eMarketer Driving CPG Sales Online-Brands Get Closer to Consumers

Digital Intelligence Copyright ©2011 eMarketer, Inc. All rights reserved.

The eMarketer View 2

CPG Sales Online 2

Drivers of Online CPG Sales 4

Portrait of an Online CPG Buyer 8

Selling Direct to Consumers 11

Emerging CPG Trends 14

Conclusions 16

eMarketer Interviews 16

Related eMarketer Reports 17

Related Links and Information 17

About eMarketer 17

December 2011

Executive Summary: Despite early failed attempts at selling consumer packaged goods (CPG) online—who can forget Webvan or Pets.com?—sales have been steadily increasing since the middle of the last decade. Online sales of everyday staples more than doubled between 2006 and 2010 and are expected to double again by 2014. 129842

However, online CPG sales still only account for 2% of the category’s sales overall. But the potential market is vast—and valuable.

CPG brands have begun to recognize the possibilities of direct-to-consumer sales. Larger, more established manufacturers are creating their own ecommerce solutions, while many others have begun partnering with pure-play sites devoted to selling CPGs online.

No matter the sales approach taken, marketers are trying to expand the relationship between the brand and the customer for reasons beyond just their own bottom line. Using ecommerce in addition to selling in-store is a way of gaining more access to shopping behavior and transactional data, insights traditionally held by the retailer.

Key Questions

■■ How is the online CPG shopping landscape changing?

■■ Who buys CPG products online?

■■ How can brands sell direct to consumers?

billionsUS Online CPG Sales, 2006-2014

2006

$5

2008

$8

2010

$12

2012

$17

2014

$25

Note: CAGR (2011-2014)=25%-30%Source: Nielsen as cited in company blog, May 31, 2011129842 www.eMarketer.com

Krista Garcia [email protected]

Contributors Tobi Elkin

Driving CPG Sales Online:Brands Get Closer to Consumers

Driving CPG Sales Online: Brands Get Closer to Consumers Copyright ©2011 eMarketer, Inc. All rights reserved. 2

The eMarketer View

Online buyers have been slower to adopt ecommerce for CPG products than for other categories. But as purchasing online reaches maturity—eMarketer forecasts 72.6% penetration among US internet users for 2011—the wider the range of goods shoppers will be comfortable buying through this channel.

Buying low-cost items online has become more attractive. In the past, buying a bar of soap or box of cereal online did not make a lot of sense, financially or practically. Now, incentives like free shipping with lower minimums and the existence of companies like Quidsi that provide the ability to shop across multiple single-category, CPG-focused stores on one site are making it worthwhile. CPG products are of habitual use and are unlikely to be impulse purchases. They do not require a lengthy research process and can be less fun to shop for in-store. When given the ability to easily stock-up on such basics while avoiding big-box weekend crowds, more shoppers will take this option.

Ecommerce helps level the playing field for smaller CPG brands. Limited retail shelf space means limited SKUs offered to consumers, leaving brands with the biggest budgets better able to capture the attention of shoppers. Online marketplaces can provide a platform for a wider variety of brands, allowing a small organic pet food brand to appear on the same page of search results as Purina. Furthermore, as buyers influence rankings with their purchases, the brands that rise to the top can be different than those found in-store; shoppers might be surprised to discover that the most popular products online are not always household names.

Manufacturers are competing with retailers’ private labels. One consequence of the lingering recession is that shoppers continue to “buy down,” a behavior that leaves brand-name products vulnerable to being passed over in favor of lower-priced generics. In response, retailers have been upping their private-label offerings. As frugal shoppers have led manufacturers to compete with retailers’ private labels, big brands have begun turning to the web to boost sales.

Data-hungry brands are gaining better consumer insights. Brands are also embracing ecommerce to gain access to shopping behavior data typically retained by the retailer. Third-party sellers like Alice.com hold promise for bringing the customer closer to the brand by sharing such consumer insights. In June, Nielsen partnered with MyWebGrocer to begin aggregating online sales and purchase information from its 60 grocery store clients, the first attempt at tracking these types of transactions. The field is open for measuring online CPG and grocery sales data.

For the list of industry experts interviewed for this report, see the eMarketer Interviews section.

CPG Sales Online

Online CPG sales are low compared to those in established merchandise categories like apparel or consumer electronics, but the good news is CPG sales are growing faster online than offline.

comScore noted online CPG sales growth dipped into single digits last year, after rises of around 20% from 2006 through 2008. But that 9% increase looks healthy compared to how in-store sales fared in 2010. SymphonyIRI found that across outlets—drugstores, mass merchants (including Wal-Mart), supermarkets and convenience stores—CPG sales grew only 0.3% last year.

billions and % changeUS Online CPG Sales, 2005-2010

2005

$5.3

2006

$6.5

2007

$8.7

2008

$10.6

2009

$11.7

2010

$12.8

Online CPG sales % change

Source: comScore Inc., Oct 12, 2011133452 www.eMarketer.com

23%19% 22%

10% 9%

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The growth differential between online and offline CPG sales is even more stark than for retail overall. US Department of Commerce figures show offline retail sales climbed just 4.7% in 2010, vs. a rise of 14.8% for all ecommerce.


Looking forward, Nielsen does not see a leveling off in online CPG sales totals. It forecasts 25% to 30% compound annual growth between 2011 and 2014, at which time sales will reach $25 billion.

billionsUS Online CPG Sales, 2006-2014

2006

$5

2008

$8

2010

$12

2012

$17

2014

$25

Note: CAGR (2011-2014)=25%-30%Source: Nielsen as cited in company blog, May 31, 2011129842 www.eMarketer.com

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CPG items are among the few product categories that will continue to have double-digit growth online in 2014. Food and beverage (11%), over-the-counter medicines and personal care (12%), and pet products (13%) are all forecast by Barclays Capital to enjoy higher-than-average growth compared to ecommerce sales as a whole.

