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Growing Grocery Online: Innovation in Digital Commerce for CPG
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Growing Grocery Online: Innovation in Digital Commerce for CPG

E-commerce is nothing new for many of Americans. Estimated U.S. retail e-commerce sales are hovering just below 10% as a percent of total quarterly retail sales according to the U.S. Census Bureau. And that percentage has been growing at a fairly steady rate for the last decade or so.

But for many consumer packaged goods (CPG) manufacturers and retailers, e-commerce is a newer reality. Today’s tech-savvy and time-strapped shoppers are increasingly expecting all their purchases—including grocery goods—to be available at the tap of their fingers (often for home delivery). In our Nielsen Global E-commerce and the New Retail Survey, one-quarter of online global respondents say they order grocery products online, and more than half (55%) are willing to do so in the future.

So how can retailers and manufacturers meet growing consumer demands for CPG products online? While existing digital retail platforms can reach consumers where they’re already shopping, new players—such as Jet.com, Boxed.com and Instacart—are focusing on the unique needs within CPG. Leaders from all three companies recently participated in a panel at this year’s U.S. Consumer 360 to highlight some of the innovations driving digital commerce in the industry.

“At Jet, we’re placing three big bets,” said Liza Landsman, executive vice president and chief customer officer. “We believe consumers care about price; they care about service; and e-commerce is not winner takes all…there needs to be substantive No. 3 and 4 players.”

Nilam Ganenthiran, senior vice president, business development, Instacart, agreed with Landsman that e-commerce won’t have just one winner. To differentiate from established sellers, his company’s business strategy has involved leveraging brick-and-mortar stores to scale. “Instacart is a software and logistic mechanism for local grocery,” Ganenthiran explained.

But Chieh Huang, CEO and co-founder of Boxed.com, noted: “At the end of the day, it’s not just getting cost down at scale, it’s also building baskets.” Because margins are so thin in CPG, Huang believes it’s important to encourage consumers to fill their virtual baskets and buy in bulk to keep costs low.

Fortunately, the smartphones currently in the pockets of 83% of Americans are ideally suited to the industry in Huang’s opinion: “On mobile, it’s intuitive basket building…you’re on the couch scrolling and looking at what’s available. It’s like walking the aisles at a big box store.”

Instacart also sees unique shopping behaviors on mobile, which it’s leveraging for success. “We’re seeing high list behavior and shoppers simply buying what they bought last time…as well as greater engagement with third-parties on mobile,” said Ganenthiran. In fact, third parties are helping Instacart answer the age old question of “What’s for dinner?” If consumers are looking at recipes on their phones on their way home, they can easily add ingredients to their cart and have their groceries delivered by the time they arrive.

Possibly surprising for some, both Ganenthiran and Landsman have found that mobile has proven attractive to more consumers segments than just Millennials. “A large part of our user base is ‘active seniors’ using our app to empower their lives,” said Ganenthiran. And Landsman noted that Baby Boomers are her company’s second-largest over-indexing group: “These consumers care about value, and they’re used to basket building. The ‘add this’ feature is natural to them.”

For some of these consumers, it may be their first time using digital commerce, particularly for CPG—and that presents an opportunity to shape their consumption patterns. “Imagine you had the chance to reach a consumer the first time they ever used a store—that’s the opportunity here. But one of the core things is transparency in data,” noted Ganenthiran.

“For us, we’re looking at massive data sets,” Landsman said. “One thing consumers don’t realize is, as they’re building baskets, we’re reorganizing the supply chain. We’re always looking at what is the complimentary product to go in a basket that doesn’t cause incremental supply chain cost.” And Jet leverages those insights to tailor recommendations for consumers, as well as their assortment.

For Boxed.com, being CPG-specific helps them better understand what products are related. And that data is helping manufacturing partners work with retailers to grow online and in-stores. Heat maps of where consumers are buying a brand’s products on the site give the brand the data it needs to negotiate with retailers and expand into new markets.

Instacart is also working with its partners to grow the space. “Brands are coming to us with category and brand macro challenges that they’re trying to help us solve,” said Ganenthiran. “What’s good for them is good for us. More sales are good for everyone.”

But all three panelists emphasized the need to enter the space quickly. “At the end of the day, we only partner with a few brands in each categories, so brands need to partner early,” urged Huang. “Some brands are the only entry in a category, and we’re ok with that.”

And partnering could be a good option for many retailers. “I think partnering may make sense in this space because of scale economics,” added Ganenthiran. “It’s hard to get localized density of delivery without volume of multiple players.”

The good news for retailers and manufacturers is that they have a wealth of options to move their products and stores online.

“There isn’t a single silver bullet with how CPG will be done online,” said Huang. “There’s so much money spent offline in this space that there can be multiple winners who succeed, and that will likely be the case online as well. There’s been no single winner in last 100 years, and that’s unlikely to change now.”

Moderator Keith Anderson, vice president, Strategy and Insights, Profitero, concluded: “This is going to be huge growth space for next decade.”