E-commerce gaining share of consumer packaged goods sales
Online grocery sales hit $6.5 billion in 2013
If Cyber Monday statistics are any indication of the future for the overall online sales market, it could be a bright future for the online community. According to “IBM 2013 Holiday Benchmark Reports,” Cyber Monday online sales hit a new record last year, growing 20.6 percent compared with 2012. Data was measured by IBM Digital Analytics Benchmark, which provides cloud-powered insights from approximately 800 retailer sites in the United States including online, social media and mobile devices. In its “Cyber Monday Shopping Trends of the Digital Consumer” infographic, the company highlighted department stores, home goods, apparel, health and beauty as the prime retail categories.
Although consumer packaged goods (CPGs) from the food and beverage industries don’t make the Top 5 for Cyber Monday sales, they still are seeing benefits from the online community. From 2008 to 2013, online grocery revenue increased 3 percent on average to reach $6.5 billion, according to IBISWorld’s December 2013 “Online Grocery Sales in the US” report. The Santa Monica, Calif.-based market research firm notes that despite weak sales during the recession, estimated revenue for the channel surged 6.8 percent in 2013 alone. Even with external competition from brick-and-mortar stores, IBISWorld predicts an annual growth rate of 9.2 percent from 2013 to 2018 to eclipse the $10 billion mark.
Understanding more about the e-commerce grocery world starts with shopper profiling.
Female shoppers account for 54.7 percent of online grocery shoppers, IBISWorld reports. The market research firm also found that consumers aged 55 and older account for 24.5 percent of online grocery revenue. However, it notes that millennials are becoming a key demographic as consumers aged 25-34 make up the next largest portion at 23.2 percent.
“A majority of online grocery shoppers include single- or dual-income households with no children and [people] who are technically savvy, affluent and time-poor,” IBISWorld reports.
The report cites convenience as a key driver for consumers who express little concern about price or delivery. To get that convenience, however, the consumer has to pay more, noted Carl Boraca, vice president of product management for Information Resources Inc. (IRI), during its “Selling CPGs online” webinar.
“You’re paying for the convenience; there has to be a reason that you want to pay for that convenience online, because convenience has a cost,” Boraca said.
He notes that many items online could cost more than in traditional channels. For example, the top-ranked grocery product in IRI’s multi-outlet geography is a Coca-Cola Classic 12-pack of 12-ounce cans, which retails for $3.77. However, on Amazon’s online retailing site, this same product ranks 10,779 and costs $19 plus shipping, Boraca reported.
In comparison, the top-ranked grocery product on Amazon is a Donut Shop Coffee K-Cup 50-pack for $29.99. In IRI-measured channels, the top Donut Shop item was an 18-pack ranking at 301, Boraca added.
Geoff McHale, vice president of CPG market solutions for comScore, reported in the webinar that free shipping is the most important factor that consumers consider when shopping online. Forty-nine percent rated it as the top factor, followed by exclusive online deals with 26 percent, and no sales tax with 17 percent. Fast shipping and in-store pickup rounded out the bottom at 5 and 3 percent, respectively.
As important as shopper profiles are for the online retailer, so can retailer profiles be for the shopper. Boraca explained that online CPG retailers tend to fall into one of three categories: brick-and-mortar extensions; online only with full assortment; and online only with limited assortment.
Brick-and-mortar extensions like Walmart, Safeway and Ahold’s Peapod account for approximately 50 percent of online CPG sales, Boraca said in the webinar. Online-only retailers with full assortment, such as FreshDirect and AmazonFresh, are estimated at less than 10 percent and offer packaged and perishable foods and beverages. Online-only retailers with limited assortment, including Amazon and Wine.com, make up roughly 40 percent and offer specialized products, Boraca explained.
Online CPG retailers also have different fulfillment layouts. Traditional retailers can use stock from their brick-and-mortar stores to fulfill their online sales to offer lower cost, in-store pickup and close delivery, Boraca said. However, online-only retailers typically utilize warehouses with higher capacities and better out-of-stock control and can still offer mail, delivery or pickup options. These warehouses tend to be farther from delivery sites, though.
Delivery also can be handled in different ways. Delivery from online retailers can offer a full assortment of grocery items and next-day delivery, but this service can be expensive for retailers. Mail can be a popular choice for non-perishable items, but delivery can take several days.
As online CPG retailers examine their growth numbers, mobile connections such as smartphones and tablets could be important.
“As the number of mobile Internet connections rises, Americans’ accessibility to online shopping increases, boosting demand for the online grocery sales industry,” IBISWorld reports. “The number of mobile Internet connections is expected to increase in 2014, posing a potential opportunity for the industry.”
IRI’s Boraca also reported seeing an increase in mobile usage because of its convenience but said it could have some challenges.
“One challenge with CPG in the mobile world, if you think about it, is you have to find a way to convey how to buy maybe 30-40 CPG items if you’re doing a full grocery buy on a 4-inch screen and what’s the easiest way to do [that], and that’s more difficult than some other items that are sold online,” he said.