Digital CPG Blog

Two big announcements this week that present more evidence of a growing trend in the Consumer Packaged Goods industry towards direct to consumer sales online:

Tuesday, January 12, 2010-Alice.com announces a new eCommerce platform that enables manufacturers to launch their own branded webstores that tie into the Alice.com retail experience (full release here and coverage in the Wall Street Journal here)

Today, January 14, 2010-P&G announces that it is testing a new “eStore” to sell its products directly to consumers online (news here)

CPG manufacturers have been talking about selling direct for years; 2010 is shaping up as the year that we finally see an aggressive move online.

For all you CPG veterans out there, did you ever think you’d see the day when major retailers would open up their stores to competitors?  A day, for example, where a small retailer could waltz into WalMart and put an identical product up on the shelf?

It’s happening online.  Today Sears joined WalMart and Amazon as the third big boy to launch a “marketplace” that opens up its online store to third party sellers (see news here, here and here).  eCommerce is certainly changing what it means to be a retailer.

For these big retailers, I can see how the marketplace concept makes sense, namely, by allowing them to leverage the power of their brand to expand their product selection for customers and gain incremental revenue without disrupting their own customer fulfillment costs (Sears, for example, charges each seller a listing fee and the seller drop ships products directly to buyers).  In many ways, it seems like a win for everyone involved.

Can this work for CPG manufacturers that are interested in selling direct to consumer?

In my humble opinion the answer is no for a very simple reason:  Shipping fees.

The mainstream CPG shopper expects to fill her basket with dozens of items from multiple manufacturers and take one bundled basket of goods home in a single trip.  That same shopper is not going to be excited about shopping online for these goods in a marketplace in which she has to pay shipping fees for 10 different manufacturers to drop ship a standalone box to her door.  10 boxes with 10 shipping fees doesn’t seem to work.

Is there a way to drop the shipping fees?  One method Amazon uses with their Subscribe and Save program is bulk CPG buying.  So instead of buying a four pack of bathroom tissue, I have to buy 48 rolls in order to get free shipping.  But is this really mainstream?  And even without the bulk, do I want a stand alone box on my door for bathroom tissue, toothpaste, trash bags, pain reliever and the dozens of other products I stock in my home on a regular basis?  That’s a lot of cardboard.

We’re taking a different approach at Alice.com, which like the marketplaces mentioned above, is open for manufacturers to sell direct to consumer.  But instead of consumers getting multiple boxes, they receive one Alice box of bundled goods from multiple manufacturers shipped free to their door.  By sharing the box and shipping costs (rather than drop shipping), the manufacturers can offer consumers the convenience and free shipping they demand.

Bottom line for CPG manufacturers?  The lines of what it means to be a manufacturer and a retailer are blurring online, and opportunities abound to innovate in how you get your goods into the hands of the consumer.

As we’ve mentioned previously, manufacturers in non-CPG industries are increasingly using the online channel to sell direct to consumer (for example, Internet Retailer recently announced that manufacturers selling direct to consumer is the fastest growing online retail category in this year’s Top 500 Guide).

Mattel, the largest U.S. toymaker, made news this week with a new direct to consumer website that offers all of Mattel’s well known brands under one eCommerce site.  The site, located at Mattelshop.com, includes a number of innovative social features (full coverage here).

It is very interesting to see a manufacturer combine its broad brand portfolio into a single eCommerce effort.  But what I find even more interesting is the analogy to the CPG industry.  Both the toy industry and the CPG industry have a retail landscape that is dominated by a few giants.  Mattel, for example, generates approximately 1/2 of its revenues from three big retailers, Walmart, Target and Toys “R” Us.  The national CPG brands have similar distribution among a few retail giants.

The takeaway for me?  A big national manufacturer like Mattel can take bold steps to go direct to consumer online without disrupting  its traditional retail relationships.  

Shouldn’t the CPG industry be in the same position?  CPG manufacturers have an assortment problem in going direct on their own (something we are trying to help solve with our shared platform at Alice.com).  Are there other pitfalls to a CPG manufacturer going direct that aren’t present for Mattel?  If not, I think Mattel is leading the way in what is sure to be a bigger trend online.