% change

US Retail Ecommerce Sales Growth, by Category,2010-2014

Apparel, accessories and footwear

Appliances and home improvement

Art and collectibles

Auto parts

Books

Computer hardware, software and peripherals

Consumer electronics

Event tickets

Flowers

Food and beverage

Furniture

Jewelry

Movie tickets

Music/video

Office products

Over-the-counter medicines and personal care

Pets

Sporting goods

Toy and video games

Other

Total

2010

14%

14%

20%

11%

9%

9%

14%

8%

13%

20%

22%

15%

9%

10%

9%

14%

17%

10%

4%

1%

12%

2011

13%

13%

16%

10%

7%

8%

13%

8%

9%

16%

23%

11%

8%

10%

8%

14%

17%

8%

10%

1%

11%

2012

10%

10%

15%

9%

6%

7%

10%

7%

7%

15%

19%

10%

8%

9%

6%

13%

16%

6%

10%

1%

9%

2013

10%

10%

11%

8%

6%

7%

10%

7%

6%

13%

18%

9%

7%

8%

7%

12%

14%

6%

9%

3%

9%

2014

9%

9%

12%

7%

5%

6%

9%

7%

5%

11%

16%

8%

7%

6%

7%

12%

13%

5%

8%

3%

8%Source: Barclays Capital, "Internet Data Book January 2011," provided toeMarketer, Jan 13, 2011124126 www.eMarketer.com

124126

CPG Sales Online


Q&A: What portion of your sales comes from the online channel?

Online CPG sales comprise about 2% of the total category in the US, according to Nielsen, but that can vary for individual firms. Much depends on business models and how much focus is given to the online channel.

Brian Wiegand CEO

Alice.com

“I’ve seen anything from a quarter of a percent to aggressive estimates of 3% to 5% by 2015. I haven’t seen anyone predict higher than that. Most manufacturers are looking at 1% or 2% of their total sales being direct to consumers by 2015. I think you’ll see the overall business get up to 5%-plus. Right now we’re right around the 1% to 1.5% level of total business online.”

Kristin Wonzen Senior Group Manager, eCommerce

The Clorox Co.

“It’s still pretty small—in the 2% or 3% range. We look at the overall ecommerce landscape and we think it’s growing around 12% a year. CPG is growing about twice that, in the 20% to 25% range—that’s what I think Nielsen is saying. And we’re growing more in the 30% to 35% range.”

Robyn Young Senior Brand Manager

Annie’s

“It’s very small; I’d say less than 1%. Online sales will probably grow proportionately with our sales as a brand. Major growth drivers are going to be new distribution, whether that’s through brick-and-mortar retailers or online outlets.”

Alex Tosolini Vice President, Global eBusiness

Procter & Gamble

“P&G’s sales are in line with overall CPG market growth. We say that it’s an engine of growth for the company. The growth of P&G in the ecommerce channel is growing significantly faster than the growth rate of the company.”

Drivers of Online CPG Sales

CPG shoppers are motivated by online’s convenience, but not if it means spending more for the experience. They expect the same discounts available in-store and the ability to use coupons—and they will balk if shipping costs are prohibitive.

Knowing CPG shoppers are price-sensitive, brands are trying to reach them through direct means rather than watch their margins being chipped away by the increasing number of retail private labels.

Convenience

Avoiding crowds, saving time and having items promptly arrive on doorsteps are obvious benefits of buying CPG products online. Convenience was the primary driver for internet users surveyed by SymphonyIRI. In addition to cost, gaining access to hard-to-find products was cited by more than three-quarters of them. Finding niche items online is tied to convenience; the internet makes the process easier than calling around or going store to store looking for the desired goods.

% of respondents

Leading Reasons that US Internet Users Purchase CPGProducts Online, May 2011

Convenience 89%

Better prices 82%

To find hard-to-find items 78%

Source: SymphonyIRI, Oct 14, 2011133606 www.eMarketer.com

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The idea that online shopping provides convenience is more pronounced among younger consumers. According to a Barkley study, 67.4% of respondents ages 16 to 34 believed the convenience of online shopping was very important, compared to 58.7% of respondents ages 35 to 74.

CPG Sales Online


The Effect of Private Label

One major factor causing brands to consider selling direct to consumers has been the rise of private labels. Any stigma with store brands that may have existed pre-recession has been tempered by consumers’ need to stretch a dollar. And retailers have responded by creating their own premium labels and making store brands more attractive.

Target has been creating premium labels since 2006 when it added Archer Farms, a brand perceived to be more upscale than its Market Pantry line. Over the past two years Sam’s Club has redesigned its workhorse Member’s Mark brand to appear higher-quality and has renamed it Simply Right, Artisan Fresh and Daily Chef for different departments.

Such efforts appear to be having an impact. Forty-four percent of shoppers in a Mintel survey believed that private-label brands are better now than five years ago and 32% did not think they were making sacrifices by using them.

The dollar share of private-label spending in the CPG category has increased 7% since 2008, growing to 18.5% in 2011. The effect that the recession has had on private-label growth is more apparent when considering that the 2007 dollar share was 16.4%.

Private-Label Share of US CPG Spending, 2008-2011

2008

22.0%

17.3%

2009

23.4%

18.1%

2010

23.3%

18.3%

2011

22.9%

18.5%

Unit share Dollar share

Note: data is for 52 weeks ending Aug 7, 2011 vs. same period of prioryears; excludes online channelSource: SymphonyIRI, "Private Label: Brand Positioning in the New WorldOrder," Oct 5, 2011134009 www.eMarketer.com

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comScore has been surveying women, who are typically the primary household shoppers, since the beginning of the recession about changes in brand-buying behavior. Nearly across the board, the inclination to buy preferred CPG products is at an all-time low, down 11 percentage points since 2008. One of the more expensive categories, over-the-counter cold medicines, has been hit particularly hard, showing a 17-percentage-point decrease between 2008 and 2011.

