EXPERT ANALYSIS
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SECTION TWO
What Is Next for CPG and e-Commerce? 

Only 1% of last year's $666 billion in sales of consumer packaged goods occurred online. However, 
that percentage could increase to 5% by 2018 and 10% after that, says a report from the Grocery
Manufacturers Association, Boston Consulting Group, IRI and Google. CPG companies that don’t
become more actively involved in e-commerce could “risk stagnation, loss of share and even shrinking sales,” according to the report.

DISCUSSION QUESTIONS:
Are the report’s predictions on target? What is preventing CPG companies from selling more online now? What needs to happen for them to take advantage of this growing channel?    

EXPERT ANALYSIS:
The report accurately underscores the opportunities and challenges CPG manufacturers and retailers are facing to capitalize on ecommerce as a significant growth driver.

With the prospect of CPG e-commerce sales approaching 10 percent of overall sales in the foreseeable future, companies must act fast to ensure that their front-end digital presence and back-end capabilities can support an e-commerce model.

By now we are well aware that shoppers are moving back and forth between the digital and physical worlds during the path to purchase. As the report states, “Digital’s impact is greatest in the early stages of the purchasing pathway, when consumers are discovering brands and searching for product options.”

Shoppers’ tendency to conduct brand and product research at the onset of their buying journey is a wake-up call. In order to be a viable player in the CPG marketplace, you need a robust digital strategy to have a chance at winning the sale. To establish this strong digital presence, CPG organizations need to provide a complete digital representation of their products online to ensure shoppers have the product information they need throughout the path to purchase.

Brands that aren’t reflected digitally are more likely to be left out of the shopping cart, whether it’s the cart you fill online or push in-store.
Companies that take decisive action now to capitalize on the selling impact of digital will reap the benefits. To pull from the report, “While 5 percent [digital penetration] may not sound like much, it implies huge change. For one thing, at 5 percent, e-commerce will make up nearly one-half of the total growth in the sector for the next five years.”
Sue Sentell, CEO, Gladson

E-commerce absolutely represents a substantial and growing opportunity for consumer products companies globally, and it would not be surprising to see growth at even faster rates than those cited in the recent GMA report.  Given rising internet adoption rates among consumers globally, combined with equally accelerating global adoption rates of mobile devices such as smartphones and tablets, the always-on, mobile and social consumer is now the new reality for consumer products companies and retailers alike.

This unprecedented and ever-increasing access for consumers to information, to one another and to e-commerce is fundamentally changing consumers’ expectations when it comes to purchasing products. Consumers now can (and expect to) to buy from anyone, anytime and anywhere, creating more choice while simultaneously forcing traditional consumer channels to develop alternate, complementary channels for satisfying consumers’ desires for relevance, value, engagement and choice.

For consumer products, these evolving consumer needs, preferences and expectations represent significant near-term challenges and longer-term opportunities for how companies go to market, shifting from retailer-centric price, promotion merchandising and distribution to a model that addresses the needs of a much broader set of channels, including directly to consumers themselves.

This new direct to consumer orientation might include supporting current retailer partners’ direct to consumer strategies as an add-on to other retail focused go-to-market activities. But increasingly, it is also including the development of alternate third-party e-commerce channels such as storefronts on global marketplaces and owned e-commerce initiatives through company branded websites.

Supporting this model is a fundamental shift for consumer products companies. The move from retailer-focused operations that emphasize volume and scale across the entire value chain to consumer-driven initiatives that deliver relevance, relationships and personalization to consumers individually on demand requires consumer products companies to rethink go-to-market strategies from innovation, to marketing, forecasting, fulfilment and more.

Leading consumer products companies are making significant headway in developing strategies to support this new go-to-market orientation. However the upside potential remains substantial.  As companies continue to accelerate efforts to evolve operations to capitalize on emerging opportunities to reach, engage and serve consumers directly, we expect that the percentage of total sales through e-commerce will also accelerate accordingly, at rates even exceeding those forecast in the GMA study.
Mark Osborn, Global Lead, Consumer Products Industry Marketing, SAP


If anything, the forecast of 10% of CPG sales shifting to digital channels in the next 5 years seems conservative in my view. But the degree of penetration will depend on the core traits of each category. We see disruptive change in shaving, for instance, but soft drinks remain un-moved. Where direct home delivery is the objective, the distinction still comes down to the weight/value ratio. Other categories, like baby diapers, are suited for “don’t run out” service offerings, which may be far less about price and more about assurance and convenience.

There’s also a distinct difference between transacting the digital sale and promoting the product through digital channels. Online commerce titans like Amazon.com and Walmart.com will of necessity focus their offerings on products that fit their models well. Brand marketers already leverage social media and direct digital marketing to influence demand even when the payoff is realized primarily in the physical store.

So how shall we quantify the forecasted 10% penetration? As online share of all transactions? (May be lower.) As a share of purchases influenced by digital means? (May be much higher.) Either way, the retailer who digs in and refuses to adapt its model to changing shopper behaviors will find itself marginalized. The “big middle” is shrinking fast and it’s no longer a place to hide.
James Tenser, Principal, VSN Strategies

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