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.

It looks like 2010 is shaping up to be a banner year (bad pun, sorry) for digital ad spending by the Consumer Packaged Goods industry. 

According to an Adversiting Age article this week (article here), digital CPG spending has seen a big upswing in the back half of 2009, with at least one agency claiming “a hockey stick of growth in CPG.”  Interestingly, most of this growth isn’t coming in measured media like online display ads.  Instead, the growth is happening in things like social media projects, digital POP, mobile, and eCommerce initiatives. 

And herein lies the huge question for 2010 and beyond: As CPG tries to scale its digital advertising, will the industry find enough high quality places to put those ad dollars? 

In my view, eCommerce will be a lynchpin to these efforts.  If CPG brands use eCommerce as a tool to energize their websites with real consumers, those sites can serve as a centralized collection point for a host of diverse online campaigns.  As always, I’d love to hear your thoughts as well.

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.

In the past week, Walmart and Amazon have been engaging in a very public war over the price of popular new books sold online.  Walmart fired the first salvo with a $10 book price, and the two have traded cuts back and forth.  Amazon matched the $10 price, so Walmart dropped their price to $9.  Not to be outdone, Amazon and Target both went to $8.99.  Now Sears has joined the battle, with a very clever promotion (free books) that trades off the price war (more on Sears’ strategy here).

On the surface, this battle may not appear to be about CPG brands, but there are important lessons to take away.  At the end of the day, this isn’t about selling more books in the fourth quarter.  Instead, this is a battle for brand leadership.  These companies are fighting to be the most trusted, top-of-mind brand for consumers.  It is a battle worth billions.

The national CPG brands are fighting a similar battle in the face of increased competition from private label, retailer sku rationalization, media fragmentation, and a consumer focused on spending less in a tough economic climate.

Herb Sorensen recognized this fact in a very interesting commentary on the price war over on the BrainTrust blog.  In the post, Dr. Sorensen concludes that the way out of this “paying of customers to buy” is to “genuinely engage individual ’shoppers’ in personal ‘conversations.’”  The result will be an engaged and highly profitable consumer who trusts your brand and seeks our your products and marketing.

Importantly, Dr. Sorensen points out that this one-on-one strategy isn’t available exclusively to retailers.  In fact, he argues that the national brands have an even greater opportunity to use one-on-one marketing to engage consumers across all their channels of trade and realign the balance of power between manufacturers and retailers.

Will the national CPG brands respond to this opportunity?  P&G announced a clever social media campaign with its Charmin brand yesterday, and I expect we will see many more efforts like this as national brands continue to evolve their marketing to stay top of mind with consumers.  Mark Addicks, the CMO at General Mills, laid out the challenge nicely in a recent interview in The Hub Magazine: “Part of the next frontier of brand identity is how brands are going to continue to grow in this world of consumer engagement.”  It appears that national CPG brands are ramping up their digital and social media marketing to do just that.

The Meijer grocery chain announced recently that it has expanded the test of its new online/store concept called Grocery Express into the Chicago area (coverage here and here).  The concept is pretty straightforward-the customer logs onto the Meijer website, picks out the items she needs and schedules a convenient pick up time for the order.  Armed with the customer order, Meijer “personal shoppers” grab all the items and package them up for pick up by the customer in a designated parking lot pick up zone.  The customer pays an extra $6.95 fee for the privilege of zipping into the parking lot to pick up the goods.

Webvan put a fork in the online CPG industry for several years, but innovation is starting to percolate again in this market.  For example, delivery services like Amazon Fresh are expanding, and CPG manufacturers like P&G have been making some noise about eCommerce lately.  (Our company Alice.com is certainly making a run for the mainstream CPG consumer as well).

It makes sense for a traditional retailer like Meijer to leverage its existing store infrastructure to deliver an online/offline hybrid offer.  So much sense that I suspect many traditional retailers will jump on this bandwagon if the concept shows promise.  But the key question becomes whether this will attract the mainstream consumer.  Our research at Alice.com shows that shipping fees have been a huge barrier to online CPG.  Will consumers view this $6.95 fee in the same fashion?  Another high profile launch of the “order online/pick-up” model, Sears MyGopher, hasn’t faired too well.

Time will tell whether Meijer will be more successful, but we’d love to hear your views.  Is the Grocery Express concept a winner for CPG eCommerce?