As of December 2019, online shopping was only 3% of grocery. There were forecasts 20 years ago claiming that number would be 20% by 2005. That’s a bad miss.
Against this dismal historical growth, the pandemic created a 56% growth in online buying of CPG in one week in April. This is a massive spike, but will it stick?
To answer that question, we can look at what’s really changed -- and whether it will change back.
Consumer habits, for example, are fundamental, and they have changed, but they changed to overcome a specific and, we hope, temporary problem. The more fundamental bits of friction have their roots in the perennial power struggle between retail and manufacturing, which seems to be at a decades-long stalemate.
The online buying experience for CPG is generally awkward. When all the parts -- from search to branding to fulfillment and service -- work together, buying is a breeze. Mostly, however, they don’t. Here are some examples.
Ad platforms (Google and Facebook) create confusion by treating trademarks as though anyone could use them for anything. For example, you, yourself, can buy an ad mentioning a brand regardless of your intentions or the click destination.
CPG companies are hemmed in by regulation and retail power. For example, CPG can’t refer me to my favorite retailer because the government has made favoritism illegal via the Robinson Patman Act. It’s so fearsome that big CPG companies won’t use affiliate marketing, arguably the most common tool for online selling. Data is not shared across the divide, so CPG can’t compete using normal direct-marketing approaches.
Retailers grab consumer attention on the back of borrowed brand equity by purchasing search terms for brand names. Once they have the consumer front and center, they offer private label alternatives. Brands can’t push back for fear of reprisal. Congress is investigating abuses of private label in which retailers copy aspects of a branded products -- packaging art, formulation, etc. -- to use in a low price competitor.
How does this rift play out? Say I search for “Pantene.”
The #1 listing is a paid ad from Pantene. The links do not lead to a shopping cart, or even a retailer. The click goes to the Pantene home page, which apparently assumes I went there as a result of wanting to know what products Pantene sells as opposed having some sort of product information need, or wanting to make a purchase. It’s a pushy, aspirational sell.
The #2 listing is an organic listing for Pantene, but it leads to the same vacuous home page. If you went there to buy Pantene, the path to “shop” is painful. Three non-obvious clicks later, you can select a retailer, and then you get to run the gauntlet of attempts to further monetize your scant attention.
Four of the next eight listings are for retailers who sell Pantene. The retailers try to monetize the attention of a presumably hair-interested visitor in several ways. They offer alternative brands, often-creepy mass-produced editorial, ratings by shills, and impulse prompting like “often bought with …” It’s a three ring circus of hard sell. Retailers get this attention because they bought the Pantene brand name from Google, who was happy to sell it even though the search giant doesn’t own it.
If consumers do not search, but instead click on an ad, or content, they are likely to be directed to the home page of the CPG website. This starts the slog via the brand home page.
The manufacturing/distribution rift is so pervasive it ends up built into the machinations of our industry. Is the ad “performance” or “brand”? Is the business model “D2C” or “pull-through”? Were the media dollars “trade” or “above the line”? Where is the customer is all this?
The Path to De-escalation
The technology to build brand content into a dynamic shopping experience exists. Eric Martell, co-founder of startup Pear Commerce, puts it this way: "Web technology today is perfectly capable of turning every click into a collaboration. The problem is getting both sides to take the leap.”
It’s crazy to imagine that the fundamentals will change overnight, or that CPG and retail will suddenly be willing to engineer a seamless experience for consumers. Neither party is unaware of these dynamics, but executives in each camp downplay the contribution of the other. Too bad.
Amazon, having cracked the code, encourages the manufacturer/retail rift because it drives customers into its arms, but the lesson is clear enough. Either retail and manufacturing should lay down their arms and build a seamless experience, or Amazon and D2C will continue to take share. Grocery has more to fear from Amazon than CPG, so you would think that’s a good place to start.