eCOMMERCE
SECTION ONE
SECTION TWO
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How Much Do You Really Know about Grocery eCommerce?
While online grocery shopping accounts for just 2% of total domestic consumer packaged
goods sales, it is expected to more than double in the next few years. This growth will
have several important implications for manufacturers and retailers. Meanwhile, there are
several developments that may change the direction of grocery ecommerce.
A study from the Nielsen Company and MyWebGrocer predicts an increase to $25 billion
by 2014 from $12 billion today. The study also found that 25% of CPG purchases are
researched online where consumers look at retailer ads, search for deals, and find recommendations on social media sites. A whopping 97% of the time, the researched product is purchased online or in-store.
Yet online grocery shopping has remained a niche market, compared to many other categories like clothing, entertainment and home electronics. Many shoppers looking for fresh produce, fish and meats may still want to touch and feel the product — or “thump the melon” — before purchase. Many no doubt will continue to buy these items in stores, but most packaged goods are ripe for the online picking. Can more CPG manufacturers and retailers take advantage of this emerging channel?
Scott Welty, vice president, retail industry strategy at JDA Software in Scottsdale, Ariz., sees challenges and opportunities on the road to growth in grocery ecommerce. He offers these five signposts:
Mobile Marketing
Tesco, operating in South Korea as Homeplus, found a way to connect with consumers and their handheld devices. South Koreans work an average of 44 hours per week, with many putting in 50 or more hours. With a large population, grocery shopping can be a particularly tense experience for these time-starved consumers.
The retailer scored a major success testing a virtual supermarket on the wall of a subway stop in Seoul. Commuters on their way home check out a billboard depicting a supermarket shelf and use their smartphones to scan the QR (“Quick Response”) codes of the products they want. Groceries are delivered by the time the shopper arrives home. The program will soon be expanded in South Korea.
New members in the program rose by 76%, online sales increased 130%, and Tesco closed the gap with its chief competitor E-Mart and became the number one retailer online, and a closer number two offline - all without increasing the number of its physical stores.
Social Media
Procter & Gamble’s recent reentry into ecommerce via Facebook is a new example of how important social media is becoming to CPG companies. Consider the continued growth of the prosumer — a recently coined word combining “professional” and “consumer.” They want to be able to produce, leverage and consume content. They don’t want to listen to the retailer or to the manufacturer, but to their friends or peers online.
And they can use the “shop now” button that P&G has on its Facebook page. It represents how seamless the shopping experience needs to be. Consumers can go from talking to a friend, to instant messaging, to buying groceries all in the same place. Time-starved consumers want things to be easy and simple. Additionally, marketers need to look at the teenagers of today to get insight into the potential customer of tomorrow. Within 10 years, they will become mass market shoppers. Those people want one portal. The retail giants of the world will need to adjust because the trend in many industries is consumers getting in closer relationships directly with manufacturers.
Segmentation
A retailer’s virtual product assortment may be massive, so what is made available to shoppers needs to be segmented. Companies need to pinpoint their marketing and inventories. For example, customer A at a virtual shelf might see something different than customer B. Online, the cost of entry is much lower and more vendors are going to want to take risks.
If a supplier is going to enter a market, they can work with retailers to develop segmentation, and find out how to promote the new item. To do this, they need to use promotionally predictive forecasting.
Despite the vastness of the online opportunity, companies are going to have to tailor that shopping experience because the number of SKUs. The number of purchases of fast-moving consumer goods will dictate the need to have to segment programs, customers and promotions. There’s too much information and there are way too many products.
Demand Forecasting
As companies get into the online market, areas of greatest opportunity will be those that use predictive demand forecasting. This looks at consumer responses to promotions, turning those into predictable libraries. They use a predictive standard in the future to take off of optimized assortments and then make predictive forecasts that are tied deeply into supply chain.
Transportation
With the growth of online/mobile ordering and home delivery, the logistics of fulfillment — “the last mile of the supply chain,” according to the old adage — become much more complex and costly. Retailers will need to staff up to pick the orders in stores or fulfillment centers. With frozen and refrigerated goods, they will need proper storage facilities to hold them, whether for a just-in-time pick-up or for a couple of hours.
Management of the fleet will need to be considered, as well as third-party distributors — for example, “Two Men and a Van” — that might become cottage industries. Lead times, expense factors, and reverse logistics must be evaluated. A missed delivery could mean ice cream melting on a truck that has to get back to the storage facility. The costs of distribution and transportation could become very large, if not calculated in advance. Technology solutions will be essential to accomplishing this.
In summary, success in ecommerce ties into a holistic view of demand. It needs to be optimized to account for the size of the demand, promotional or seasonal demand, and markdowns. Companies need to have that holistic viewpoint across all the different nodes of the network: the supplier, the retailer, and at all echelons, and be able to predict what the inventory policies need to be and where should they be to optimize inventory and reduce waste.
This article was based on an interview with Scott Welty, vice president, retail industry strategy, JDA Software, Scottsdale, Ariz. For more information, visit www.jda.com, call (480) 308-3555, or email info@jda.com.
eCOMMERCE
SECTION ONE
SECTION TWO
|
How Much Do You Really Know about Grocery eCommerce?
