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Another bold innovation by Amazon.com, Vendor Flex, could have enormous repercussions for consumer packaged goods (CPG) companies. The online giant has reportedly begun working symbiotically with its vendors to speed delivery times to consumers, and one strategy in this effort includes operating inside some supplier warehouses to send products directly to their customers, notes The Wall Street Journal.
A TechCrunch article compared the new program to a remora, the suction-cupped fish that attaches to a host for transportation, protection and convenient leftover feeding materials, and notes Amazon.com could very well follow the same model into the grocery business by attaching itself to factory farms, industrial bakeries and other food suppliers.
Reports about the Vendor Flex program come on the heels of news that Amazon.com is expanding its online grocery business in a big way. That announcement, of course, has brick-and-mortar retailers scrambling to find their footing, even as eBay Now and Google Shopping Express also take aim at prospective point-and-click shoppers. But CPG companies have just as much to gain or lose and should be attuned to shifting delivery models -- and marketing opportunities.
Right now, online grocery is rising at an annual rate of 9.5 percent, notes market research firm IBISWorld. And in a recent forecast about online grocery shopping, market research firm The Hartman Group noted the CPG component of the market alone is expected to increase from $12 billion in 2012 to $25 billion by 2014.
In an earlier article, we explored how brick-and-mortar retailers can make the most of their inherent strengths while adapting to this brave new online world. But CPG companies have as much to gain or lose and should carefully consider the impacts of online buying and online and mobile browsing -- activities that increasingly influence what consumers place in their shopping carts -- whether real or virtual.
Tetra Pak Retail Marketing Manager Dave Fleming identified three avenues CPG companies should be thinking about when it comes to online engagement:
• Tapping Into Direct Sales, which offers opportunities, challenges and risks. As customers grow accustomed to shopping online for food, some brands will consider direct sales, particularly of the non-perishable, center-of-the-store goods customers need on a regular basis. “These ‘planned replacement products’ are the most conducive to online shopping,” says Fleming. Bulky items, such as cereal, shelf-stable milk, water, children’s beverages, soups and broth, paper towels or other packaged goods can be bought for storage in the pantry with consumers enjoying the convenience of not having to lug them home. Several companies have sprung up in this space, such as diapers.com (which is owned by Amazon.com) and Dollar Shave Club for razor blades.
One challenge of direct sales, of course, is building an affordable and sufficiently speedy delivery architecture -- a problem that Amazon.com’s Vendor Flex hopes to solve for some companies. Finally, while online shopping is growing, it’s still a relatively small fraction of the goods customers buy. CPG companies still need brick-and-mortar retailers, which control the shelves where the vast majority of products continue to be bought and sold, and should take care not to alienate them as they reach for other opportunities.
• Creatively Maximizing Mobile, which is becoming an increasingly important avenue for grocery shopping. Many shoppers now use their mobile phones in stores to pull up coupons, comparison shop, find nutritional information or check recipes. And yes, some shoppers are buying with their phones. In China, where home delivery shopping is expected to grow by 65 percent this year, the e-commerce company Yihaodian plans to open 1,000 “augmented reality” markets, in which products are projected onto blank spaces throughout the city. Mobile users can then point and click to generate a home delivery order from 1,000 or more items at “Unlimited Yihaodian,” as the virtual stores are called. Virtual markets may be some way off in the U.S., but for the ever-connected Millennials, mobile links with retailers enable and increase social media-style shareability. If consumers find a product or a hot deal they want to tell a friend about, broadcasting that information is just a click away.
• Launching New Products and Increasing Engagement, which CPG companies can achieve through their websites. The Internet offers manufacturers tremendous marketing potential above-and-beyond what shoppers get in brick-and-mortar stores, notes Fleming. For example, it allows for a broader variety in size offerings; lets product labels carry expanded nutritional information and recipes; and creates a way to provide consumers easy access to sustainability, traceability and environmental impact information. Online shopping also enables manufacturers to assess real-time changes in how customers interact with the products they shop for, whether or not they end up buying online.
“Marketing online can be challenging at first, but there are real opportunities here to get consumers engaged with a product,” says Fleming.
One example that hits home is targeting introductions and promotions for new and innovative products. With sophisticated online applications, brands will have more tools at their disposal to take creative and ambitious chances, even economically by using social media, and get noticed.
So where does all this leave CPG companies?
As digital commerce matures and e-commerce giants continue to innovate to grow market share, CPG companies are faced with a delicate balancing act. Emerging e-shopping channels offer increased opportunities to target and to gather information about consumers while interacting with them in novel ways. But analysts continue to predict that well into the future, consumers will want to buy at least some types of products in person, which means preserving and maintaining existing relationships with brick-and-mortar retailers are just as important as ever.
Suley Muratoglu is VP, Marketing & Product Management for Tetra Pak Inc. U.S & Canada.