% of respondents

US Female Shoppers Who Buy the Brand They Wantthe Most*, by Product Category, 2008-2011

2008 2009 2010 2011

Health & beauty aidsToothpaste 67% 64% 57% 55%

Shampoo 65% 64% 52% 53%

Mouth rinse 61% 59% 44% 47%

Household productsLaundry detergent 57% 50% 47% 48%

Facial tissue 43% 40% 39% 35%

Paper towels 36% 34% 35% 35%

FoodSoup 56% 51% 52% 44%

Pasta sauce 53% 48% 45% 43%

Fruit juice 51% 44% 40% 39%

ApparelJeans 54% 49% 39% 42%

Over-the-counterCough/cold/allergy 58% 59% 43% 41%

HousewaresSmall appliances 45% 38% 34% 37%

Total 54% 50% 45% 43%Note: among respondents who buy products in that category; *rather thanbuying down due to economic factorsSource: comScore Inc., "The Effects of the Recession on Brand Loyalty and'Buy Down' Behavior: 2011 Update," Nov 2, 2011134090 www.eMarketer.com

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Using survey data paired against SymphonyIRI private-label market share figures, comScore also found a direct relationship between the categories in which consumers were buying less-favored brands and the penetration of private label. When asked about paper towels, 26% of shoppers—the highest response for any category—agreed with the statement “I buy less-expensive brands to save money.” Paper towels also had the highest private-label penetration (41%).



On the brand side, marketers also feel the pain. In an IDC survey of CPG executives, only one-quarter claimed to be doing nothing differently in reaction to private-label growth. Innovation was the leading response (59%) and collaboration with retailers (34%) was valued above spending more on direct-to-consumer initiatives (19%).

% of respondents

Impact of Private-Label Growth According toConsumer Goods Executives in North America, April 2011

We're working to be more innovative with branded products59%

We're making use of social media44%

We're putting more effort into collaborating with retailers on thebranded products we bring to market

34%

We've decided to increase our investment in direct-to-customer19%

We're increasing our trade promotions budget13%

We're not doing anything differently at this time25%

Source: IDC Manufacturing Insights survey as cited in Consumer GoodsTechnology (CGT), "2011 Sales and Marketing Report," June 8, 2011133706 www.eMarketer.com

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Many brands cannot afford the risk of alienating their retail partners. And there is likely overlap between the one-fifth that were investing in direct selling and the one-third that were collaborating with retailers. Most are avoiding an either/or approach.

Barriers to Buying CPGs Online

Hindrances to buying CPGs online are very much the same as for buying online in general. Paying for shipping has been a perennial sticking point, and the burden is amplified for items that individually may cost less than a delivery charge.

Free shipping was the most-cited feature that would increase online purchasing, named by more than three-quarters of online buyers surveyed by Compete. This sentiment was echoed by respondents in a survey by etailing solutions in which 64%—the largest figure—thought shipping costs were too high. Barriers to online buyers making more purchases online included a preference to see things in person (43%) and an immediate need for the product (35%).

% of respondents

Features that Would Encourage US Online Buyers toPurchase More Online, Aug 2011

Free shipping77%

Free returns56%

In-store return option43%

Ability to use in-store coupon online41%

Faster shipping41%

In-store pickup option40%

Better selection27%

Easier site navigation21%

More payment options17%

Source: Compete, "The State of Online Retail," Sep 13, 2011132639 www.eMarketer.com

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Manufacturers’ coupons loom large in CPG marketing, and shoppers expect promotions to apply across channels. Some 43% of those surveyed by Compete would be inclined to engage in ecommerce more if they were able to use in-store coupons online.

There is also a perception that CPG brands offer poorer promotions online than in-store. The product categories that fared the worst among internet users in a Consumer Goods Technology study were all CPG goods. More than 80% thought that health, and food and beverages offered better in-store promotions.

% of respondents

Product Categories Offering Better Promotions Onlinethan In-Store According to US Internet Users, March 2011

Electronics 67%

Apparel 40%

Toys 31%

Home goods 31%

Footwear 27%

Cosmetics 18%

Health and hygiene17%

Food and beverage12%

Source: Consumer Goods Technology (CGT), "Shoppers' PromotionalExperience Study," June 10, 2011131042 www.eMarketer.com

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Online retailers are aware of this demand and have been coming up with solutions. Quidsi stores such as Soap.com and Diapers.com will take manufacturers’ coupons (but not retailers’, nor buy one, get one free coupons), but shoppers must mail them to be processed before making a purchase. The need for stamps and extended turnaround time could be a tough sell for hardcore coupon enthusiasts accustomed to instant in-store redemption. Alice.com offers auto coupons, which are limited-quantity discounts, applied on the spot. These may appeal to bargain-hunters not married to traditional coupons.

Q&A: Have we reached a point where CPG ecommerce makes sense?

Online shoppers are not the same as they were a decade ago, and neither are the companies selling to them. The right timing could make it possible for a Wag.com to succeed where Pets.com did not.

Brian Wiegand CEO

Alice.com

“We’re clearly at a tipping point from brands starting to move their attention and ad budgets to interactive and digital. Thinking about ecommerce, I heard a very large, top-five CPG brand say, ‘We’re looking at taking our digital and advertising spend, and any time that our ad shows up, we’d love to have a click-to-try or a click-to-buy option.’ Those are new and innovative things. That to me is logical and intuitive, but buying CPG online hasn’t really hit its highest level of acceleration. Whenever you see Amazon spending quite a bit of money to buy a Quidsi or Walgreens buying drugstore.com, you start to pick up a lot of momentum. It’s a category that people are thinking about.”

