As consumers move online, food and beverage makers struggle to adapt

As consumers purchase more of their favorite food and beverage products online, CPG manufacturers who spent decades mastering the art of brick and mortar sales are struggling to navigate the rapidly changing and largely uncertain frontier of e-commerce.

The once obligatory trip to the grocery store that manufacturers have long relied on is no longer the only way for shoppers to stock their cupboards and refrigerators. Consumers can now use their computer or smartphone for direct-to-consumer purchases, make online buys through Instacart, FreshDirect and Peapod, purchase a meal kit through Blue Apron or Hello Fresh or select a store pickup option offered by many supermarket chains.

Kantar Retail estimates e-commerce today comprises just 2% of grocery sales, meaning there is plenty of room left for growth. It’s expected that 20% of all grocery sales, representing around $100 billion, will come from online shoppers by 2022, with 70% of shoppers purchasing some of their groceries on the web, according to data from the Food Marketing Institute and Nielsen.

The challenge for many food and beverage manufacturers is figuring out how to adjust their business model for online growth without losing track of the core store sales model.

John Carroll

General manager and vice president of e-commerce, Coca-Cola North America

Coca-Cola, the world’s largest non-alcoholic beverage company, is experimenting with ways to encourage impulse buys online, shipping products directly from the bottler and working with its key customers, including Walmart and Amazon. It's looking for ways to integrate across retailers' apps, online operations and traditional brick-and-mortar locations.

"As we’re doing these pilots, as we’re working with retailers, as we’re learning about shoppers, as we’re learning about what’s going on online from the platform perspective, we’re absolutely learning as we go,” John Carroll, general manager and vice president of e-commerce for Coca-Cola North America, told Food Dive on the sidelines of the Digital Food and Beverage conference in Chicago. "This is kind of the next evolution of retail."

The blooming e-commerce space has created challenges that impact companies and consumers differently. While a cereal, spice or cracker maker might have an easier time getting its product delivered to consumers, a beverage maker like Coca-Cola, where a 12-pack of soda weighs 10 pounds, can struggle with operational costs. The soda, juice, tea and water giant has chosen to focus on products like Fresca or Tab that are harder to find on retail shelves, and where the consumer is willing to pay a little bit more to offset the shipping weights.

“We want to go where the consumer is going ... and how they're evolving,” Carroll said.

Building stronger relationships

The growth of online, and the revenue that comes with it, has attracted the attention of nearly every major food and retail company.

Campbell Soup, which gets about 1.2% of its sales online, has been bulking up its presence in the space, highlighted last year by the hiring of a former Amazon and eBay executive for a role that oversees digital and e-commerce initiatives and a $10 million investment in meal kit company Chef'd. Kellogg also revamped its business model for e-commerce by ending direct-store delivery for its snacks division, and instead shifting resources to direct-to-consumer marketing.

Retailers and food manufacturers at the conference Monday underscored the importance of responding to consumer needs quickly. That starts with both sides doing a better job of sharing data, some said.

"Built into the DNA of Peapod is the concept that we really do want to develop new and different kinds of relationships with our manufacturers," Linda Crowder, senior director with Peapod Interactive, said on a panel. "You guys have more knowledge about food trends. We know our shoppers. Let's marry the two and now we have a business that's booming for us and providing unique solutions to customers."

Major food manufacturers moving online must consider a slew of factors, including how to price, market and package products they ship, forecast future demand and effectively sort through data they collect.

A failure to prepare for the future and outline a clear strategy could cost them billions of dollars in wasted money, analysts warn. The Dialogic Group estimated food companies spent between $3 and $4 billion on technology last year, and that 60% of that money was wasted.

Losing momentum

Dan Bourgault, head of brand partnerships for Instacart, told Food Dive that companies such as General Mills, PepsiCo, Chobani and Kraft Heinz are excelling in e-commerce because they are hiring talented people who have experience in the digital arena.

Some companies struggle on little things that can have a big impact on sales, such as making sure the product description contains key words that will appear during searches or that UPC codes of popular items are listed, he said. Other businesses fail to fully grasp the shift online and simply haven't chosen to invest enough, or waited too long to make their presence known.

"In the e-commerce world, if you lose a two-point share, it’s going to cost you 2x, 3x, 4x more to gain that back even if you can because the others that were ahead of you have picked up so much momentum," he said. "Everything is built on search and everything is about being at the top of the aisle to get people to notice your brand.”

Many retailers and food manufactures admit they aren't prepared for the increase in online shopping. According to interviews and surveys that Nielsen and The Dialogic Group conducted, just 7% of retailers and 18% of manufacturers claim they have the culture or skills needed to succeed in omnichannel selling. That leaves them vulnerable to challenges from industry heavyweights like Amazon and Walmart.

Audra Carson, head of content marketing and media platforms with General Mills, said consumers are not only getting ideas for grocery shopping online, but are now increasingly starting to shop directly from a host of digital channels, including social media platforms like Facebook & Pinterest, email, apps, Google searches. An estimated 51% of all grocery purchases are digitally influenced, she told the conference.

With so many choices, the manufacturer of Cheerios, Betty Crocker and Chex Mix has made a point of being everywhere it can in order to increase the likelihood that it will grab a sale when the consumer is ready to buy.

“It doesn’t matter where the consumer wants to engage with our brands. They get to choose, not us. But as long as we’re leveraging all those interactions to turn all those potential shoppers into buyers then we’re doing our job.”

Audra Carson

Head of content marketing and media platforms, General Mills

General Mills sends out daily emails and distributes content on social media to interested shoppers with recipes and meal suggestions. It also is starting to experiment with making that media shoppable so consumers can seamlessly click and add a product to their grocery basket at the retailer of their choice. The Minnesota company also carefully watches for content trends well into the future to make sure the company can be a part of it — some consumers, Carson told the conference, are already pinning holiday cookie ideas on Pintrest.

“It doesn’t matter where the consumer wants to engage with our brands. They get to choose, not us," Carson told Food Dive after her presentation. "But as long as we’re leveraging all those interactions to turn all those potential shoppers into buyers then we’re doing our job.”

With all these opportunities to reach the consumer, General Mills and others are assessing how effective their spending is and whether one channel is more likely to lead to a sale, all in the hope of finding ways to repeat that with other customers.

“We’re selling a box of cereal or a bag of snacks for maybe $3. We can't spend a lot on that marketing. We have to make all of it count," Carson said. "As we’re trying to reach consumers in more places, that’s more money that we could spend, so how do we make the money that we do have work harder?”