Companies re-orient around e-commerce
Retailers and CPG brands need to rethink many of the strategies they have traditionally employed to drive sales and adapt them for the fast-growing world of e-commerce, said Sam Gagliardi, senior vice president of e-commerce at IRI, in a presentation at the Emerson Group Industry Day conference in Philadelphia in late September.
“More than half of the entire industry growth is now coming from the online space,” he said. “Brands have to rearrange and reposition themselves to be able to win this brand new field.”
Although only 10% of CPG sales are e-commerce driven, 56% of the sales growth is coming from e-commerce, he said, and about 49% of that growth is coming from Amazon — or a total of more than 25% of all CPG sales growth.
Amazon has succeeded by focusing on “three very simple rules,” Gagliardi said: putting the customer first, investing in new opportunities and being patient.
Walmart recently has been stepping up its e-commerce investments to better compete with Amazon, but Amazon has a tremendous first-mover advantage, Gagliardi said.
Amazon also is well positioned for the future, with 100 million Amazon Prime customers who skew young and are comfortable shopping online.
“They give Amazon $11.9 billion dollars for the privilege of shopping on their website,” said Gagliardi, referring to total Amazon makes from the $119 annual membership fee for Amazon Prime.
Amazon captures more than 50% of 25-to-44-year-old shoppers, he said, noting that these shoppers represent high lifetime value because of their relatively young age.
In addition, Amazon’s strong position in media — Prime members can access the company’s vast library of movies and TV shows — will help the company continue to drive traffic.
Reasons for optimism
Despite the outlook for significant ongoing CPG sales growth at Amazon, Gagliardi cited several reasons for optimism among traditional food and drug retailers.
First, Amazon still only captures about 3% of total retail sales, and 90% of sales still are taking place in the brick-and-mortar retail environment. Also, he pointed out that while Amazon is capturing 49% of e-commerce growth, 51% of the growth is being attributed to other online players.
“The reason that is happening is that the e-commerce environment is becoming increasingly fractured,” he said, noting that the click-and-collect model is becoming a much more important element of e-commerce growth.
By 2022, click-and-collect will account for 42% of e-commerce sales, he said. “That will open up e-commerce to competitors for other types of products that are usually too heavy, or too low cost to ship,” Gagliardi said, citing such items as soda and bottled water.
He said retailers can evaluate the value of their e-commerce sales using what he described as the e-commerce algorithm, which can be calculated as revenue equals the product of traffic multiplied by conversion rate, times basket value.
One metric where traditional retailers outperform Amazon is on basket size, Gagliardi said. “This is where the click-and-collect model is panning out,” he said. “Amazon is a spearfishing shopping trip. The Amazon Prime shopper pays for the luxury to be able to shop on Amazon, buy one thing and then walk off.”
The click-and-collect model, by contrast, is more about building out a bigger basket, which can help drive market share.
Sales and marketing alignment
The growing importance of e-commerce in the sale of CPG products also requires much more alignment between sales and marketing within product companies, Gagliardi said.
CPG manufacturers have historically pushed large volumes of product into retail warehouses on the promise of huge marketing campaigns, leaving retailers to accept much of the risk if a product did not perform as expected. Thanks to Amazon, that’s no longer the business model in e-commerce.
“Now what happens is that the marketing teams have to go out and create the awareness,” he said. “You make sure folks are able to find you and that you’re able to build ratings and reviews.”
Brand-building starts on the front lines
Consumers form an impression of brands quickly in today’s environment of instant communication via social media, said Scott Stratten of UnMarketing in a presentation at the recent Emerson Group Industry Day conference.
As a result, companies are increasingly vulnerable to negative consumer reviews online, which makes frontline employees — including last-mile partners — a critical component of brand building. “Any part of the chain is part of your brand,” Stratten said.
Empowering frontline employees to take action to keep customers happy is one way to build and enhance a brand’s image. “Great service is disarming, because we no longer expect it,” he said.
While few companies can be as empowering as Ritz-Carlton, which allows frontline employees to spend up to $2,000 to do whatever it takes to make customers happy, brands still can take steps to make it easier for their workers to provide better service.
“Everybody is the brand, and in product companies, this is exponentially more important to reinforce,” he said. “Every phone call, every email, every tweet, every store interaction or activation — these are brand pivot points.”
Although baby boomers and Gen Xers tend to look down on millennials, Stratten suggested that companies need to embrace these workers. “If you are a millennial, your entire life has been based on disruption, and that should be an asset to a company,” he said.
The ability of younger workers to navigate disruption, combined with their digital dexterity, make them ideal partners for older workers who have industry experience, he said.
“The combination of that automatic ability to disrupt and what older people have, which is wisdom — if you combine those with dual respect, then we are unstoppable,” Stratten said.
Sports lessons for the business world
High-level athletes and coaches offer lessons for the business world, said Molly Fletcher, who runs one of the top sports agencies in the country, during a presentation at the recent Emerson Group Industry Day conference.
In order to remain competitive, these high-performing individuals in the sports world have to focus on continuing improvement because of the intensity of the competition in the industry.
“They wake up and get a little bit better every day because they have to,” she said.
Fletcher listed several characteristics exhibited by elite athletes and coaches that business leaders can emulate, which she described as belief, discovery, clarity, discipline and execution.
As an example of belief, she cited former Atlanta Braves pitcher John Smoltz’s transition from starter to closer — a move he made at the request of the Braves for the benefit of the team. Fletcher helped convince him to make the transition, she said. He went on to lead Major League Baseball with 55 saves in his first season in the new position in the rotation.
“It was his ability to lean into change,” Fletcher said. “It starts with leaning into our ability to evolve.”
In terms of discovery, she cited professional basketball superstar Kevin Durant, who hired someone to analyze his shortcomings on some key metrics so that he could work to improve, over and above the coaching he received from his team.
“You need to have the courage to discover your gaps,” Fletcher said. “Making sure we discover our gaps allows us to serve our people even better.”
Discipline is another key attribute that elite athletes and coaches possess, Fletcher said. The best athletes and coaches don’t let failures affect them negatively, she said.
“Don’t let failure define you. Let it develop you,” she said.