Editor's Plate / Business Strategies

Editor's Plate: Food and Beverage Processors Need To Develop an eCommerce Strategy

Could the Internet decimate grocery stores like it did to storefront travel, music and book selling?

By Dave Fusaro, Editor in Chief

When we began researching this month’s cover story on “The Changing Retail Landscape,” it became apparent the scariest new ground for food and beverage processors and their retail partners is eCommerce. Ironically – or maybe appropriately – we ran out of room in the cover story and couldn’t cover this angle in print. That part is in the online version of the cover story, but I’ll relate most of it here.

That’s one of the nice things about the Internet: its size is limitless.

The World Wide Web decimated traditional ways of selling travel, books and music; will it similarly rewrite food retailing? “Could Amazon do to groceries what it did to books?” was one headline I found on the Internet.

As a food and beverage processor, what happens to your retail customer deeply affects you. But you’ve rolled with the punches before, supplying the mom-and-pop grocery stores I grew up with, then their replacements, the giant chains ... as well as warehouse clubs, mass merchandisers, dollar stores and drug chains. I recall a cover story we did quite a while back (September 2004) when Sears opened its first (and I think only) Sears Grand store with the goal of selling groceries alongside the shirts, refrigerators and Craftsman tools. I don’t think Sears ever replicated that suburban Chicago test store, but Walmart certainly perfected the concept. Whoever thought Walmart would become the nation’s biggest grocer?

There’s no doubt eCommerce is rapidly growing, albeit from a tiny base. “Some CPG manufacturers say that more than 40 percent of their growth has come through digital commerce,” says a Willard Bishop report on the subject. “While supermarket sales for many manufacturers have been flat, those with an active eCommerce strategy are the beneficiaries of this new-found growth.”

Yet it currently accounts for just 2 percent of total CPG sales. Willard Bishop, which likens it to the “wild, wild west,” expects eCommerce to account for 10 percent of volume in 10 years or less. That’s not insignificant, but neither is it the end of the traditional grocery store.

In addition to opening new stores with less selling space, successful retailers are likely to retrofit existing stores into multi-functional store-hubs or storehouses, predicts Jim Hertel, managing partner of Willard Bishop. These multi-purpose locations will provide a localized assortment of products in the selling area, while reserving backroom square footage for safety stock, staging home deliveries and the fulfillment of click-and-collect orders.

Selling your products is just the tip of the iceberg. Taking it to the Nth degree, eCommerce can also bring you customer engagement, data collection, insights. Imagine the joy (and profit) of auto-replenishment. Imagine what you can do with the email addresses of customers.
“Make no mistake, eCommerce is impacting every area of consumer goods retailing including shopper behaviors, purchase cycles, new item introductions, assortment, merchandising, pricing, trade spending, store layouts, unsaleables and many others,” the market research firm writes. “Consequently, those with a data-driven eCommerce strategy in place will be positioned to capture market share at the expense of the laggards.”

Market share is just the tip of the iceberg. Armed with the right mindsets and datasets, astute manufacturers will build brand loyalty through digital engagement. This electronic connectivity will facilitate R&D and be particularly beneficial for new item introductions, promotion planning and increasing brand loyalty.

I attended the Consumer Analysts Group of New York meetings in February, at which the CEOs of some of the biggest publicly held food & beverage companies discuss their strategies with Wall Street analysts. I think every one of them mentioned eCommerce, but I don’t think any one of them would claim to have it completely figured out.

“Conquering eCommerce does not mean having all the answers,” Willard Bishop concludes. “Conquering, at this stage, means the organization has developed an eCommerce strategy, knowing that the plan must be malleable. It must change as new insights are revealed and as the organization’s capabilities expand.”