In January, few could have predicted the economic impact of the evolving coronavirus pandemic. By March, grocery stores were struggling to keep consumer packaged goods (CPGs), such as toilet paper, hand sanitizer and disinfectant wipes, stocked on shelves. As COVID-19 gripped the global economy, food and beverages were scarce and consumers shifted to online shopping for staple items.
Suddenly, the CPG industry faced unprecedented circumstances. A combination of an already competitive CPG market, coupled with uncertainty surrounding the pandemic, leaves many in the industry reevaluating their CPG fulfillment and distribution strategies and solutions.
One thing is clear, CPG e-commerce is now a necessity not a luxury.
What is the economic reach of CPGs? The Consumer Brand Association’s (CBA) July CPG Economic Pulse report states that the CPG industry contributes $2 trillion to the U.S. economy (approximately 10% of GDP) and supports more than 20 million jobs.
According to Statista, digital CPG sales are projected to account for approximately 10% of the total U.S. CPG market in 2022, up from approximately 4% to 5% in 2019—including all forms of online shopping, as well as click-and-collect.
More specifically, eMarketer forecasts U.S. food and beverage e-commerce sales to increase from $19.89 billion in 2019 to $38.16 billion in 2023. Andrew Lipsman, eMarketer principal analyst, says, “We expect the category to grow at above-average rates for the next few years, but it will remain one of the least-penetrated e-commerce categories for the foreseeable future.”
What does the future look like? Prior to the pandemic, Acosta provided several CPG industry predictions for 2020:
An estimated 53 percent of all purchase decisions are digitally influenced, so a seamless integration between the store and the digital experience is imperative.
Online grocery spending is expected to more than double by 2023, with the 21 percent of U.S. shoppers buying groceries online this year expected to grow significantly as retailer click and collect, and same day grocery solutions expand.
The private brands market, which represented almost one in five consumer packaged goods dollars sold last year, will continue to grow.
Loyalty will become more fragmented, with 87 percent of all shoppers and 94 percent of Gen Z/millennial shoppers using smartphones, shoppers can move seamlessly between both physical and virtual channels to meet their household needs.
In the months throughout the pandemic, many of these predictions hold true, while exposing several truths.
Digital marketplace. Consumers transitioned to online ordering for grocery orders, either for delivery or curbside pickup to avoid potential exposure to the coronavirus. With more consumers gaining a comfort level with digital storefronts, adopting CPG e-commerce solutions is critical for industry manufacturers.
While it’s widely reported that the industry has been slow to embrace CPG e-commerce platforms, expanding its omnichannel fulfillment and distribution flows are imperative to remaining competitive. CPG leaders, such as PepsiCo, Unilever and the Kraft Heinz Company, established digital stores to provide product information, communicate sustainability practices, and promote buying locations and delivery options.
A Packaging World article featured Gibu Thomas, senior vice president and head of eCommerce for PepsiCo, who described the company’s e-commerce strategy. “Over the last few years, PepsiCo has been working to be a faster, stronger, better company, one that is laser focused on meeting consumer needs and winning in the marketplace.
“Investing in e-commerce and digital capabilities and talent has been—and will continue to be—a big part of that effort,” says Thomas. “In these uncertain times, as more and more consumers are using e-commerce channels to purchase food and beverage products, PantryShop.com and Snacks.com offer shoppers another alternative for easy and fast access to products they love.”
Private label. A key component of an expanded omnichannel strategy is real-time visibility into consumer behavior and demand through analytics. Thus, collaboration and data sharing among CPG manufacturers, their suppliers, distributors, wholesalers and retailers is paramount to identify consumer trends, emerging markets and new product development opportunities.
Because of tighter consumer budgets, private labels are seeing significant growth. When products are vanishing from the shelves, brand loyalty becomes nearly nonexistent. Consumers are testing private label and other brand substitutes, with the possibility of becoming loyal customers post pandemic. Walmart, Target and Albertsons are capitalizing on their private labels with customer-centric offerings and robust data analytics.
“We see in Europe a similar trend whereas the private label business is growing very strong and well-known brands are under pressure,” Andreas Oy, Vice President of Food and Beverage market sector for SSI SCHAEFER. “Originally this development came out of discount retail like Aldi and Lidl but today all retailers are increasing private label sales,” continued Oy.
Today, SSI SCHAEFER has numerous projects with private label producing companies for beverages products, like PEG, WEG, Altmühltaler, and Vitaqua. For deep freeze applications Clarebout potato products and even within the tissue category with ICT—all have increased productivity. The pandemic certainly has private label demand growing within this CPG segment.
Direct to consumer. The marketplace is being further disrupted by growing direct to consumer (DTC) offerings, such as Hello Fresh and Blue Apron meal kits. A survey by Clutch found that more than 50% of online shoppers were also consumers of subscription box services for their convenience and novelty.
However, subscription services are only one segment of the DTC market. Due to the pandemic and widespread shift to online shopping, CPG manufacturers can capitalize on DTC fulfillment and distribution. Not only can it build a loyal customer base, but also provide valuable insights into customer preferences and demand.
Sabrina McPherson, managing director, management consulting consumer products lead at Publicis Sapient, writes, “DTC models give CPG companies full rein to adapt and innovate following market changes and consumer behaviors. This can happen more efficiently and quickly without over-relying on other retailers. With the world moving at an unprecedented pace, the ability to move with agility is critical,” writes McPherson.
“A brand can implement a digital touchpoint commerce strategy to set the business up for constant innovation. This approach involves evolving by adjusting to market change and consumer behavior shifts. It uses non-familiar channels such as social, Internet of Things and the like to create new ways for customers to buy products.”
DTC / Retail Omnichannel Fulfillment. With the new reality of consumers purchasing online, CPG companies are now having to rethink their distribution too. What was once a typical fulfillment process of cases to wholesalers and grocers has now become an omnichannel DTC with small case counts.
At SSI SCHAEFER, our food and beverage industry experts are currently working on applications that involve omnichannel fulfillment for CPG companies along with providing distribution for newer strategies like meal kitting and sample product fulfillment to be delivered directly to the customer. Food and beverage experts within the company are seeing an increase in pet food applications for e-commerce as well.
“Right now, everything from multiple zone picking applications to various mixed climate-controlled areas for fulfillment is just a glimpse of requirements we’re getting,” stated Oy. “It’s apparent that the traditional CPG path to market is anything but for decades to come, but we’re ready as always,” continued Oy.