An Ecommerce Strategy Is No Longer Optional for CPGs

Nearly nine out of 10 dollars of FMCG retail growth came from online in the past year

Author: Andria Cheng

June 27, 2017

Amazon’s $13.7 billion purchase of Whole Foods has been described as revolutionary, sending shockwaves across the grocery sector, but a look at how consumers are buying their groceries and other CPG items suggests Amazon is simply responding fast to where the money is.

While brick-and-mortar retail sales of grocery and other fast-moving consumer goods (FMCG) declined slightly by $1 billion to $771 billion in the year ended May 27, online sales of those items, including meal kits and grocery delivery, jumped 32% to $74 billion during the same period, according to a Nielsen study released Tuesday. 

Nearly nine out of 10 dollars of FMCG retail growth came from online in the past year, and ecommerce drives growth across various product categories, according to Nielsen. 

For instance, online grocery sales increased $2.4 billion in the year ended April 29, nearly four times the $619 million increase in the brick-and-mortar space. Web sales of pet care products surged by $3.4 billion, more than 10 times the $317 million growth observed on the physical store front. Personal care, health care and household products also saw an online increase many times that of store growth. In beauty, the shift was even more dramatic, where ecommerce was the only area that saw higher demand—a gain of $1.6 billion compared to a decline of $168 million in brick-and-mortar sales.

“Any FMCG strategy that’s not already factoring in e-commerce is missing a big part of the growth strategy,” Nielsen said in the report. Amazon’s Whole Foods buy is a clear sign “that e-commerce is fundamentally changing the retail landscape.”

Even though online only generates about 6% of UPC-coded FMCG sales, the shift, while far slower than that for electronics and apparel categories, is also tilting in ecommerce’s direction: for categories like beauty and pet products, nearly 30% of spending already is taking place online. For household products, health care, and personal care items, online contributes at least 10% of sales.

Even for some categories like packaged food where online sales are still minuscule, at 3% of the total, ecommerce represents 20% of growth, according to Nielsen. In 10 years, the percentage of Americans buying groceries online is expected to more than triple from 23%, the report said.

Most CPG players are aware of the challenge: According to this year’s Consumer Goods Forum’s “Top of Mind” study, major CPG retailers and manufacturers rank consumers’ increasing preference to shop and buy online as one of the top “most disruptive consumer trends.” Executives polled in the global survey also rank “ecommerce and digital payments” among the technologies their companies are most likely to be using.

Related Links

Online Advantage

Grocery Retailers Amp Up Paid Search Spend

The growing investment online is also evident in another way: more than 1,700 advertisers, led by Walmart, Aldi, Kroger and Amazon among the top 10 spenders, have increased their paid text desktop Google search by a combined 245% in the past year, according to paid search data provider AdGooroo.

Online also has the ability to stoke growth in a different way, as it allows consumers to easily find new, and better, products to trade up to, especially in such categories as baby food and pet products, according to Nielsen. A case in point, while traditional retail sales of baby food sales have been flat the past few years as US population growth slows and more Americans are delaying starting a family, online sales added 5 percentage points to segment sales, offsetting the 1% decline in brick-and-mortar channels.

To be sure, despite the growing promise of online, brick-and-mortar retail stores will play an integral part of online growth: about 15% of online FMCG sales, led by categories including beer and wine and frozen meat, are picked up in stores or curbside, in so-called click and collect, according to Nielsen. That’s also especially crucial when it comes to purchases of fresh foods, a growing area of the market. For instance, fresh meat, produce and deli items are more likely to be included in a click-and-collect purchase when compared to the average online order, according to Nielsen.

In fact, that’s widely considered to be a key underlying reason behind Amazon’s purchase of Whole Foods, where its more than 460 stores could become a distribution network, giving customers a place to pick up their orders or helping Amazon deliver fresh groceries, cutting last-mile delivery costs.

In another example of increased online and offline tie-ups in the space, PetSmart in April agreed to buy Chewy, which some data suggested is bigger than even Amazon as the largest US online seller of pet food.

Editor’s Note: This story has been updated to reflect that Nielsen estimates that online sales represent 3% of packaged food sales.