Angela Edwards Director, Consulting Services

etailing solutions

“Buying online has become a part of a growing number of shoppers’ weekly routine. Industry insiders are making changes to how they do business to address this channel shift. Amazon has purchased Quidsi. Walgreens has purchased drugstore.com in anticipation of the shift of volume from bricks to clicks. Wal-Mart has shifted to a multichannel approach, greatly increasing its online range of CPG products as well as a variety of appealing delivery options. It also recently purchased Kosmix, a social media search engine, which will operate as part of a newly formed group dubbed @WalmartLabs.

“Brands that can quickly adapt their selling strategy will benefit from the shift. Others risk losing share and relevance. There is a sense of urgency for other CPG companies to place a strategic priority on shifting their sales and marketing strategies to address this ecommerce tipping point.”

Kristin Wonzen Senior Group Manager

The Clorox Co.

“I think we really are. When we noticed books, apparel and jewelry being sold online, we didn’t pay that much attention. But now we see CPG products being sold online, like our Glad brand trash bags and Burt’s Bees personal care items. We’re seeing real material sales out there, and it’s growing faster than any other channel we have.

“Clorox got into ecommerce because we started to see that CPG sales online were growing twice as fast as ecommerce in general. We got to a place where we thought about building a relationship with Amazon. With the launch of Soap.com [editor’s note: Amazon owns Quidsi, which owns Soap.com, Diapers.com and Wag.com, among other ecommerce sites] and Amazon’s aggressive push behind its Subscribe & Save program, we do sense a sort of tipping point for CPG online.

“Additionally, we started to sense that shopper trip types were evolving from purchasing specialty items like Burt’s Bees Poison Ivy Soap, to stock-up trip types of items such as Glad trash bags. There is huge potential for many of our brands and we didn’t want to get left behind.”



Portrait of an Online CPG Buyer

Online CPG buyers are a less established group than online buyers as a whole, primarily due to the shortage of available ecommerce options. Yet the category has broader appeal than some might imagine. The propensity to purchase CPG products online spans many age, income and geographic markers.

According to a SymphonyIRI survey, 29% of internet users made at least one CPG purchase online in the past 12 months, a far smaller figure than the 72.6% eMarketer estimates will have bought anything online in 2011. Books, apparel and electronics still dominate online shoppers’ baskets.

Who Buys CPGs Online?

Research on the demographics of online CPG buyers varies from source to source, and shopper motivations can cut across easily definable brackets. The online CPG buyer could be a suburban mom squeezing in an online shopping trip between after-school activities; a young, single city-dweller avoiding lugging home cat litter on public transportation; or a rural empty-nester committed to using green cleaning products but lacking nearby stores carrying the right brands.

Some traits do stand out, based on etailing solutions research. CPG marketers have courted women since the dawn of branded cleaning products and canned food, and this gender skew is no different for online shopping: Three-fourths of these buyers were female. They were clustered in the 35 to 54 age range, heavily middle-income, college-educated, often suburban and overwhelmingly white.

% of total

Demographic Profile of US Online CPG Buyers, Aug2011

GenderFemale 75%

Male 25%

Age18-24 4%

25-34 27%

35-44 23%

45-54 25%

55-64 18%

65+ 3%

Race/ethnicityWhite 82%

Asian/Pacific Islander 8%

Black 7%

Other 2%

Income<$25K 9%

$25K-$50K 23%

$50K-$75K 29%

$75K-$100K 19%

$100K+ 18%

Prefer not to answer 2%

Education levelSome high school or less 1%

Graduated high school 15%

Some college 23%

Graduated college 37%

Some graduate work 8%

Graduate degree or more 16%

Area of inhabitanceSuburban 53%

Urban 28%

Rural 19%

Note: numbers may not add up to 100% due to roundingSource: etailing solutions, Oct 14, 2011134343 www.eMarketer.com

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A Compete breakout of online CPG buyers illustrates more detailed characteristics. Generally, higher-income consumers shop online more than their less affluent counterparts. However, the split is not extreme for all CPG categories. Among buyers of household essentials, only 5.4 percentage points separate those in the under $30,000 bracket from those earning over $150,000.

% of respondents in each group

Demographic Profile of US Online CPG Buyers, Feb2011

Healthand beauty

products

Groceries Baby,childrenand toys

Householdessentials

Age18-24 23.7% 12.1% 9.9% 7.4%

25-34 19.6% 6.0% 25.3% 9.5%

35-44 21.6% 10.0% 22.8% 8.1%

45-54 23.6% 7.4% 16.6% 6.8%

55-64 20.1% 4.8% 17.4% 5.7%

65+ 18.4% 5.5% 17.7% 3.6%

Income<$30K 16.9% 7.1% 16.5% 5.4%

$30K-$60K 19.0% 7.2% 19.7% 6.1%

$60K-$100K 23.3% 7.3% 23.6% 9.2%

$100K-$150K 28.2% 6.0% 23.6% 11.3%

$150K+ 28.8% 11.0% 27.2% 10.8%

Number of children0 19.8% 6.4% 13.4% 6.1%

1+ 23.6% 8.9% 35.2% 10.2%

Note: in the past three monthsSource: Compete, "Online Shopper Intelligence Study," April 12, 2011133923 www.eMarketer.com

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Another key characteristic of online CPG shoppers is the presence of children in the home. Obviously, parents overindex on buying children’s products, but they also buy more online across all categories than child-free households. Online shopping saves time, a luxury in short supply among households with children, and can cut down on car trips for families in the suburbs. The amount of products needed and having the space to store them—20-roll packs of paper towels don’t make sense for everyone—can quickly fulfill free-shipping minimums, also making online buying more practical.

