By: Donna Schelby, General Manager FSI and In-store, Valassis
Published Monday, Sep 12, 2016
There once was a day when a shopper combed through her weekly circulars to find the best deals, combined them with coupons, made a list, then drove to her preferred retail outlet and shopped. This pre-shopping ritual still exists, but today shopping lists are shorter. Shoppers are still patronizing their preferred retail outlet, but not for every product they need.
For example, a consumer may buy groceries at her local store but she skips buying vitamins and paper goods and instead has them automatically shipped to her home every six weeks via an online retailer. She relies on an e-commerce provider because she prefers to have those items delivered to her doorstep at a lower cost, without having to remember to purchase them.
According to comScore, in 2015, an estimated $26 billion of consumer packaged goods (CPG)- a $1.3 trillion industry- were purchased online. By 2018 online CPG purchases are predicted to grow an incremental $40 billion, to an estimated $66 billion.1 While good for CPG companies, this growth poses a threat to brick and mortar retailers who rely on the highly desired increased basket size. It is less of a threat of course, if the consumer is ordering her vitamins and paper goods from that retailer’s website… but current trends don't show the consumer doing that very often.
According to Bricks Meet Clicks, 20162, within a 30-day testing period, only ten percent of online grocery shopping trips took place with a multi-channel retailer (a retailer with brick and mortar locations as well as an online presence). Compare this to eighty-four percent of trips going to “basket bandits” (e-commerce sites with a limited assortment of products). Since these “basket bandits” do not sell all of the grocery products that the shopper needs, their basket size is about one-fifth the size of multi-channel retailer online baskets. However, as basket bandit retailers continue to refine the consumer shopping experience, increase basket size, and grow the shopping list of e-commerce shoppers, this will create a slow leak in both revenue and profitability for many multi-channel retailers.
On the flip-side, basket bandit retailers have the opportunity to grow basket size by helping consumers find relevant deals. With the cost of shipping to overcome, the addition of items to each basket becomes quite appealing to shoppers. In fact, a good portion of e-commerce transactions or shopping trips consist of five products or fewer per basket and typically include products unavailable in brick and mortar stores. To capitalize on this, e-commerce retailers can focus on featured deals and increased impulse purchase options.
While retailers have concerns over basket bandits, CPGs face a completely different risk online. Brand portfolios are not granted the same opportunities to dominate shelf space or ensure they’re in the best position to influence shopper decisions. Most likely, a brand is one of many equally sized product shots within a grid format on e-commerce sites where, unless clicked on by the user, the shopper has no way to learn about the product’s differentiation - like premium ingredients or powerful anti-oxidants. Combined with the influence of social media ratings and online performance reviews from consumers, a brand can quickly find itself with a much larger competitive set - struggling against other niche brands that don’t have distribution in mainstream retailers. Because there are over 3,000 sites offering CPG-like products, the need for fluid, high impact communication plans with these sites is becoming a greater priority for CPG companies.
The bottom line is: regardless of where a company stands within the CPG or retail environment, there are many opportunities to win and to lose due to the consumer-driven e-commerce shift we see today. It’s in both the retailers and CPGs best interest to start the conversation of how to best serve the consumer. After all, it is she who will be the determining factor in their success.
Source: 1 comScore e-Commerce and m-Commerce Measurement, Progressive Grocer Magazine; 2 Bricks Meet Clicks, 2016