The Supply Side: Think Amazon and beyond when planning e-commerce strategy

Manufacturers and suppliers must have an online strategy because many categories are gravitating toward the e-commerce tipping point. Online sales totaled $453.46 billion in 2017, representing 13% of consumers’ total retail spending.

As more shoppers spend online, the pace of growth rose 16% last year for e-commerce, well head of the 3.4% growth in physical store sales, according to the U.S. Department of Commerce.

Keith Anderson, senior vice president of strategy with Profitero, said manufacturers and suppliers must make Amazon a priority in their online sales strategy, as well as Walmart. He said the two retailers are investing in e-commerce platforms, and suppliers who do business with them must think differently about e-commerce and omnichannel with respect to Walmart.

“There is no question Amazon has to be a priority for suppliers of fast-moving consumer packaged goods as online sales among this group grew by 30% in 2017,” Anderson said during a recent webinar hosted by CGPmatters and the Shopper Technology Institute. “Amazon’s share of e-commerce sales last year was 40%. Walmart.com is one of the largest players sharing the rest, and given Walmart’s grocery pickup, it’s imperative CPG companies throw some weight toward Walmart.com in addition to Amazon.”

He said it’s not uncommon for supplier teams in Bentonville calling on Walmart brick-and-mortar to be understaffed or even underfunded when it comes to their counterparts calling on Amazon. He said product manufacturers need to allocate talent, time and funds toward Walmart.com because the retailer’s omnichannel push is front and center. He said the suppliers must align their strategies to specific goals with respect to Walmart omnichannel and Amazon.

He said the time for CPG companies to reinforce e-commerce strategies is now. Amazon is going after more consumer packaged good sales, reporting it sold $650 million in CPG items in the first quarter of 2018. That’s a 48% increase from a year ago. Packaged food items bought frequently by Amazon shoppers include: coffee, salad dressings, baby food, cereal bars, energy drinks and soda.

A report from One Click Retail notes some packaged foods like Bai, RXBAR and Soylent are outperforming traditional brands because they sell well on Amazon.com. Anderson said traditional CPG suppliers are late to the show in some cases and niche brands are taking share. More traditional brands are acquiring niche startups to give them a better foothold into trending items. Cereal maker and food giant General Mills recently acquired pet food brand Blue Buffalo. Last year, Blue Buffalo reported $250 million in net sales, up 75% from the prior year. Many of Blue Buffalo sales were online from Amazon as well as specialty e-tailer Chewy’s. General Mills reported its e-commerce sales grew faster than the entire online food category in 2016, and that will no doubt increase with the Blue Buffalo deal.

Amazon continues to push its Prime Pantry service, which offers non-perishable household items like breakfast cereal, laundry detergent and shampoo delivered on auto-shipment, and that’s a threat to brick-and-mortar stores and even Walmart grocery pickup. Spice company McCormick & Co. is Amazon’s second largest customer, achieving triple digit sales growth online. Anderson said Amazon is just scratching the surface with CPG.

For now, consumers tend to shop Amazon for small grocery of a few items and still go to brick-and-mortar retailers like Walmart or Kroger to fill online shopping carts and retrieve them in stores. Anderson said CPG companies need to make sure they are covering all their bases at Amazon and Walmart. He said outside these two giants there are other possible plays worth considering.

Starting at Amazon is a must, then building out an omnichannel strategy with Walmart that positions a supplier to grow with the retailer as it continues to increase its online presence is crucial. Beyond Amazon and Walmart, Anderson said suppliers need to look at other outlets from speciality plays like Chewy’s for pets or middle intermediates like Instacart.

He said suppliers should begin by looking at who’s growing, who’s got the momentum and who’s growing market share. Then determine if the retailer is right for a particular business. In other words, does it have the expertise in the right categories. Anderson said yogurt suppliers would need to know if the retailer has cold chain capabilities and can handle perishables. It’s equally important to look at a retailer’s mix of products — national brand versus private brands. For instance, what kind of competition would a supplier brand be up against if it joined another retailer like Aldi or Trader Joe’s.

Packaging size requirements are also a concern for CPG suppliers because it can be quite expensive to reconfigure pack sizes for multiple retailers. He said suppliers should review a retailer’s target market and make sure it aligns with those a supplier is trying to reach. For instance, pet collar makers can be sure Chewy’s is reaching pet lovers and enthusiasts, which is also a core market for the supplier.

Lastly, Anderson said suppliers need to be sure they can trade profitability with the retailer — if it’s not a profitable for each party then why waste the time and energy to sell there. He said it’s important for CPG suppliers to look at the wild west of e-commerce as a playground to migrate through with a map and travel plan. He warns against jumping in without a plan because there are plenty of obstacles and most companies have limited budgets to spend. He said a well-crafted strategy can help suppliers stretch their marketing and trade dollars further to get the best overall rate of return.

He also warned of concentrating too much business with one retailer. He said it wasn’t uncommon for Walmart to have anywhere from 10% to 30% of a supplier’s business a few years ago. That is changing, as the retail universe continues to expand. He said each supplier should have its own e-commerce plan rooted in company goals for growth and profitability.

“Suppliers need to follow the online growth opportunities that best align with their products and company goals,” he added. “There is a plethora of options, and the worst thing a company can do is nothing.”
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Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.