consistency by using technology to follow and respond to potential issues. Minute Maid meticulously tracks precipitation, soil and water conditions and other weather-related changes to maintain the quality of its orange juice, Smith noted.Expect dynamic recombination: Companies will find new ways to work together. In Germany, Audi, DHL and Amazon are testing a service that uses an automobile’s GPS to deliver packages directly to your car – even if you need to change locations at the last minute.Establish peripheral vision capability: Companies need to be ready and willing to reinvent themselves as the marketplace demands – like Uber moving from a people-only transporter to a product delivery service.— Peter BreenFreshDirect’s Michelle Harmon-Madsen It’s About the Experience, the JourneyA lot of Millennials love to cook. They just don’t want to waste much time shopping beforehand, according to Michelle Harmon-Madsen, senior vice president of brand partnerships at alternative online grocer FreshDirect. More than two-thirds of Millennials claim that they like to cook, and 44% say they’d love to cook more often, according to Madsen. What’s more, they view food as a social catalyst and an identity-defining aspect of their lives. “Food is even sexier than clothing,” said Madsen, while noting that 44% of Millennials share food images via social media.However, Millennials also want “more life, more experience, less hassle,” Madsen explained. For them, the traditional trip to the supermarket – which she presented as a 12-step process entailing such mundane actions as “Find a Cart” and “Wait in Line” – is too much of a chore. “Millennials will not do this,” she asserted, pointing out that 54% of them have left a store rather than waste time waiting in line.Thus, despite the fact that Millennials cook an average of five meals per week, 57% of them usually don’t know what they’ll be eating even one hour before mealtime. So they shop at nine different food retailers, use six different food delivery services and eat out almost 10 times per month.To engage with these consumers (which FreshDirect considers to be more of a psychographic group than a demographic one), marketers need to understand that the path to purchase is “really about the experience and the journey that happens.” And that means talking to Millennials in a way that delivers a rewarding experience.Among the examples from FreshDirect’s recent past that Madsen presented was “Seis de Mayo,” a program in which all-natural beverage maker Bai Brands pitched a hangover-alleviating smoothie recipe for Millennials who may have partied a bit too much on Cinco de Mayo.One of FreshDirect’s goals in building such collaborative efforts is to make sure that the essence of partnering brands fits naturally into the retailer’s story rather than seeming out of place – because Millennials often “just don’t know about [classic brands] and have never really bought them.” So, for instance, rather than simply placing a display ad that you might also find on other websites, SC Johnson’s Ziploc recently helped showcase an avocado recipe.— Peter BreenBrick-and-Mortar Is an ‘Ordeal’Chieh Huang opened his presentation with some thoughts on Millennials: “When it comes to how they shop, what their path to purchase looks like and what their moments of truth are – it’s all up in the air right now. I can’t tell you what you should do to capture their business. All I can do is tell you what we at Boxed are doing.”Huang is CEO and co-founder of Boxed Wholesale, an online alternative to brick-and-mortar warehouse clubs that delivers anywhere in the continental U.S. He launched the enterprise after noticing a gap in the e-commerce options within the $200 billion club stores marketplace. Boomers like visiting clubs, and member savings have huge appeal for all shoppers, but Millennials do not relish “the three- or four-hour ordeal” of traveling to and navigating a warehouse and then transporting bulk items home.Among the three dominant chains in the club space, online represents only 2% of sales and “virtually zero” of mobile-based business. So Boxed, which he described as a “limited SKU/large-format wholesaler,” went after the gaps. Today, it derives 70% of its sales through mobile apps, and 81% of its users are aged 25-44. While e-commerce was built upon “pure-play desktop-only retailers,” his company is heavily reliant on “pure-play mobile-only users.” Boxed stresses a “seamless” or “vast omnichannel” user experience because it is a hugely important path-to-purchase element for Millennials, and one that Huang believes most other retailers still underestimate.Operationally, one wrinkle that Boxed employs is dynamically mapping its users to its regional warehouses around the country. The product assortment is different in each location, which helps reduce shipping costs. Also, the vast majority of Boxed’s new users have not previously registered their businesses with a warehouse club, so that presents another opportunity.— Bill Schober

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