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ARE YOUR MODERN RELATIONSHIPS ECOMMERCE- READY?
CPG SALES
2 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
Online channels, which used to be the least productive conduit to sales, are now exhibiting an annual growth rate of 8.8 percent that far exceeds growth rates of other channels. Sales in traditional large-format stores, for example, are growing by just 2.7 percent.If the pace of online sales growth continues—and there’s no indication it won’t—eCommerce will be the fourth largest channel for consumer packaged goods (CPG) sales by 2022 (see Figure 1).1
Figure 1. Ranking of CPG channels, by penetration
1
2
3
4
5
6
7
2010
ECOMMERCE
DIRECT
DISCOUNTERS
HEALTH& BEAUTY
PROXIMITY
SERVICEOUTLETS
LARGEFORMATS
2016
DIRECT
ECOMMERCE
DISCOUNTERS
HEALTH& BEAUTY
PROXIMITY
SERVICEOUTLETS
LARGEFORMATS
2022e
DIRECT
DISCOUNTERS
HEALTH& BEAUTY
ECOMMERCE
PROXIMITY
SERVICEOUTLETS
LARGEFORMATS
Source: Accenture Growth Analytics, 2017.
3 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
The growth of online purchasing presents a tremendous opportunity for CPG companies to develop new business models, assets and revenue streams—both in and across online and traditional channels. The circular economy, tailor-made and on-demand services, automated retail using AI and IoT, and subscription-based retail models with automatic renewals are just some of the ways CPG companies can capture billions of dollars in new revenue. In 2010, online sales generated $21 billion in revenue. By 2016, that figure had climbed to $60 billion. In 2022, it is expected to surpass $108 billion for the Top 10 eCommerce markets.2
But eCommerce is much more than a channel for sales. For those customers who won’t buy a product unless it is available online, eCommerce serves as a stand-alone market.Above all, eCommerce is a direct conduit to the consumer and to a much better understanding of consumer personas and preferences. As customers increasingly block third-party tracking, a direct-to-consumer conduit allows CPG companies to capture rich consumer data and insights that they can subsequently use to create more relevant and satisfying experiences across all channels.
In fact, the digital footprints that online shoppers leave behind are arguably as valuable as the tangible online purchases they make. By leveraging their direct-to-consumer channels for insights, CPG companies can generate higher returns from their existing CRM investments because the eCommerce customer data is complete, accurate, timely and qualified.
Leading CPG companies recognize the imperative of building their eCommerce capabilities as a critical step on their journey to becoming a modern CPG company. Those that invest wisely in core areas of eCommerce today will be the ones to deliver endless aisles, capture endless insights, and pursue endless opportunities for growth in the years ahead.
eCommerce is on track to be the fourth largest channel for CPG sales by 2022.
4 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
Currently, traditional distribution and retail models continue to dominate CPG sales, accounting for approximately two-thirds of consumers’ CPG spending. While a number of offline purchases begin with an online search, some consumers simply prefer in-store experiences. For example, some want to inspect products (especially food) in person. Others simply don’t want to wait for delivery. Our research found that while more purchases are being made online, more than 70 percent of customers still enjoy the act of browsing and shopping in physical stores.3
But online channels have their advantages too. Our research found that the top reasons for online shopping are convenience, time savings, the ability to browse a wide range of brands and products quickly, and home delivery. Additionally, online purchasers can often take advantage of new value-add services such as personalized product recommendations or pre- or back-ordering opportunities that often aren’t available in retail stores. Automated or virtual shopping lists, mobile in-home scanners, and automatic reordering of often-used items are increasingly attractive to digitally savvy consumers.
In developing their omni-channel sales strategies, CPG companies should consider what consumers value in their shopping experiences. They must also understand the product categories that can be more effectively sold online (e.g., office supplies) and in-person (e.g., lettuce). Only then can they design their product assortments, allocations, promotions, packaging and fulfillment capabilities to win the hearts and minds of consumers, across all modes of shopping.
