E-Commerce Marketplace Part 1: the New Playing Field
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As seen in Winning in the E-Commerce Marketplace Part 1: The New Playing Field In collaboration with: By Peter Breen The following is the first of two articles examining the emerging Playing for the Future Fitch Ratings estimates that e-commerce e-commerce marketplace for consumer packaged goods. Part 2 will sales currently represent just 1% of the $631 take an in-depth look at winning strategies for CPG marketers. billion grocery industry, and will grow by 10% to 15% annually to reach 3% of to- esidents in Santa Monica, Calif., who 250-store supermarket co-operative with a tal sales during the next 10 years. Although placed orders through the recently in- six-state footprint. other sources are slightly more optimistic, R troduced AmazonFresh grocery deliv- Welcome to the new playing field of gro- projecting annual growth of 20% to 25% ery service this summer received free bottled cery e-commerce. and similarly higher market share, no one is water. It wasn’t a promotional incentive per Granted, at this stage in market devel- predicting a massive overnight shift toward se, but rather a unique way to keep refriger- opment, there still is a lot of empty space online grocery shopping. ated products cold while they were sitting between AmazonFresh and ShopRite from “For most CPGs, e-commerce only repre- on doorsteps. Home, geographically, competitively and cul- sents 2% to 3% of their business right now, Meanwhile, on the other side of the turally. But the divide won’t last much longer so it hasn’t become a financial imperative U.S., New York metro-area residents who because the time has arrived for all consumer quite yet,” says Gregory Grudzinski, director bought $20 worth of back-to-school supplies packaged goods retailers and marketers to of research and analytics at Etailing Solutions, through the ShopRite from Home curbside embrace e-commerce – the industry’s “next Westport, Conn. pickup service earned $10 off a future receipt large growth engine,” as Neil Ashe, chief ex- It nonetheless should be a business impera- – an offer that wasn’t extended to shoppers ecutive officer of e-commerce at Walmart, tive for virtually all CPGs and retailers alike, inside the store. recently proclaimed. however, because consumers are steadily This bicoastal activity was significant for Just one piece of advice: Don’t expect mas- acclimating to online grocery shopping and a number of reasons, not the least of which sive amounts of incremental sales, windfall because – perhaps more importantly at this was the fact that it involves the world’s larg- profits or even very much return on your in- stage – several aggressive companies have est, most recognizable and arguably most vestment just yet, folks. The entire market- identified the marketplace as the next fron- innovative online “etailer” on one hand and, place is in “test and learn” mode, so plan tier. (You can call this the “Amazon Effect.”) on the other, a decidedly more traditional accordingly. Furthermore, debating how quickly online © Copyright 2013. Path to Purchase Institute, Inc., Chicago, Illinois U.S.A. All rights reserved under both international and Pan-American copyright conventions. No reproduction of any part of this material may be made without the prior written consent of the copyright holder. Any copyright infringement will be prosecuted to the fullest extent of the law. 1 SPECIAL REPORT TOP ETAILERS sales might grow should be a secondary con- Summit last spring. cern for CPGs because one of the undeniable Ahold understands that a “digitally en- In the past 12 months, facts right now is that in-store sales are being gaged” shopper takes many forms, which from which of the influenced not just by digital shopper market- is why the company is building a channel- following retailers have ing but by straightforward e-commerce activ- agnostic engagement model that lets shop- ity: Whatever you call the opposite of “show- pers buy online for either home delivery or you purchased online? rooming,” it’s happening, even at pure-play store pickup – or keep right on buying in the Amazon.com 68% etailers like Amazon.com. bricks-and-mortar store. “Amazon itself will tell you that it only “While the immediate online sales oppor- Walmart.com 41% makes the sale one out of 11 times, so 90% tunity is there, we see a bigger near-term of the consumers researching product infor- payout” by influencing in-store sales, says Target.com 19% mation either end up buying somewhere else Christine Chun, group manager of e-com- online, offline or not at all,” explains Brian merce at The Clorox Co. “We’re simply look- BestBuy.com 19% Cohen, executive vice president and general ing to provide shoppers with the information manager of Etailing Solutions. “Either