Age is not a critical factor when it comes to online CPG shopping. Clearly, as millennials reach peak spending power and start families they will become a prime target for buying consumer goods online. But marketers would be unwise to ignore more established, affluent consumers even if the older cohorts do not fit neatly into the digitally native, early-adopter stereotype.

What Are Shoppers Buying?

A Compete study shows the pronounced split between many offline and online purchases. Media such as books, movies and music are bought online more than other categories. Groceries and household products suffer the widest disparity, while health and beauty products represent the bright spot for CPGs (21% of online buyers purchasing them online vs. 73% offline). That promising 21% makes sense when considering the number of established sites such as Sephora.com, drugstore.com and Amazon.com that already represent the category.

% of respondents

US Online Buyers Who Purchase Products Online vs.Offline, by Category, Feb 2011

Online Offline

Books 46.6% 35.9%

Movies, music and video games 46.6% 39.5%

Apparel 38.4% 68.0%

Electronics 35.8% 37.8%

Shoes 26.6% 46.3%

Health & beauty products 21.0% 73.0%

Baby, children & toys 20.5% 37.6%

Jewelry & accessories 15.6% 28.5%

Office & school supplies 14.7% 51.0%

Kitchenware & household appliances 13.6% 37.3%

Sporting goods 11.1% 21.9%

Furniture and home furnishings 8.8% 24.8%

Household essentials 7.5% 92.5%

Groceries 7.2% 96.6%

Home improvement products & tools 7.2% 35.8%

Garden supplies 3.8% 20.0%

Note: in the past 3 monthsSource: Compete, "Online Shopper Intelligence Study," April 12, 2011129854 www.eMarketer.com

129854

Compete’s findings are supported by SymphonyIRI research. It found that beauty products are the one CPG category internet users are clearly more comfortable buying online, purchased by more than double the percentage of respondents than the second-place category, shelf-stable foods.

% of respondents

US Internet Users Who Have Purchased CPG ProductsOnline, by Category, May 2011

Beauty 20.7%

Nonperishable foods 8.7%

OTC medications 6.1%

Household cleaning items5.9%

Note: in the past yearSource: SymphonyIRI, Oct 14, 2011133605 www.eMarketer.com

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The long-term presence of beauty-focused ecommerce sites has allowed blogs and online communities to grow organically around the category. Shoppers with specific needs, like conditioners that work particularly well for curly hair or eye shadow shades that flatter darker skin tones, are likely to be influenced by customer reviews or message board posts by consumers with similar characteristics, and in turn have fewer reservations about buying a product sight unseen.

Aware of the power of online social interaction, brands across CPG categories have integrated customer reviews and content from bloggers on their own sites. An online sale would be optimal, but simply connecting with consumers—and connecting them with one another—can also be a benefit of ecommerce.

An etailing solutions survey discovered that personal care products dominated the list of most purchased online CPG products. Pet supplies, a category not mentioned explicitly by Compete or SymphonyIRI, also made a strong showing.

% of respondents

Leading Types of Products Purchased by US OnlineCPG Buyers, Aug 2011

Body care 32%

Facial care 31%

Pet supplies 28%

Haircare 26%

Oral care 19%

Household cleaning 18%

Paper goods 16%

Shaving products 16%

Laundry 15%

Plastic goods 13%

Sauces and condiments 12%

Cough and cold 10%

Source: etailing solutions, Oct 14, 2011134086 www.eMarketer.com

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Spending Patterns

One notable characteristic of CPG shopping is that spending online is higher than in-store. This could be due to viewing online shopping sessions as stock-up events, especially to qualify for free shipping. It is a rare consumer who would go online to simply buy a bag of cotton balls, a bottle of dishwashing detergent or a tube of lipstick, though each of those might be picked up individually during a drugstore pit stop.

This is reflected in data from Nielsen, which shows a wide variation between online baskets compared to bricks-and-mortar.

■■ Food and beverage: $80 online vs. $30 in-store

■■ Health and beauty: $30 online vs. $10 in-store

SymphonyIRI found that most online CPG shoppers spent $25 or less per transaction, with the exception of beauty products, which had baskets ranging from $26 to $50.

This tendency is further borne out by research from etailing solutions, which found that regardless of CPG category, online spending topped offline across the board.

Amount Spent Online vs. In-Store According to USOnline Consumer Packaged Goods (CPG) Buyers, Aug 2011

Online In-store

Cough and cold $47 $16

Haircare $42 $18

Facial care $41 $19

Laundry $40 $15

Water filters—sink mount $39 $35

Oral care $36 $11

Shaving products $35 $15

Pet supplies $34 $20

Body care/deodorant $30 $15

Paper goods $29 $14

Household cleaning $27 $13

Replacement filters $27 $25

Water filters—pitchers $26 $24

Sauces and condiments $21 $12

Plastic goods $20 $13

Source: etailing solutions, Oct 14, 2011134088 www.eMarketer.com

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Online stores’ tendency to sell CPGs in bulk is another likely reason for this disparity. A typical bottle of cough syrup, bag of cough drops and jar of Mentholatum might cost $16, but they represent only one-third of the $47 average cough-and-cold basket found by etailing solutions.



Selling Direct to Consumers

Traditionally, retailers have been the middlemen between consumers and brand manufacturers. As such, retailers were privy to a range of market research data while brands had to spend on advertising, marketing, and research and development without those insights. Ecommerce breaks down this siloed business model and the increasing transparency is a boon for CPG brands

Among a set of North American consumer goods executives who had access to retailer data, 62% used it to better understand consumer behavior and 34% planned to do the same within the next two years, according to IDC. The leading implementation of downstream retailer data was for demand forecasting (72%), refining promotions (68%) and better understanding consumer behavior (62%).

What Is Direct to Consumer?

