The Supply Side: CPG companies lag in connecting online, traditional shopping

The consumer packaged goods segment lags Walmart and Amazon in the shift to omnichannel transformation. A report from the Food Institute and Data Impact said many market watchers believed an Amazon-like model would dominate CPG e-commerce with fulfillment from warehouses for the past five years.

But shoppers were already one step ahead, looking for a seamless shopping experience between online and offline.

“Forward-looking retailers like Target and Walmart understood that the digitization of their stores would be an asset in the war against Amazon by answering shopper demand while limiting last-mile delivery costs. This opportunity was also seized upon by startups like Instacart and Shipt,” said Yacine Terki, co-founder of Data Impact, a tech analytics firm.

No one could have predicted the COVID-19 pandemic, but the effect was seismic for retailers. At the height of the pandemic, the Boston Consulting Group estimated that 41% of online U.S. grocery shoppers were first-time users. And while there has been a slight downtick since then, a tipping point has been reached, and CPGs follow the path other sectors took at this stage of e-commerce maturity, the report states.

Online grocery is on the rise in part because of the convenience and recurring purchase options. The McKinsey Group said e-grocery appears to be stickier than just about every other online category.

“As usual, shopper demand dictated, and retailers adapted their model. Now brands urgently need to reshape their business if they want to succeed,” Terki said.

One significant difference in the omnichannel world is that consumer interactions are not centralized. Instead, each shopper selects their online store and has a unique experience in the chosen store.

Terki said the Walmart the shopper selects is among nearly 4,000 e-stores. The product, prices, promotions, sponsored products and visibility of the products are different from other online Walmart stores. This shopping experience is different, as are the products added to the basket. This complexity creates discrepancies in how the product is displayed, priced and listed. Consistent, accurate execution is impossible for brands across so many online stores without the right partners.

Terki said the existing organization of most large CPG manufacturers isn’t built for the omnichannel environment. CPG manufacturers were structured for the Amazon model with dedicated pure player teams, not omnichannel teams. He said the main challenge for those organizations is removing or limiting the silos between online businesses and brick-and-mortar.

Walmart has already done that by merging the buying and merchandising teams for stores and online into one unit. As a result, merchant buyers at Walmart now oversee the purchase of goods regardless of where they are sold. So, for example, buyers of toilet paper supervise the purchase and replenishment of all those sales in stores and online.

Walmart has said that simplifies the business when merchants have a total view of all the products they oversee. However, these buyers still have to deal with multiple merchant teams at some CPG companies that still have their teams segmented by shopping channels.

Terki said some CPGs created new roles like omnichannel managers to facilitate new workflows. Others have instituted cross-functionality in teams to ensure coordination between the business units.

“The ideal organization isn’t identical for all companies. The transition can be seen as a journey because the shift to a full omnichannel organization can’t be immediate. The shift is a long-term project with a lot of change management, and the first step is the creation of a team of experts that will lead the transformation,” he said.

Retailers like Walmart and Target understand the importance of agility, but Terki said CPGs also need to adopt an agile and entrepreneurial mindset if they want to compete. She said the test and learn approach is necessary. So is leaning into partnerships with retailers and third parties for valuable insights and co-creation.

Terki said the digital shelf is not enough. CPGs must do more. When a pure player model dominated the market, large CPG companies equipped their teams with digital shelf analytics, Terki explained. However, with the shift to omnichannel store-based e-commerce, the market is becoming more granular and complex. He said granular data analysis is the only way to respond to issues and anticipate opportunities. Only data gathered from each e-store and then rendered in a straightforward visualization is reliable, he added.

“Sample-based data is so misleading it often isn’t even directional,” he said.

In conclusion, Terki said there are several challenges now facing CPGs. However, he said the willingness to commit to digitization and experiment with emerging technologies, approaches and partnerships could equip them to be competitive and continue to capitalize on the acceleration in 2020.

“CPGs need to invest in proactive and creative online activities fueled by effective omnichannel capabilities to keep pace with the omni-shopper,” he concluded.

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.