More than 50 percent of consumers already purchase some CPG products online. Our mature markets research, which examined CPG buying patterns in the United States (US), the United Kingdom (UK) and Spain, suggests that figure will rise over the next three years—from 53 to 59 percent in the US, and from 59 to 63 percent in the UK and Spain. At the same time, consumers in each country are expected to spend less in physical stores (see Figure 2).4
Among all consumers, online spending is expected to increase by approximately 4 percent between 2016 and 2019. Male consumers, households with children, and consumers in urban areas are expected to transition more of their spending online. The greatest shift, however, will be seen among consumers born after 1965, who tend to be more digitally savvy and more comfortable in the online shopping environment. Millennials already spend 56 percent more of their CPG budgets online than do Baby Boomers (39 percent versus 25 percent).5
FOLLOW THE MONEY
24% of the CPG eCommerce growth will come from market growth; 76% will come from cannibalization of other channels—mainly large-format stores and service outlets.Source: Accenture Growth Analytics, 2017.
5 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
Figure 2. Online channels will capture more of every $100 that consumers spend on CPG products in the next three years
69%
65%
31%
35%US
UK
SPAIN
TRADITIONAL RETAIL ONLINE RETAIL
63%
60%
37%
40%
67%
63%
33%
37%
20162019
Source: Online Spend by all Consumers on CPG Categories expected to increase by 4% to 11% between 2016 and 2019 - data derived from Accenture Research Estimates, Euromonitor International, 2016 and PlanetRetail Ltd.
Developing online channels that appeal to younger consumers is a smart move. But CPG companies can further refine their online investment strategies by looking at distinct pockets of value. Targeting the right high-growth areas starts with understanding geographic and product category growth opportunities. With those insights, CPG companies can develop specific initiatives aimed at boosting online sales of targeted products and strengthening their omni-channel sales strategies.
Accenture growth analytics models predict that the Top 10 CPG eCommerce markets will be worth $108 billion by 2022. The largest will be China (see Figure 3). With an estimated $55 billion in online CPG sales, China will more than double the size of its 2015 online marketplace and make up 50 percent of the world’s CPG eCommerce market. The second largest market will be the US, representing $14 billion in revenue potential. Rounding out the top three markets is the UK, with a projected $10 billion in revenue.6
CAPTURE THE VALUE
6 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
1
3
8
9
US $14B
UK $10B
$4B
$8B
$2.4B
$2.4B
$1.5B
$2.3B
$5B
CHINA $58B
26
7
105
4
PENETRATION (in percentage)
1
RANK MARKET
China
2 US
3 UK
4 Japan
5 France
6 S. Korea
7 Germany
8 Brazil
9 Australia
10 Spain
5.5
2015
1.3
4.7
2.2
3.2
6.5
1.0
0.5
2.5
1.8
9.2
2022e
2.2
6.8
3.5
4.5
7.9
2.0
1.6
4.0
2.8
66
GROWTH
68
45
54
41
21
101
198
61
51
Figure 3. CPG eCommerce revenue potential for the top 10 markets exceeds $100 billion by 2022
In terms of CPG product sales, beauty and personal care products are—and will likely continue to be—the most popular online categories. But there are significant variations by country (see Figure 4). For example, in the US, the top three projected online sales categories are cosmetics, skin care products and set kits. In Korea, diapers, baby food and rice take the top spots, with coffee and bottled water also representing strong sales opportunities. In Australia, wine, spirits and beer have solid sales potential. In Brazil, fragrances and male grooming products represent unique growth categories. And in the UK, sales in nearly every product category are expected to demonstrate healthy online growth.7
China’s CPG online market stands apart. Nearly all product categories there are expected to experience a 5 to 10 percent increase in online market penetration over the next five years. In 2022, 40 percent of diaper purchases, 33 percent of baby food purchases and 27 percent of skin care product purchases will be made online. Given the sheer size of these markets in China, the growth in online penetration translates into billions of dollars of additional revenue for CPG companies that target their online efforts appropriately.8
Source: Accenture Growth Analytics, 2017.