In its purest form, direct to consumer means shoppers can buy straight from the manufacturer. For example, this practice is commonplace for consumer electronics, where no one thinks twice about buying directly from Apple or Dell.

With CPGs, the definition of direct to consumer is used more broadly and is often applied to brands distributed through nontraditional retailers or third parties like Diapers.com or Amazon.com.

Alice.com works differently than most third parties because it functions as a service provider that creates and hosts branded ecommerce sites and handles order fulfillment. Only marketing remains the responsibility of the participating brands.

The scramble for cash-strapped customers’ attention has been a major catalyst for direct-to-consumer sales. Comparison shopping has never been easier, and shoppers are discovering that the best prices on CPGs are not always found at big-box retailers or drugstores. And manufacturers that want to get closer to consumers are also finding themselves competing with retailers’ private labels.

“CPG manufacturers are slow to think about direct competition with the retailer. It has taken years and years for them to open up. Now there are more manufacturers selling direct than not.” —Bruce Wiegand, CEO of Alice.com, in an interview with eMarketer, October 24, 2011

A majority of executives in the IDC survey were selling directly to consumers in some capacity. Distributing through third parties was the most popular approach, though responses were not mutually exclusive and many sold through multiple channels. More than a third were also selling through their own sites, an ambitious undertaking, while an equal number had no plans to engage in ecommerce whatsoever.

% of respondents

Consumers Goods Executives in North AmericaWhose Companies Sell Directly to Consumers, April2011

Yes, through third party internet sites39%

Yes, through our website36%

Yes, through our physical retail outlets21%

Not currently, but plan to do so in the next two years3%

Not currently, and no plans to do so36%

Note: approximately 60% of respondents sell products directly toconsumersSource: IDC Manufacturing Insights survey as cited in Consumer GoodsTechnology (CGT), "2011 Sales and Marketing Report," June 8, 2011133705 www.eMarketer.com

133705

Attitudes are slowly changing, but the picture is not completely rosy. The IDC survey did find softening of barriers between brand and retailer. Last year more than 60% of brands cited difficulty in obtaining data, while this year that figure dropped to 48%. However, if nearly half of consumer goods brands are not getting the data they need to make informed decisions, there is still a long way to go.

http://totalaccess.emarketer.com/Interview.aspx?R=6000588


Third-Party Sites

Most CPG brands opt to leverage established networks, which is a relatively low-risk method of selling online.

Procter & Gamble is a company where an ecommerce site makes sense. It has the portfolio of products—IAMS, Tide, Cover Girl and Pampers are just a few of its brands—to create a robust shopping experience, not to mention the clout to compete with major retailers without suffering a backlash.

P&G’s eStore was launched in January 2010, using PFSweb, an ecommerce platform that handles the pricing and merchandising. The site was not designed primarily as a sales mechanism since few companies expect the online channel to contribute significantly to the bottom line yet. Its purpose has been to glean customer insights and get a detailed look into buying habits. Additionally, P&G has shared what it has learned with its retail partners, proving that more transparency can work in both directions and help prevent friction.

“One objective was to generate insights and consumer learnings that we could share with all the retail partners so that together we can provide the best possible experience for consumers. And we openly share all the learnings with all the retailers.” —Alex Tosolini, vice president of global ebusiness at Procter & Gamble, in an interview with eMarketer, November 8, 2011

Clorox, by contrast, must be choosier about which brands to sell direct as not all are a good fit for the medium. Burt’s Bees, for example, works well for a dedicated ecommerce site because natural beauty products are often a more expensive purchase than many drugstore brands. The slightly higher pricing combined with small package sizes allow for good margins, even if the free-shipping requirement is met.

Another benefit of a brand-owned site is the ability to offer a full range of products. Burt’s Bee’s also sells via Amazon.com and Soap.com, but partner sites generally limit brands to a range of best-selling SKUs, which are pared down even further in-store.

“We look at our entire portfolio of brands and prioritize certain brands over others. For example, with Peapod we’re going to prioritize our Hidden Valley brand higher than Burt’s Bees. But on most sites we’ll prioritize Burt’s Bees over Hidden Valley because it’s a much bigger seller online.” —Kristin Wonzen, senior group manager of The Clorox Co., in an interview with eMarketer, October 27, 2011

Retailers are aggressively moving into this space—whether it’s Wal-Mart offering free shipping on household essentials or Walgreens buying drugstore.com. Pure-play Amazon.com dominates this market, though, a position sealed after its November 2010 acquisition of Quidsi, then parent to Soap.com and Diapers.com. Since then, Quidsi has added Wag.com focusing on pets, creating a formidable CPG collection.

The ability to shop across properties to reach a shipping minimum is invaluable, and one reason why proprietary ecommerce sites make less sense for companies lacking a broad assortment of product categories. A bottle of Tylenol might not be worth the effort, but add a 12-pack of Bounty paper towels and a bag of Whiskas cat treats, and the consumer has incentive. Even if shoppers are not company-loyal—as in the McNeil, P&G, Mars combination above—a sale could be prompted by the wide variety of products.

For brands, the relationship is not far removed from working with brick-and-mortar retailers. And brands do not limit themselves to a fixed number of outlets. When clicking on a “buy now” link on a manufacturer’s site, shoppers are often directed to a number of retail partners—and not always in a helpful manner.

The “now” aspect is lost on some brands. While some lead shoppers to Amazon.com or a drugstore like CVS.com, just as many link to a store locator for Target, Kmart and Wal-Mart, but not their online stores. A shopper who truly wants to buy on the spot may become frustrated when pushed to a local retailer—especially one that does not offer cross-channel options like buying online and picking up in-store or may not even carry the exact product originally searched for.

