CPG marketers are starting to see a growth in e-commerce as more and more consumers are buying their groceries online. According to eMarketer, online sales of food and beverages will account for 2.3% of the $304 billion that will be spent on e-commerce retail in 2014. That might seem like a very small percentage overall, but a recent report (by the Grocery Manufacturers Association) states that CPG e-commerce could grow 5% by 2018, or more than $35 billion in sales.
With the increasing potential, why have many brands been so slow to implement e-commerce strategies? The answer is that there are a number of executional challenges that CPG models face – below are a couple reasons that make the e-commerce business a tough one:
Shipping Charges & Logistics
Let’s face it; no one likes to pay shipping charges, especially when it comes to groceries. According to the GMA report, home delivery only becomes financially feasible once price points hit $25, which is a lot higher than the average grocery item. So, if marketers removed or lowered the shipping costs for the customers- warehousing, processing and distribution would bring down the net profit.
Marketers run a huge risk of upsetting their traditional retail partners (such as Target and Walmart) if they invest too much in e-retailers (e.g. Amazon.com). For example, for a short period of time, “Procter & Gamble lost favorable shelf-space treatment at Target after it struck a deal to Amazon to ship directly from P&G warehouses”(Adage).
Quality and Freshness
There are a lot of unforeseen circumstances that could hinder quality and freshness in perishable food products: weather elements, location, distance, etc. Therefore, CPG marketers will need to compete in this area. For example, Amazon and Instacart (a grocery delivery service) have already established procedures to offer one-day and hourly delivery.
Lack of Customer Loyalty
One goal that retail marketers strive to do is to interrupt the shopper with a sign or display. That is difficult to do online. Brian Cohen, an exec VP of CatapulteCommerce, said. “[Customers] are not walking down aisles, they are using search bars. They are going straight to the category and then to the brand.” For instance, while shopping on Amazon, most people would first search for “bottled water” before entering “Aquafina”.