Can CPG Companies Become E-Commerce Experts?

2020 has affected lots of aspects of everyday life, including how we shop for essentials. The shift to online shopping for groceries was rapid and unprecedented. In fact, it's estimated that e-commerce sales in the U.S. will increase by 18 percent in 2020, while brick-and-mortar retailers will face a 14 percent drop. Most believe this dramatic shift has conditioned people to use online grocery for essentials, a remarkable shift in consumer behavior.

So what do large consumer goods companies do when a global pandemic is raging and consumers are reluctant to go into stores?

Most CPGs were already in the early stages of exploring and building their e-commerce and direct-to-consumer (D-to-C) strategies. However, the speed at which consumers shifted online last year has made this shift business critical.

As the saying goes, these traditional giants aren't letting a good crisis go to waste. Here are three ways in which CPGs have tackled the challenges wrought by global shutdowns:

1. Building a Brand-Relevant D-to-C Offering

Lots of consumer brands have seized the change in consumer behavior to build their D-to-C offering.

A low price point and the proportionally high cost of shipping has often stood in the way of a brand-specific D-to-C offering, but everyday consumer products have taken innovative approaches to get their products in consumers' hands.

An example of where business has leaned on the comfort and heritage of their products is Heinz in the UK.

Heinz has embraced the nostalgia and heritage of its products to sell everything from baked bean-themed Christmas jumpers and personalized tomato ketchup at their heinztohome.com site. By selling bundles of products to increase the average order size, and encouraging subscription as a way to get to know their brand loyalists, Heinz is appealing to consumers nostalgia for the brand in surprising ways and learning what it would take to scale a D-to-C business with products that it wouldn’t sell through retail partners.

In the U.S., PepsiCo launched two D-to-C sites in under 30 days, and has leveraged its cross-category scale to provide multiproduct pantry kits. Similar to Heinz, the higher price point of the value packs makes shipping sensible, and gives PepsiCo a way to build a bond with home-bound snackers. Even pre-pandemic, PepsiCo generated $2 billion in e-commerce revenue!

2. Marketing and Selling Carefully Through Existing E-Commerce Channels

For some brands, D-to-C doesn’t bring enough scale to warrant the additional complexity. This has encouraged some brands to shift focus towards working with established e-commerce retailers like eBay, Amazon.com, and Thrive Market.

There has often been an underlying tension between large CPGs and these online marketplaces because of their reluctance to de-stock grey market goods, discourage resellers, and remove counterfeit products. Equally, Amazon’s penchant for building its own private label versions of popular products has kept larger CPGs wary. With store traffic down, however, companies are relying on tools to help them manage these efforts, be they data from companies like Algopix or agencies that specifically support the process on Amazon and other marketplaces.

Along with increasing their range of offerings on these marketplaces, large CPGs have also tipped marketing spend into online marketing. Amazon's advertising revenue rose 51 percent in Q3 2020 vs. Q3 2019. It raked in $5.4 billion in ad revenue from brands keen to reach consumers online, a clear sign of the growing importance of e-commerce as both a sales and marketing channel. With so many consumers starting and ending their grocery buying on these sites, it's important for brands to rise to the surface the way they would with a typical end-aisle display or coupon.

For CPGs, these e-commerce marketplaces offer a way to embrace online shopping and lean into a more personalized marketing approach with consumers while they work on capturing more consumer data where they can.

3. Building More Robust and Performance-Driven Digital Environments

Despite an advertising hiatus in the middle of 2020, the shift of advertisers' spend from traditional marketing channels like TV and print to digital channels continues. It's expected that a whopping 40 percent of the total U.S. ad spend will be on digital this year.

CPGs have traditionally struggled to build their first-party data, particularly due to their lack of online presence beyond a brand-oriented website. As consumer data becomes increasingly more valuable in order for brands to fuel quality online experiences and to deliver impactful marketing campaigns, their efforts are ramping up. Delivering a more personalized experience is not only possible online, but has become increasingly more expected by consumers.

By building a robust route to market online, brands are able to have more direct interaction with consumers, better prove the return on investment of their marketing spend, and future-proof their marketing efforts with changes to data privacy rules.

A virtuous cycle of richer consumer data, better ability to reach consumers with relevant messaging, and more personalized experiences during the purchase process is the holy grail for all brands. For some large CPGs, this pandemic has provided the external pressure needed to encourage a much needed review of their e-commerce and digital marketing strategy.

Caitlin Filmer is the head of customer success at Ad-Lib, a digital creative tech and service business.