7 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
Figure 4. Projected online penetration of product categories, in percentage, by country, in 2022
CATEGORIES CN US UK JP FR KR DE BR AU ESNappies, diapers and pants 40 9 18 12 10 68 8 3 5 1
Baby food 33 2 12 6 9 54 7 3 7 3
Skin care 27 20 15 12 6 13 11 6 9 9
Set kits 22 23 16 17 13 10 5 3 12 8
Baby and child specific products 35 8 19 5 10 15 6 4 7 3
Color cosmetics 31 15 17 19 14 14 14 5 11 11
Fragrances 18 15 30 19 8 31 10 16 17 13
Sanitary protection 15 1 5 3 4 13 2 1 3 1
Mens grooming 23 11 17 7 7 12 6 8 8 9
Bath and shower 22 8 14 6 7 10 5 3 6 7
Facial tissues 14 1 9 6 3 4 1 0 3 1
Hair care 26 4 15 5 6 8 4 2 5 8
Oral care 23 3 9 3 5 4 2 1 3 6
Wine 15 2 11 3 4 1 4 4 12 1
Tea 15 1 5 3 2 1 6 1 1 0
Drinking milk products 12 1 6 1 5 13 1 1 2 3
Toilet paper 13 1 7 7 6 3 1 1 4 2
Laundry care 15 2 9 3 4 10 2 1 4 2
Rice 3 1 7 10 2 31 2 1 1 2
Chocolate confectionary 12 3 6 5 6 1 1 1 4 3
Sugar confectionary 8 2 5 3 2 1 1 1 3 1
Biscuits/cookies 8 2 6 3 6 11 1 1 2 7
Yogurt 6 1 7 1 4 13 1 2 2 2
Sweet and savory snacks 8 1 7 2 1 3 1 2 2 3
Coffee 11 2 5 3 5 17 2 1 1 1
Spirits 3 1 6 3 2 0 4 1 9 1
Ready meals 2 1 6 4 3 2 1 1 5 3
Juice 4 1 7 2 4 14 2 1 1 1
Beer 3 1 5 4 3 0 1 0 9 1
Bottled water 3 1 4 3 4 20 2 1 1 2
Sports and energy drinks 2 3 5 1 6 7 1 0 0 2
Carbonates 1 2 5 3 4 11 2 1 1 2
Oils and fats 2 1 5 2 7 2 1 1 2 3
Processed meat and seafood 2 1 5 1 6 0 1 1 1 2
Processed fruit and vegetables 2 1 6 1 5 1 2 1 2 1
Baked goods 2 1 4 0 4 1 0 1 2 3
Cheese 2 1 4 1 4 0 0 0 1 3
Sauces, dressings and condiments 0 1 1 3 1 1 1 0 1 4
Source: Accenture Growth Analytics, 2017.
8 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
THE “NEW NORMAL” BRINGS NEW CHALLENGES
Small CPGgrowth
+49%
+3%
-2.7%Large CPGgrowth
Market share of large US CPG firms
has declined since 2011
Note: Extra small: <$100M sales, small: $100M-1B 2015 sales, midsize: $1B-5B 2015 sales, large >$5B 2015 salesExcludes private sales; numbers may not match because of rounding.Source: Nielsen Breakthrough Innovation Report (US), June 2016.
The growth in eCommerce is creating new opportunities for CPG companies to re-imagine the products, services and experiences they offer. But large and long-established CPG companies aren’t the only ones looking to capitalize on them.
Online sales and engagement touchpoints have leveled the playing field and introduced new sources of competition. Not long ago, large CPG players prided themselves on understanding their consumers better than others in the value chain. But now large tech companies, which dominate search and social media, own the most valuable consumer insights. They are using those insights, along with their considerable reach, to wield extraordinary influence on what shoppers ultimately buy.
• 38 percent of US consumers turn to Amazon as the starting point of their product search
• 35 percent begin with Google
• Only 21 percent start their online shopping journey at a brand or retail website9
The use of online search engines such as Google makes the case for CPG eCommerce even more compelling. A brand needs an eCommerce presence if it wants its products to show up in customers’ online product searches.
From the other side, large CPG companies are facing greater competition from small, digitally agile CPG companies (see Figure 5). Barriers to market entry are now lower for new players. Additionally, because these emergent companies are often digital by birth, there is no need to invest in a digital transformation. Many of these companies operate in specific markets and are able to quickly capture the pulse of their consumers. With digital advances, they don’t have to rely on expensive TV advertising to gain the visibility they need. And, with the emergence of new digital start-ups that offer supply chain planning, fulfillment and last-mile delivery services, small CPG companies don’t need extensive distribution networks that have distinguished large CPG companies in the past.
Small- and mid-sized companies accounted for 46.4 percent of total CPG sales in 2015. That’s up from 43.8 percent in 2011. These are the companies now driving category growth. Large manufacturers, by contrast, are experiencing barely any growth at all.10 This begs the question: Are established CPG companies modern enough to compete?