“What’s great about the manufacturers starting to work directly with the consumer is that they get to have access to the buying data, the replenishment data, the customer information. And that will help them make better products.” —Bruce Wiegand, CEO of Alice.com, in an interview with eMarketer, October 24, 2011





Online Sales Tactics

Beyond usability and promotional best practices that apply to any online retail site, CPG brands have been employing methods that work especially well for these consumable products.

Auto-Replenishment

Pioneered to great success by Diapers.com, auto-replenishment could be a cornerstone of CPG ecommerce. By their very nature, CPG items get used up, often on a regular basis. It makes sense to provide scheduled periodic deliveries of these items combined with perks like free shipping and discounts.

Amazon offers Subscribe & Save, a program where shoppers can choose to automate regular purchases for eligible products across CPG categories. The items are discounted and often sold in large quantities—similar to how warehouse clubs operate—and the shipping is free. For consumers who know they will go through two bottles of Johnson’s Baby Shampoo every three months and that a six-pack of Nature Valley Granola Bars will last four weeks, this can become an attractive shopping method.

Interestingly, water filters had the highest level of online CPG purchase intent (68%) in an etailing solutions survey, even though the items did not make a showing in the list of products that had been purchased online in the past. This shows consumers’ willingness to buy things online if they are aware of the range of products available.

Water filters are ideal candidates for auto-replenishment. Brita recommends that faucet filters get changed every four months and pitcher filters every two months. The brand uses reminder stickers to alert consumers when it is time for a new filter, and lets owners set up an account with email reminders. But selling water filters on a subscription basis would ensure sales of a utilitarian product that’s not necessarily top of mind for consumers.

“Brita filters have huge incremental consumption for us—if people replace the filters. But many people forget. What if you could get those filters on a subscription program where you get one every three months? We love those kinds of programs.” — Kristin Wonzen, senior group manager of The Clorox Co., in an interview with eMarketer, October 27, 2011

Filling a Niche

Selling direct to consumers allows brands to offer a fuller range of products than in-store and to attract shoppers with hard-to-find items. Annie’s, best-known for its boxed organic mac and cheese, attracts customers seeking natural flavors and coloring as well as shoppers with specific dietary needs. The company makes over 40 gluten-free salad dressings, plus cookies, pasta and fruit snacks, many of which are not readily available in mainstream outlets.

“We have some niche products that might not necessarily have broad distribution or might not be available in a local store. We find that online ecommerce is a great solution for that.” —Robyn Young, senior brand manager at Annie’s, in an interview with eMarketer, November 1, 2011

General Mills has also tapped into this dietary zeitgeist by creating a site, Gluten Freely, dedicated solely to gluten-free products. The ecommerce site aggregates the company’s brands so consumers can pick from items like specially formulated Bisquick baking mixes, San-J organic tamari soy sauce or naturally gluten-free Progresso soups. Combined with content from partnered bloggers, medical advice, recipes and coupons, the General Mills vehicle entices with editorial and converts with ecommerce.

Encouraging Loyalty

In addition to Subscribe & Save, Amazon has created other ways to acquire customers at different life stages and win them over with relevant products. Amazon Mom, for example, which is open to all caregivers, attracts parents with 20% off diapers, free shipping and discounts on baby products after enrolling in Subscribe & Save. Similarly, Amazon Student offers free Amazon Prime shipping to college students for six months; it normally costs $79 per year. Then students can extend the offer up to four years for $39 per year, as well as receive other offers on products deemed of interest to college students.




“With Amazon Mom you’ve got somebody who is at a critical point in their life where they’re starting to kind of develop a new lifestyle—that of being a parent—so what a great time to lock this person down and get them in the habit of ordering their stuff conveniently online. It starts with diapers, but it probably expands to baby food, then food for the family—and then everything else.” —Gregory Grudzinski, director of data services and analytics at etailing solutions, in an interview with eMarketer, October 13, 2011

Online tools also encourage repeat visits. As part of Alice.com’s account management page, customers can track monthly spending, number of shipments and products purchased, as well as compare their budgeting habits with other users. Taking a page from the subscription model, Alice.com also suggests items that shoppers might be running out of and provides an interactive product planner where customers can drag and drop previously purchased items into usage buckets like every two weeks or every six months. For some, this may be more work than it’s worth; for others, automated tasks could keep them loyal to one site.

Emerging CPG Trends

Many of the innovations taking place in social media, local advertising and mobile are spilling over into ecommerce, and CPG marketers are experimenting with ways to use them. Some brands are even thinking beyond the US border.

Facebook commerce. Some brands are not content to simply interact with fans and garner likes on Facebook; they are also setting up storefronts. More engagement vehicle than true sales channel—and an ideal platform for offering samples—Facebook storefronts are becoming prevalent among forward-thinking companies. After all, it may be easier to draw visitors from Facebook, where consumers already spend time, than to lure them to a standalone ecommerce site.

Facebook commerce is still nascent and most experts concur that social media will not be adopted as a major transactional source any time soon. However, it has become a useful touchpoint, whether for customer service or gathering feedback on products.

“Our Facebook store is reaching more people than our Annies.com store, but I feel that most people are still more comfortable shopping through our Annies.com storefront than through our Facebook storefront, based on analytics.”—Robyn Young, senior brand manager at Annie’s, in an interview with eMarketer, November 1, 2011

Daily deals. When General Mills paired with Groupon in April 2011, it paved the way for CPG brands to take couponing in a nontraditional direction. Cited as an experiment, General Mills viewed the approach as a new form of product sampling. The jury is still out on whether this venture was profitable. Since then, Whole Foods has worked with Living Social and Unilever has sold products at Jewel-Osco through Groupon, demonstrating that daily deals are a potentially viable option for goods, not just services.

