"Finally, after decade of transformational impact on other
sectors of the economy, the new frontier of e-commerce has come to
food. Ready or not, our industry must do a much better job of
leveraging this channel."
This candid quote acknowledging the untapped potential for food
and beverage marketers in the online space was delivered by
Campbell Soup Co.
CEO Denise Morrison to analysts this summer at the company's
Online sales of food and beverages will account for only 2.3% of
the $304 billion that will be spent on e-commerce retail in 2014,
according to projections from eMarketer. Add in health and personal-care
brands and consumer-packaged goods will account for only 8% of the
online market. Put another way, online buying comprised only 1% of
the $666 billion in consumer-packaged-goods sales in 2013,
according to a recent report prepared for the Grocery Manufacturers
Association by The Boston Consulting Group, Google and IRI.
Why have big brands been so slow to implement e-commerce
strategies? There are major questions about marketers' ability --
and will -- to overcome the executional challenges of online
grocery selling, which requires vastly different marketing
strategies than operating in physical stores. No longer is it about
promotional spending and free-standing inserts; the e-marketer
operates in a world where search is the new shelf space and the
online retailer controls the consumer relationship.
If the industry can adapt, the potential is huge. The GMA report
stated that e-commerce could grow to 5% of CPG sales by 2018, or
more than $35 billion in sales, and accelerate to 10% "soon
thereafter." What's more, the report stated that this 5% share
would account for nearly one-half of the total CPG growth in the
next five years, which underscores the slowing growth of
Companies that fail to implement digital strategies "risk
stagnation, loss of share and even shrinking sales," the report
stated, while early movers "have the opportunity to establish
positions that will be difficult to dislodge."
But changing big food's mindset is a tall order, said a former
food-company executive who also has experience working for a
retailer. "National media dollars have to start shifting, so that
the call to action for the customer isn't 'Hey, come to our
website,' it's 'Buy this at Amazon,'" this person said.
But "it's just so hard to jump into the future when so much of your
cash comes from the past."
On the retail side, national e-commerce giant Amazon and
regional players such as FreshDirect and Peapod are investing
heavily in grocery delivery, while bricks-and-mortar stalwarts such
as Walmart continue to boost
their online businesses. Last week, Twitter upped its e-commerce
game by launching a "Buy Now" button.
But brands are reluctant to abandon tried-and-true shopper
marketing methods, like promoting goods in free-standing inserts,
which have reliable return-on-investment metrics, according to
experts. "There is a perception of risk," said Brian Cohen, exec VP
of Catapult eCommerce, a CPG-focused e-commerce
practice within Catapult Marketing, which is owned by Epsilon. "You've got years of history
that tells you that 'If I put an FSI out, this is the kind of
redemption I'm going to get.' I can plan against that. [But] nobody
is willing to take their entire FSI budget out and put it toward
Amazon as the media vehicle."
One reason for caution is that home delivery only becomes
economically feasible once price points hit $20 to $30, which is a
lot higher than the average grocery item, according to the GMA
report. But the economics become more favorable when consumers buy
more at once, the report noted. And tech giants such as Amazon are
willing to subsidize delivery costs to support broader strategic
goals, the report stated.
Even so, marketers run the risk of upsetting their traditional
retail partners such as Walmart and Target if they invest too much
in Amazon. Procter &
Gamble, for instance, lost favorable shelf-space treatment at
Target after it struck a deal to allow Amazon to ship directly from
P&G warehouses, according to a February report in The Wall
Street Journal, which noted that the dispute later
HOW YOUR BRAND CAN WIN ON
Brand teams should carefully manage
their product pages on Amazon the same way they monitor other
marketing. Here are three tips:
USE KEY SEARCH TERMS
Forget the fancy ad lingo and use everyday search terms that
will drive viewers to your Amazon brand page. "Marketing speak is
not customer speak," said Spencer Millerberg, managing partner at
One Click Retail. He referenced a client that sells a hair-growth
product that resisted using the phrase "hair loss," even though it
was a popular search term.
