Optimizing for CPG Commerce Growth

Over a year ago, I wrote a piece on trends driving CPG Commerce Growth that I feel needs to be revisited. The catalyst for circling back on this topic comes from a recent report published by Jumpstart related to the “CPG eCommerce Landscape.” My primary theme in the original blogs was three-fold: sell direct, collaborate with retailers and sell via marketplaces. Those recommendations still hold, but Jumpstart’s report highlights through hard facts how CPG brands should optimize these recommendations. Bottom line, they highlighted CPG purchases online have grown 22% since 2017, but most of that growth occurred in 2018. Year-over-year growth in 2019 to date has slowed to around 3%. This pushes a strategy to balance CPG sales for D2C, through retailers, and marketplaces. Let’s give a little context first on what I recommended initially.

A decade ago, many CPG brands were so concerned with their relationships with big-box retailers that they intentionally avoided a Direct-to-Consumer (D2C) approach. However, CPG multinationals faced ever-growing pressure to counteract the success of vertical digital disruptors selling subscriptions such as Dollar Shave Club and Harry’s selling shaving products, Quip selling toothbrushes and toothpaste and Chewy.com selling pet products online – all of which are doing extremely well. Here are several examples of how the multinationals changed their approach to effectively compete with these plays:

Procter & Gamble launched an online D2C subscription business for Tide Pods
Unilever’s acquired Dollar Shave Club for $1 billion and Gillette (P&G) played catch-up with its own D2C offering
Nestlé generated 8.2% of its sales from multiple DTC offerings in 2018, one of those offerings included an ecommerce site for its pet care brand, Purina.

Furthermore, CPG companies are often partnering with their retailer network to fulfill their D2C campaigns. According to McKinsey, CPG Digital Commerce winners applied 2.4 times more resources to working with online retailers than those who were not as successful. By coordinating with retailers, CPG companies can run more effective promotions online and can tailor offerings to different consumer segments. Since most CPG sales still come via retailers, pushing the boundaries on product pages across retailer websites should be a top priority. Today’s consumers expect to be impressed and elated, which requires rich product content with high-quality product images and videos, product comparisons and smart product recommendations.

Online marketplaces such as Amazon, eBay, Jet.com and Alibaba continue to be key channels in driving CPG growth today and beyond. In Q2 2019, Amazon.com drove 73.8% of CPG product transactions online. Consumers prefer online marketplaces where they can seamlessly shop multiple vendors, finding almost everything they want in one place. Plus, marketplaces offer convenient delivery options and high-end customer service, creating customer satisfaction and loyalty to the marketplace brand. So, it’s no surprise that traditional retailers like Tesco, Marks and Spencer, Walmart and Target want to expand their long tail product range to become coveted marketplaces.

The Jumpstart report did not change what I had written over a year ago, but it identified some key tactics via quantitative results on how to optimize selling direct versus collaborating with retailers or marketplaces. Here are just three findings that I found persuasive:

Direct-to-consumer (D2C) brands Care/of, Ritual and Olly have all gained traffic comparable to product views on some leading marketplace or retail sites, though Amazon.com and Walmart.com both still drive traffic volumes at a much higher rate.
Transactions of Vitamins on Walmart.com have grown 56% since Q2 2017, but niche players like Puritan’s Pride and Vitacost have been able to steadily keep customers from defecting to Amazon or Walmart.
Chewy’s challenge in pet food continues to grow, with a 25% increase in dog food transactions YoY.

These findings, plus a variety of others, led to two fundamental takeaways based on their analysis:

1. Accelerate your growth with a comprehensive view across all eCommerce marketplaces. Retailers are growing at different paces in varying categories. As a brand, you need to know which marketplaces and channels to invest in and grow your sales. For this, you need data to understand:

How is your brand performing vs. your overall category?
Which retailers are growing fastest in your category – and why?
How are your competitor’s products performing across marketplaces?

2. Maximize your paid search performance on Amazon and other online retailers. Sponsored placements will begin to play a bigger role on marketplaces. You need to understand what is driving users from search engines like Google, and how to optimize your paid media strategies within retailer sites. In essence, you need data on:

Which search strategies are driving users to a specific brand on a certain marketplace?
How are sponsored clicks driving purchases for your brand, competitor, and category?
Which search terms are driving product views on different retailer sites?

Jumpstart’s study is compelling and insightful as it leveraged factual data to show how multi-national brands need to be constantly monitoring their competition and collaborate with their partners to optimize the results they and their customers are looking for. Well done.