Figure 5. Smaller CPGs pose a major threat
9 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
In the world of eCommerce, large CPG companies no longer have the built-in advantages they once did. Both sets of competitors are better at understanding the needs, preferences and behaviors of their customers, thanks to consumers’ digital agility and maturity. And both sets have established business models that are specifically geared for the eCommerce environment. Large CPG companies, in contrast, have built their business models on the strength of their physical distribution capabilities. And they have not built the digital capabilities necessary to capture and analyze the customer data that underpins today’s successful sales and marketing strategies. CPG companies need to pivot to become a modern enterprise to understand, engage and sell to their customers. If they don’t build the eCommerce skills they need to support that pivot, they run the risk of becoming just “manufacturers.” Their relevance to consumers will diminish. In many cases, it already has.
10 | CPG SALES: Are your Modern Relationships eCommerce-Ready?
See Building Modern Relationships to Drive CPG Sales, our second point of view in the eCommerce series, to learn more about the capabilities CPG leaders are developing to take optimal advantage of the eCommerce opportunity.
Are you ready to move to modern?
WHERE DO WE GO FROM HERE?Against this backdrop of unprecedented eCommerce opportunities and threats, CPG leaders are struggling to chart the right path. In our survey of global CPG leaders, we identified the burning questions that keep them up at night.
• How can we reclaim consumer intimacy and earn the right to consumers’ data?
• Where should we invest to optimize our brand and deliver the holistic, relevant and personalized experiences our customers expect?
• How can we reclaim category captaincy? What does “category captaincy” even mean in an omni-channel, “always-on” world?
• What does the “perfect store” look like in an omni-present world?
• How can we build the agile operations necessary to meet our customers’ online demands?
Answering these questions will enable CPG companies to begin their journey toward a new way of working. It’s a journey that passes through three levels of digital maturity: 1. Master brilliant basics; 2. Gear up for differentiation; 3. Lead the pack. And it’s a journey that must begin today.
AUTHORSLARRY THOMAS Managing Director, Products, Customers and Channels [email protected]
HARSHA RAZDAN Managing Director, Products, Customers and Channels [email protected]
VARUN GULATI Senior Manager, Consumer Goods & Services [email protected]
CONTRIBUTORSHAKAN NIZAM Senior Manager, Accenture Digital [email protected]
PRAKASH KALVAKUNTLA Senior Manager, Accenture Growth Analytics [email protected]
ANKUR SABHARWAL Senior Manager, Products, Customers and Channels [email protected]
REFERENCES1. Accenture Growth Analytics, June 2017.
2. Ibid.
3. Accenture Mature Markets Survey, 2016.
4-5. Ibid.
6. Accenture Growth Analytics, 2017.
7-8. Ibid.
9. Power Reviews, “Mapping the path to purchase,” 2016.
10. IRI data for MULOC (multi-outlet + convenience) and Nielsen Breakthrough Innovation Report, June 2016.
ABOUT ACCENTUREAccenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions – underpinned by the world’s largest delivery network – Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With approximately 442,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com.
ABOUT THE RESEARCHTo understand whether (and how) CPG companies are positioned to thrive in the “new,” Accenture surveyed 3,000+ digitally savvy consumers—or those who are comfortable with new technologies and digital devices and who consider the Internet an important part of their lives—across various geographies and age groups. Our research not only revealed how their behavior is evolving, but also provided valuable insights into what CPG companies can do to win them over in an omni-channel sales/marketing environment.
Accenture Analytics also devised models to understand the components of eCommerce growth for each of 72 CPG product categories across geographies. Starting from the fact that eCommerce growth is largely driven by economic development, we applied a regression-based approach to identify the direction and extent to which each component can influence the evolution of eCommerce growth globally. A group of factors—which are independent of income and will, therefore, drive eCommerce differently in different markets—were identified. They include: the adoption of new technology, purchasing power of the consumers, online access (mainly through smartphone use) and logistics performance (specifically, the ability to offer last-mile delivery). The forecasts generated by the Accenture Analytics models help CPG companies understand the dynamics of categories and channels across different markets.
Copyright © 2018 Accenture. All rights reserved. This document makes reference to trademarks owned by third parties. All such third-party trademarks are the property of their respective owners. No sponsorship, endorsement or approval of this content by the owners of such trademarks is intended, expressed or implied.
