Shopper Marketing's New Frontier: E-commerce

Specialist Shop Taps Space That's Hit $12 Billion for Packaged Goods

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How fast is e-commerce growing for consumer packaged goods? Fast enough that a new shopper-marketing agency has launched to focus solely on the channel.

Packaged goods is now a $12 billion business across a host of pure-play e-commerce players such as Amazon and Drugstore.com, and multichannel players such as Walmart.com and Target .com, said Jason Katz, exec VP-general manager of Etailing Solutions, a new unit of Wilton, Conn.-based DL Ryan Cos. focused entirely on CPG e-commerce.

Credit: Source: Etailing Solutions, survey of 1,098 consumers

Some 10% of consumers bought consumer packaged goods via e-commerce last year, double the amount from 2009. Nielsen Co. projects e-commerce will rise from around 6% of total packaged-goods sales in 2009 to 10% by 2015 in the U.S., surpassing club stores and matching drug-stores' share.

This rapid growth, combined with a very different mix of major players and shopper-marketing strategies from traditional retailing, led Ryan Cos. to launch the new unit recently, with Reckitt Benckiser and Mars Petcare among early clients.

Last year saw the launch of several new online retailers specializing in packaged goods, including Alice.com, Soap.com, Petflow.com and Procter & Gamble Co.'s own PGestore.com. Then came Amazon's $450 million acquisition of Quidsi (owner of Diapers.com and Soap.com)* and Walmart.com's counterattack, which saw the retailer adding thousands of CPG items it hadn't sold online for years since a lukewarm consumer response to the idea a decade ago.

Today, Mr. Katz believes the channel has plenty of room to grow. Household penetration of online packaged-goods shopping is still well below the 25% level in the U.K., for example.

As it stands, CPG e-commerce in total still pales alongside sales in conventional stores. Walmart alone had sales of $260 billion in its U.S. division last year, more than 20 times the sales of all CPG e-tailers combined. But e-commerce is also growing a lot faster for Walmart and others. In a Feb. 22 earnings call, U.S. CEO Bill Simon said the retailer's online sales outpaced the overall 11% growth in e-commerce growth last quarter, even as Walmart's same-store sales slid 1.8%.

"The opportunity for e-commerce in the U.S. is akin to years ago when drugstores started selling grocery products because they wanted to bring people in to increase frequency," said Greg Grudzinski, director of syndicated data for Etailing Solutions. "You're starting to see that online now with Amazon," he said, noting that the online retail giant last month began a promotion offering to deliver groceries free.

That idea appears to be working for drugstores, which increased share of CPG sales by 1.1 points to 11% last year, according to panel data from SymphonyIRI that covers all retail outlets. Market-share gains in food accounted for the majority of that share gain.

Mr. Katz, who said Etailing Solutions has been working with Amazon, said packaged goods are, in a similar vein, a major piece of its strategy to quadruple Amazon's sales to $100 billion by increasing the breadth of offerings and frequency of visits.

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But why create a dedicated shopper marketing agency for the channel? E-commerce presents a far different landscape for shopper marketing than offline retail. For one thing, growth in e-commerce is coming largely from stockup "trips," with the average online cart about three times the value of an offline cart, largely because of free or reduced shipping incentives for bigger purchases, Mr. Katz said.

Store navigation is another key factor. About 30% of online packaged-goods shoppers go through online "aisles" in a fashion similar to offline shoppers -- 40% primarily use the online search box to look up categories or brands and another 30% work off auto-replenishment lists or saved shopping lists, Mr. Katz said.

Search and auto-replenishment offer the biggest opportunities -- and challenges -- for brands. Etailing Solutions research finds that among those 40% of shoppers using the search box, 95% of sales go to products that come up on the first page of search results. And it's not always the market leader that comes out on top, particularly with "virtual shelves" often being much more crowded with also-rans.

Among those 30% of shoppers using auto-replenishment or saved lists, Mr. Katz said, winning offers huge and potentially long-lasting rewards.

"There's a sense of urgency when you think of auto-replenishment," he said. "If you're Colgate, and Crest gets on the auto-replenishment list, that's instant loyalty. It's very hard to get a product off an auto-replenishment list and a new product on. It's kind of a race to get on the auto-replenishment list right now."

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CORRECTION: In an earlier version of this story, Quidsi was incorrectly identified as owner of Pets.com. The company, acquired by Amazon last year, was owner of Diapers.com and Soap.com.

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