Mobile. Buying shampoo via smartphone is not likely to happen any faster than buying from a PC, but there is no doubt that mobile can be indispensable as a CPG shopping aid. Mobile is well-suited for impulse buys, particularly when not near a store or PC. A consumer realizing they are nearly out of diapers or dog food while on a lunch break or commuting could rectify the need on the spot. In-store, being able to snap a photo of a product or scan a QR code at the shelf and receive information or competitive pricing is becoming more commonplace. Coupons, always popular for CPGs, naturally lend themselves to mobile and can be tied to retailers’ loyalty programs.



International expansion. Looking beyond US borders could be one source of growth. According to Nielsen, US online CPG sales are the highest in the world—likely due to the sheer number of brands. Yet with 2% of all CPG sales taking place online, penetration is lower than in Japan, France, South Korea, Germany, and the global leader, the UK, with an impressive 8%. In July, Alice.com merged with a European company, Koto.com, and has begun selling CPG goods online in Spain, Koto’s home market. Germany, France, Italy and the UK are slated to get on board over the next two years.

Q&A: How will CPG ecommerce evolve?

Ecommerce has accelerated as broadband adoption has reached an all-time high—67.8% of all US households, eMarketer estimates. With the advent of new technologies, the nature of CPG ecommerce could change in unforeseen ways. Smartphone users in South Korea can already buy products from grocer Tesco by snapping QR codes on photos of food presented in simulated store aisles on subway station platforms, for example.

David Berkowitz Vice President of Emerging Media and Innovation

360i

“Ecommerce will become tied to traditional media, like print and television, where people are at home consuming this media, and then see an ad for it. We’ll see a lot more experimentation with making it very easy for people to buy those products through traditional media. Things are not going to drastically change overnight, but now it’s totally possible to use something like Shazam to link a TV commercial with a retail store where someone can then go to on their tablet or mobile phone and make a purchase. This can also be a real opportunity, even if it will be experimental for the next year or so.”


The Clorox Co.

“It will keep growing quickly. Will it speed up from the 20% to 25% that we see from different sources? I don’t know. I think 20% to 25% growth a year is still pretty healthy, a lot faster than what Wal-Mart or Costco are growing. I do think that more consumers will get on board because it will dawn on them that they can do this—it’s price-competitive and very convenient. I don’t know how far it will go though, because when you start talking about grocery items, people still want to pick out their own apples. The nonperishables are easier.”

Gregory Grudzinski Director, Data Services & Analytics

etailing solutions

“CPG ecommerce is just one part of this whole digital explosion. The factors that are going to drive this are the acceptance and penetration of iPads. Now people have a convenient, fun way to navigate the web that’s just cooler than doing it on their laptop or desktop PC. That’s going to encourage people to say ‘Hey, how else can I use this? What can I do online now?’ It gives you the power of a portable such as a smartphone, but it also gives you the visibility that you get with a laptop or a desktop machine. So that’s going to encourage more people to do more online.”


Annie’s

“We definitely see that the majority of shopping decisions aren’t just done in-store anymore. Many of them are digitally influenced, so there’s going to be a lot more online/offline integration. Whether consumers ultimately decide to purchase in the store or online remains to be seen, but we know that there’s much more potential to influence them now that people can learn about the brand and specific products online, which then directs their purchase decisions.”


Procter & Gamble

“CPG ecommerce is new and that’s why it’s very important to keep learning and testing and experimenting with new things. As long as you follow the consumer behavior, you’re going to learn a lot about how to serve their needs. We want to be where people are, and, increasingly, people are online. Even if people don’t buy online, they still spend time online to make their decision.”

Emerging CPG Trends


Conclusions

Despite slow uptake, consumer goods are particularly well suited to ecommerce. Unlike higher-priced goods with longer lifespans, staples like laundry detergent and toothpaste are consumed quickly and by everyone. CPG products do not generally require much research, and making shopping trips to purchase them can feel like drudgery. The ability to automate regular purchases or have an online history of past purchases from which to reorder and schedule a shipment could be more widely adopted if perceived as easy-to-use and cost-effective.

Multiple channels will help CPG companies maximize sales. While the majority of CPG sales come from brick-and-mortar stores, the online channel is poised for stronger growth. Brands can strike a balance by developing relationships with online retail partners and exploring independent or third-party ventures.

Ecommerce sites also function as customer touchpoints. Online CPG sites are more than just transactional vehicles. Shoppers come looking for prices, customer reviews, expert advice, product information or to connect with like-minded consumers. Marketers need to meet their online visitors’ expectations because even if a shopper does not convert on the spot, the ecommerce experience during the research stage could be enough to result in a future sale—either in-store or online.

Marketers should not be limited by outdated notions about CPG buyers. Moms are clearly a coveted group, but a love of convenience—one key driver of online shopping—spans demographics. Anyone inclined to shop online is a potential CPG buyer. And the growing use of tablets and smartphones for mobile commerce, currently an activity engaged in more by men, may further shake up the mix of future online CPG buyers.

eMarketer Interviews

P&G Learns Lessons from Ecommerce Effort


Procter & Gamble Interview conducted on November 8, 2011

Alice.com Fills Online Need Between Retailer and CPG Brand

Brian Wiegand CEO

Alice.com Interview conducted on October 24, 2011

CPG Ecommerce Signals ‘Huge Potential’ for Clorox


The Clorox Co. Interview conducted on October 27, 2011

For Small Brand Annie’s, Ecommerce Provides an Edge


Annie’s Interview conducted on November 1, 2011

David Berkowitz Vice President of Emerging Media

360i Interview conducted on October 25, 2011

Angela Edwards Director, Consulting Services

etailing solutions Interview conducted on October 13, 2011

Gregory Grudzinski Director, Data Services & Analytics

etailing solutions Interview conducted on October 13, 2011






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Coupon to Groupon: New Channels for an Old Tradition UK Online Grocery Shopping US Retail Ecommerce Forecast: Growth Opportunities in a Maturing Channel

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