Food Companies Pursue the Elusive Digital Dollar

Food and beverage companies are wrestling with what should be their role in e-commerce.

By Dave Fusaro, Editor in Chief

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Probably since the first grocery store, a Piggly Wiggly, opened in Memphis in 1916, food and beverage processors have sought a way to cut out that middleman and sell their products directly to the consuming public.

There’s been little progress in 102 years. Does the arrival of the internet change things? That’s one question ... the other being just how much grocery shopping the coming generations of consumers will do online.

The digital age is definitely here, and so is e-commerce, although clearly less so in the food and beverage industry than in just about any other. About 35 percent of all computer hardware is bought online; office equipment and supplies is next at 28 percent of total category sales, and general electronics comes in at 27 percent. Online food sales account for just 2.6 percent of grocery sales today, which, nevertheless, equates to about $25 billion, according to Kantar Consulting (kantarconsulting.com). 

American online grocery shopping also is lagging some other parts of the world. Douglas Straton, Hershey’s chief digital commerce officer, told financial analysts in August online shopping globally is 5.8 percent, including 5.6 percent in Europe and 7.3 percent in Asia – most of that in China. “A lot of these countries, especially in Europe, started a lot earlier on than the U.S.,” he said. “In the U.K. ... Tesco launched online groceries 18 years ago.”

Kantar estimates the U.S. penetration should increase to 6.5 percent by 2023, or $74 billion. Not gangbusters in the trillion-dollar big picture, but not insignificant, either; certainly something that should be looked into.

Around a quarter of American households currently buy some groceries online each month, up from 19 percent in 2014, and more than 70 percent will engage with online food shopping within 10 years, according to “The Digitally Engaged Food Shopper” report from Food Marketing Institute and Nielsen. It also found that of those who will buy digitally, 60 percent expect to spend about a quarter of their food dollars online in 10 years.

“This is without a doubt the greatest retail revolution we’ve seen over the last 50 years,” says John Carroll, Coca-Cola’s vice president and general manager of e-commerce for North America. “The brick-and-mortar world and the online world are merging. Mass retailers are buying smaller online companies, and online retailers are developing an offline presence. And it’s all being driven by how and where people are shopping.”

He apparently was referring to Walmart buying Jet.com and PetSmart buying Chewy.com, in the former example, and Amazon buying Whole Foods in the latter. But what has Coca-Cola been doing about the greatest retail revolution in the past 50 years? We’ll get to that in a few paragraphs.

In every presentation to financial analysts, the heads of the public food and beverage companies tout their efforts on the internet. While there have been valiant efforts and a few interesting case studies, no company can claim true success just yet or to have figured it out.

E-commerce to all of the big companies has become another major client worthy of its own vice president-level account manager – like the ones assigned to Walmart or Kroger – with most of his or her time spent talking to Amazon, but with one eye on other possibilities.

One of those other possibilities is direct-to-consumer sales. After all, food and beverage companies already marketing their products to consumers. “It’s definitely possible for food and beverage processors to sell directly to consumer, but they need to be realistic about how large that business can be,” warns Tory Gundelach, vice president of retail insights at Kantar Consulting.

“When a supplier sells directly to the consumer, the consumer loses the benefit of being able to purchase multiple brands in one cart – which is what a retailer provides,” she continues. “Selling directly to consumers would work best with extremely brand-loyal shoppers who only want a single brand or on higher-ticket purchases where purchasing a single item feels natural.”

What should their strategy be?

“First, a brand must determine what they are trying to accomplish by selling direct to consumers,” says Gundelach. “Is the goal to expand the brand reach, generate brand excitement, increase profit margins, build brand loyalty? The objective should guide the go-to-market strategy.

“Second, to compete in this space also requires a commitment to invest adequate resources to build out and keep updated a platform to sell directly to consumers,” she continues. “From a consumer standpoint, the key is to give shoppers a reason to buy direct – better prices, more variety, exclusive products, customizable product, etc. – but of course this must to be balanced against the needs of key retailer partners.”

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