E-commerce remains a small part of packaged-goods sales, but it's growing fast enough to drive around half of industry growth. That's also driving rapid growth of HookLogic, which is helping reinvent trade promotion for CPG e-commerce by turning it into more of a pure advertising play.
HookLogic sells the equivalent of search and digital end-cap advertising within e-commerce sites Walmart.com, Target.com, Costco.com, Peapod and more. And its CPG Network of retailers has just grown by two with the addition of FreshDirect and Drugstore.com.
Rather than work out deals individually with these retailers, brands bid across HookLogic network sites to improve their display position or insert product listings in ads that appear next to search results. Then HookLogic tracks the online sales impact across the network.
HookLogic CEO Jonathan Opdyke describes it as "aggregating the digital aisle." He said the concept has helped make CPG the fastest-growing part of a business that's helped the 12-year-old company grow by 2.5 times in the past year to more than $200 million in annual sales, with participating retailers pocketing most of that money.
Hooklogic also operates in travel, consumer electronics, apparel and other verticals. But like e-commerce itself, it took longer to truly catch on with CPG brands.
It's not that CPG e-commerce is suddenly growing that much faster: It's risen in the 15% to 30% range since the turn of the century, according to a recent report by Bernstein Research. But the growth rate has accelerated from the mid-teens to the mid 20s since the Great Recession. And that growth is now coming off a base big enough to matter a lot more.
E-commerce has gone from under half a percent of industry sales in 2001 to 3% last year, with projections it will reach 5% by 2019, according to Bernstein. For beauty, personal-care, pet and some cleaning categories, the share is already edging into the high single or low double digits.
The HookLogic concept is defined largely by what it's not. It's not banner advertising on retailer sites – something that Triad Retail Media sells for Walmart.com and others. And it's not conventional search – sold mainly by Google.
It's essentially buying a form of search advertising within HookLogic network sites, which Mr. Opdyke describes as "enabling a CPG brand to effectively own more of the shelf automatically. It's more than the search results. It's the recommended products. It's the home pages, all the different ways you can browse to a product in the store, essentially allowing brands to create online the kind of bias they do offline " through trade deals that secure in-aisle displays or endcap space, for example.
But unlike the offline world, retailers don't get the money directly from CPG companies. Brands bid for those pieces of e-commerce retail space against other brands, and retailers neither negotiate nor even know who's paying them unless they want to look at the product listings on their sites.
HookLogic intentionally avoided getting involved in direct brand-retailer negotiations, preferring a network approach based on the idea that consumers shop e-commerce differently.
"Many consumers shop across retailers," Mr. Opdkye said. "It's not necessarily about the retailer. It's about the shopper. So we've stayed away from the trade model by not having any single-retailer bidding. And we also provide data in the aggregate so you don't see any single retailer's results."
Mr. Opdyke said people often search Google for a particular product category, then click a retailer's paid or organic search result to get to a particular online store. After searching a retailer site to select a brand and product, they may return to Google search to find the lowest price across retailers, before turning to another store to close the deal. So measuring ad performance just within a single e-commerce site is difficult, he said. "But if you click this Sally Hansen product on Target but then go buy it at Drugstore.com, we'll see that."
She likes that FreshDirect gets revenue from the deal with relatively little work. "But it's also about the discovery of new products for shoppers" and helping category merchandisers do their jobs.
Of course, there remains one big holdout from HookLogic -- Amazon. The retail giant operates its own ad network and Bernstein projects it will continue to drive a disproportionate share of CPG e-commerce growth. Amazon's subscription program alone accounted for 20% of CPG e-commerce growth last year, according to 1010data.
Smaller brands have a bigger share at Amazon and elsewhere in e-commerce than they do offline, thanks to the nearly unlimited shelf space and lack of ways for big marketers to use financial clout to manage shelf space. But HookLogic is a way for big brands to apply some financial muscle online, and Amazon has systems in place similar to HookLogic, according to Bernstein.
Product rankings are based on sales rather than trade spend, but marketers can buy Amazon's offerings to increase their visibility through sponsored listings or Dash buttons for instant home re-ordering. It's unclear whether that will balance the relative advantage of smaller players online, but it's the sort of investment Bernstein says big brands need to make as e-commerce grows more important.