way, that they need to make a purchase decision Staples.com 11% Amazon has become a critical shopper mar- – wherever it might take place.” keting tool” in addition to being a potentially “Even if you never sell one dollar online, if Walgreens.com 10% important partner for direct sales. you’re not investing here and getting all the OfficeDepot.com 9% Illustrating Cohen’s point is a case study basics right, you’re eventually going to lose used by the Amazon Media Group, the sales offline,” says Douglas Straton, direc- HomeDepot.com 8% etailer’s ad-sales unit, which boasts that a tor of Unilever North America’s E-Commerce targeted display-ad campaign for Procter & Center of Excellence. CVS.com 7% Gamble’s Crest Whitestrips drove $338,000 in sales through Amazon websites – but $1 A Mutual Migration Drugstore.com 7% million in offline sales. Another significant aspect of the aforemen- “The marketers that are jumping in at this tioned AmazonFresh and ShopRite at Home PetSmart.com 7% point recognize the potential of the space and examples is the way those services address want to take leadership roles in their catego- the main barrier – for both consumers and Lowes.com 6% ries,” adds Grudzinski. retailers – that has hindered the growth of “We believe that our digitally engaged cus- online grocery shopping for more than 20 Costco.com 6% tomers will triple in the next 24 months and years: the costs associated with timely home Petco.com 5% represent well over 50% of our sales,” said delivery. Erik Keptner, executive vice president of sales That logistics issue is largely what has kept SamsClub.com 5% and marketing at Ahold USA, during a key- even successful home delivery operations such note presentation at the Shopper Marketing as Ahold’s Peapod (a $500 million company) DollarGeneral.com 3% Diapers.com 2% PetFoodDirect.com 2% E-Commerce = Sales and Marketing The fact that any online communication with consumers can ultimately influ- BJs.com 2% ence a sale makes the difference between “e-commerce” and “digital shop- per marketing” a bit murky at times. Safeway.com 2% Unilever’s Douglas Straton makes this general distinction: “E-commerce is Meijer.com 2% getting them to buy. Digital shopper marketing is moving them further down the purchase funnel.” Alice.com 1% Etailing Solutions’ Brian Cohen suggests that the difference largely reflects an old-fashioned way of thinking. “Sales teams are mostly charged with getting Soap.com 1% the product on the shelf, which means mainly distribution. Then, marketing works to get the product off the shelf,” he explains. “With e-commerce, the Albertsons.com 1% two processes are more closely aligned.” “E-commerce is giving us an opportunity to leverage a single platform for Peapod.com 1% both sales and marketing,” adds Christine Chun at Clorox. “We haven’t had that before.” FreshDirect.com 1% “Whatever distinctions are currently being made will most likely go away when the CPG world adopts more of a multi-channel focus” and online sales Other 40% become as common as bricks-and-mortar transactions, concludes Straton. Source: Etailing Solutions, 2013 2 SPECIAL REPORT and FreshDirect ($400 million) from expand- popular retailer among respondents to the posed to spend millions to work with a cus- ing beyond a few major metropolitan areas, Ecommerce Study, with 68% claiming to tomer that only delivers a million in sales,” and why newcomers such as AmazonFresh have made a purchase on the site in the past says Danny Silverman, Etailing Solutions’ vice are only testing in other large urban areas. year. Coming in a distant second at 41% was president, sales strategy. “But you have to Costs are declining, primarily because re- Walmart.com. (See chart, page 2.) be willing to spend disproportionately to the tailers have paid attention to the shopper What’s more, 30% of all online product return. In five years, it will be a top-five cus- research and employ free or reduced shipping searches now begin on Amazon.com, com- tomer for any CPG that is willing to make the as the main lure to induce usage – even if that pared with just 13% on search leader Google, investment now.” means operating in the red initially. “Amazon according to Forrester Research. Amazon has been molding its huge audi- is very committed to moving into this space,” It also has purchase and preference data on ence into loyal shopper segments through says Cohen. “They care less about profitabil- more than 200 million U.S. consumers, and its Amazon Prime membership program and ity than they do about global domination.” an ability to exploit that information to drive a growing number of niche offshoots tailor- In fact, Amazon isn’t as interested in selling additional sales that has made it the envy of made for CPG marketers: Amazon Mom, packaged goods as it is using the channel as a the marketing world.