While online grocery shopping accounts for just 2% of total domestic consumer packaged
goods sales, it is expected to more than double in the next few years. This growth will
have several important implications for manufacturers and retailers. Meanwhile, there are
several developments that may change the direction of grocery ecommerce.
A study from the Nielsen Company and MyWebGrocer predicts an increase to $25 billion
by 2014 from $12 billion today. The study also found that 25% of CPG purchases are
researched online where consumers look at retailer ads, search for deals, and find recommendations on social media sites. A whopping 97% of the time, the researched product is purchased online or in-store.
Yet online grocery shopping has remained a niche market, compared to many other categories like clothing, entertainment and home electronics. Many shoppers looking for fresh produce, fish and meats may still want to touch and feel the product — or “thump the melon” — before purchase. Many no doubt will continue to buy these items in stores, but most packaged goods are ripe for the online picking. Can more CPG manufacturers and retailers take advantage of this emerging channel?
Scott Welty, vice president, retail industry strategy at JDA Software in Scottsdale, Ariz., sees challenges and opportunities on the road to growth in grocery ecommerce. He offers these five signposts:
Mobile Marketing
Tesco, operating in South Korea as Homeplus, found a way to connect with consumers and their handheld devices. South Koreans work an average of 44 hours per week, with many putting in 50 or more hours. With a large population, grocery shopping can be a particularly tense experience for these time-starved consumers.
The retailer scored a major success testing a virtual supermarket on the wall of a subway stop in Seoul. Commuters on their way home check out a billboard depicting a supermarket shelf and use their smartphones to scan the QR (“Quick Response”) codes of the products they want. Groceries are delivered by the time the shopper arrives home. The program will soon be expanded in South Korea.
New members in the program rose by 76%, online sales increased 130%, and Tesco closed the gap with its chief competitor E-Mart and became the number one retailer online, and a closer number two offline - all without increasing the number of its physical stores.
Social Media
Procter & Gamble’s recent reentry into ecommerce via Facebook is a new example of how important social media is becoming to CPG companies. Consider the continued growth of the prosumer — a recently coined word combining “professional” and “consumer.” They want to be able to produce, leverage and consume content. They don’t want to listen to the retailer or to the manufacturer, but to their friends or peers online.
And they can use the “shop now” button that P&G has on its Facebook page. It represents how seamless the shopping experience needs to be. Consumers can go from talking to a friend, to instant messaging, to buying groceries all in the same place. Time-starved consumers want things to be easy and simple. Additionally, marketers need to look at the teenagers of today to get insight into the potential customer of tomorrow. Within 10 years, they will become mass market shoppers. Those people want one portal. The retail giants of the world will need to adjust because the trend in many industries is consumers getting in closer relationships directly with manufacturers.
Segmentation
A retailer’s virtual product assortment may be massive, so what is made available to shoppers needs to be segmented. Companies need to pinpoint their marketing and inventories. For example, customer A at a virtual shelf might see something different than customer B. Online, the cost of entry is much lower and more vendors are going to want to take risks.
If a supplier is going to enter a market, they can work with retailers to develop segmentation, and find out how to promote the new item. To do this, they need to use promotionally predictive forecasting.
Despite the vastness of the online opportunity, companies are going to have to tailor that shopping experience because the number of SKUs. The number of purchases of fast-moving consumer goods will dictate the need to have to segment programs, customers and promotions. There’s too much information and there are way too many products.
Demand Forecasting
As companies get into the online market, areas of greatest opportunity will be those that use predictive demand forecasting. This looks at consumer responses to promotions, turning those into predictable libraries. They use a predictive standard in the future to take off of optimized assortments and then make predictive forecasts that are tied deeply into supply chain.
Transportation
With the growth of online/mobile ordering and home delivery, the logistics of fulfillment — “the last mile of the supply chain,” according to the old adage — become much more complex and costly. Retailers will need to staff up to pick the orders in stores or fulfillment centers. With frozen and refrigerated goods, they will need proper storage facilities to hold them, whether for a just-in-time pick-up or for a couple of hours.
Management of the fleet will need to be considered, as well as third-party distributors — for example, “Two Men and a Van” — that might become cottage industries. Lead times, expense factors, and reverse logistics must be evaluated. A missed delivery could mean ice cream melting on a truck that has to get back to the storage facility. The costs of distribution and transportation could become very large, if not calculated in advance. Technology solutions will be essential to accomplishing this.
In summary, success in ecommerce ties into a holistic view of demand. It needs to be optimized to account for the size of the demand, promotional or seasonal demand, and markdowns. Companies need to have that holistic viewpoint across all the different nodes of the network: the supplier, the retailer, and at all echelons, and be able to predict what the inventory policies need to be and where should they be to optimize inventory and reduce waste.
This article was based on an interview with Scott Welty, vice president, retail industry strategy, JDA Software, Scottsdale, Ariz. For more information, visit www.jda.com, call (480) 308-3555, or email info@jda.com.
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SECTION THREE