MAKE IT VISUAL
Amazon allows for multiple image slots, only requiring that the
first spot shows the package, Mr. Millerberg said. The remaining
slots should be used as advertising, touting product features,
attributes and benefits, he said. Some 95% of consumers look at all
of the images, but less than 20% of product pages have all the
image slots filled, he said, noting the missed opportunity.
PAY ATTENTION TO REVIEWS
Success is also dependent on Amazon's five-star consumer review
system. A composite four-star rating or better "requires 40% less
traffic to get the same number of sales," which is "huge," Mr.
Millerberg stated in a Sanford C. Bernstein report. He advises
brands to publicly respond on Amazon to negative reviews, which
prompts an email notification to the person posting the review.
But brands might not have a choice but to engage with Amazon,
which is aggressively eyeing CPG growth with offerings like Prime
Pantry, which launched earlier this year and allows users to select
45 pounds worth of food and household products and have it
delivered within four business days for a $5.99 delivery fee.
Another service, called AmazonFresh, available in Seattle, Los
Angeles and the San Francisco Bay Area, offers same-day delivery on
items including fresh foods. Sanford C. Bernstein projected that
Amazon has the potential to profitably target CPG sales, including
fresh food, in 47% of the U.S. market.
The former food-company executive said that until more
food-company marketing spending shifts to e-commerce, "you are not
going to see big action, you are just going to see big talk."
While marketers are talking more openly about e-commerce
opportunities, they are keeping their strategies secret. General Mills,
Kraft Foods Group,
Mondelez International and Campbell Soup all declined to make
executives available for an interview on the topic.
"I don't think anyone in food is doing well yet," Spencer
Millerberg, managing partner at One Click Retail, which advises CPG
brands on e-commerce tactics, said. "Resources haven't been applied
in a major way yet" because "customers are just now coming to
[e-commerce] and retailers are just now putting into place programs
to help sell food in a big way."
The trend is disruptive because tactics that have long worked in
stores do not work online. With in-store marketing, the goal is to
interrupt a shopper with a sign or display, which is difficult to
do online, Mr. Cohen said. "They are not walking down aisles
… they are using search bars. They are going straight to a
category and then to a brand." For instance, while shopping on
Amazon, most people would first search for "bottled water" before
entering Aquafina, he said. So it is critical for marketers to get
their brands to display on the first page of search results, which
accounts for 81% of consumer clicks, according to One Click Retail
data published in a recent report by Sanford C. Bernstein. The
first three items displayed account for 64% of clicks. "Search
rankings are the new shelf space," the report stated.
One potential boon for brands on Amazon is the e-tailer's
"subscribe and save" program, which allows buyers to get regular
deliveries of the same product. Food marketers crave such loyalty.
But the downside is that Amazon, not brands, controls the
subscriber list, said John Burbank, president of Nielsen Strategic
Initiatives. "It's the retailer who's got the relationship with the
consumer, and not [the brand]," he said. "The balance of power is
As revealed in the Bernstein report, Amazon's search algorithms
reward brands that get the most clicks and sales, which Bernstein
refers to as a "democratization" of shelf space. As a result, once
brands climb to the top of the search results, it is hard to
dislodge them because that placement alone will drive more clicks
and sales. "Latecomers to this game may need to overcome
significant first-mover advantages of the incumbents in order to
compete, which entails large upfront investments and often leads to
limited results," the report stated.
The secret to succeeding on Amazon includes carefully managing
product pages, including using visuals and key phrases to drive
search results, as well as directly responding to negative consumer
reviews, according to e-commerce experts.
The Bernstein report stated that while brands do not have the
option to improve their Amazon search rankings using direct trade
spending, there is a form of "indirect" trade spending, in which
some companies are "known to compensate Amazon for sending out
promotional emails to its customers, thereby increasing the number
of clicks for these companies' products."
But in some cases, big brands are getting beat by smaller niche
brands on Amazon, which "should be a source of concern for owners
of large national brands, which have been used to dominating the
retail scene through their massive shelf space," the report
E.J. Schultz is the News Editor for Ad Age, overseeing breaking news and daily coverage. He also contributes reporting on the beverage, automotive and sports marketing industries. He is a former reporter for McClatchy newspapers, including the Fresno Bee, where he covered business and state government and politics.