Companies re-orient around e-commerce
Retailers and CPG brands need to rethink many of the strategies they have traditionally employed to drive sales and adapt them for the fast-growing world of e-commerce, said Sam Gagliardi, senior vice president of e-commerce at IRI, in a presentation at the Emerson Group Industry Day conference in Philadelphia in late September.
“More than half of the entire industry growth is now coming from the online space,” he said. “Brands have to rearrange and reposition themselves to be able to win this brand new field.”
Although only 10% of CPG sales are e-commerce driven, 56% of the sales growth is coming from e-commerce, he said, and about 49% of that growth is coming from Amazon — or a total of more than 25% of all CPG sales growth.
Amazon has succeeded by focusing on “three very simple rules,” Gagliardi said: putting the customer first, investing in new opportunities and being patient.
Walmart recently has been stepping up its e-commerce investments to better compete with Amazon, but Amazon has a tremendous first-mover advantage, Gagliardi said.
Amazon also is well positioned for the future, with 100 million Amazon Prime customers who skew young and are comfortable shopping online.
“They give Amazon $11.9 billion dollars for the privilege of shopping on their website,” said Gagliardi, referring to total Amazon makes from the $119 annual membership fee for Amazon Prime.
Amazon captures more than 50% of 25-to-44-year-old shoppers, he said, noting that these shoppers represent high lifetime value because of their relatively young age.
In addition, Amazon’s strong position in media — Prime members can access the company’s vast library of movies and TV shows — will help the company continue to drive traffic.
Reasons for optimism
Despite the outlook for significant ongoing CPG sales growth at Amazon, Gagliardi cited several reasons for optimism among traditional food and drug retailers.
First, Amazon still only captures about 3% of total retail sales, and 90% of sales still are taking place in the brick-and-mortar retail environment. Also, he pointed out that while Amazon is capturing 49% of e-commerce growth, 51% of the growth is being attributed to other online players.
“The reason that is happening is that the e-commerce environment is becoming increasingly fractured,” he said, noting that the click-and-collect model is becoming a much more important element of e-commerce growth.
By 2022, click-and-collect will account for 42% of e-commerce sales, he said. “That will open up e-commerce to competitors for other types of products that are usually too heavy, or too low cost to ship,” Gagliardi said, citing such items as soda and bottled water.
He said retailers can evaluate the value of their e-commerce sales using what he described as the e-commerce algorithm, which can be calculated as revenue equals the product of traffic multiplied by conversion rate, times basket value.
One metric where traditional retailers outperform Amazon is on basket size, Gagliardi said. “This is where the click-and-collect model is panning out,” he said. “Amazon is a spearfishing shopping trip. The Amazon Prime shopper pays for the luxury to be able to shop on Amazon, buy one thing and then walk off.”
The click-and-collect model, by contrast, is more about building out a bigger basket, which can help drive market share.
Sales and marketing alignment
The growing importance of e-commerce in the sale of CPG products also requires much more alignment between sales and marketing within product companies, Gagliardi said.
CPG manufacturers have historically pushed large volumes of product into retail warehouses on the promise of huge marketing campaigns, leaving retailers to accept much of the risk if a product did not perform as expected. Thanks to Amazon, that’s no longer the business model in e-commerce.
“Now what happens is that the marketing teams have to go out and create the awareness,” he said. “You make sure folks are able to find you and that you’re able to build ratings and reviews.”
“More than half of the entire industry growth is now coming from the online space,” he said. “Brands have to rearrange and reposition themselves to be able to win this brand new field.”
Although only 10% of CPG sales are e-commerce driven, 56% of the sales growth is coming from e-commerce, he said, and about 49% of that growth is coming from Amazon — or a total of more than 25% of all CPG sales growth.
Amazon has succeeded by focusing on “three very simple rules,” Gagliardi said: putting the customer first, investing in new opportunities and being patient.
Walmart recently has been stepping up its e-commerce investments to better compete with Amazon, but Amazon has a tremendous first-mover advantage, Gagliardi said.
Amazon also is well positioned for the future, with 100 million Amazon Prime customers who skew young and are comfortable shopping online.
“They give Amazon $11.9 billion dollars for the privilege of shopping on their website,” said Gagliardi, referring to total Amazon makes from the $119 annual membership fee for Amazon Prime.
Amazon captures more than 50% of 25-to-44-year-old shoppers, he said, noting that these shoppers represent high lifetime value because of their relatively young age.
In addition, Amazon’s strong position in media — Prime members can access the company’s vast library of movies and TV shows — will help the company continue to drive traffic.
Reasons for optimism
Despite the outlook for significant ongoing CPG sales growth at Amazon, Gagliardi cited several reasons for optimism among traditional food and drug retailers.
First, Amazon still only captures about 3% of total retail sales, and 90% of sales still are taking place in the brick-and-mortar retail environment. Also, he pointed out that while Amazon is capturing 49% of e-commerce growth, 51% of the growth is being attributed to other online players.
“The reason that is happening is that the e-commerce environment is becoming increasingly fractured,” he said, noting that the click-and-collect model is becoming a much more important element of e-commerce growth.
By 2022, click-and-collect will account for 42% of e-commerce sales, he said. “That will open up e-commerce to competitors for other types of products that are usually too heavy, or too low cost to ship,” Gagliardi said, citing such items as soda and bottled water.
He said retailers can evaluate the value of their e-commerce sales using what he described as the e-commerce algorithm, which can be calculated as revenue equals the product of traffic multiplied by conversion rate, times basket value.
One metric where traditional retailers outperform Amazon is on basket size, Gagliardi said. “This is where the click-and-collect model is panning out,” he said. “Amazon is a spearfishing shopping trip. The Amazon Prime shopper pays for the luxury to be able to shop on Amazon, buy one thing and then walk off.”
The click-and-collect model, by contrast, is more about building out a bigger basket, which can help drive market share.
Sales and marketing alignment
The growing importance of e-commerce in the sale of CPG products also requires much more alignment between sales and marketing within product companies, Gagliardi said.
CPG manufacturers have historically pushed large volumes of product into retail warehouses on the promise of huge marketing campaigns, leaving retailers to accept much of the risk if a product did not perform as expected. Thanks to Amazon, that’s no longer the business model in e-commerce.
“Now what happens is that the marketing teams have to go out and create the awareness,” he said. “You make sure folks are able to find you and that you’re able to build ratings and reviews.”