Digital Game Plan

As the industry approaches a "digital tipping point," a landmark report commissioned by the Grocery Manufacturers Association (GMA) highlights the benefits and most advantageous positioning strategies for CPG companies' digital and e-commerce success.

Prepared for GMA by the Boston Consulting Group (BCG), Google and Information Resources Inc. (IRI), "The Digital Future: A Game Plan for Consumer Packaged Goods," as Progressive Grocer previously reported, asserts that U.S. companies need to plan for what it describes as a “1-5-10” market, in which digital’s current 1 percent penetration will likely expand to 5 percent by 2018 and could accelerate to as much as 10 percent in short order.

Noting that digital penetration of 5 percent represents nearly one-half of total CPG growth during the next five years, the report warns that companies without effective digital capability risk stagnation, loss of share and sales erosion when compared with early movers, which have the opportunity to establish leading positions that will be difficult for others to diffuse.

“Like most other industries, the CPG industry is experiencing the signs of digital disruption,” explained Elise Fennig, GMA's VP of industry affairs. “That’s why it was vitally important for GMA to examine how CPG companies can holistically adapt their digital and e-commerce agendas to plan for the future effectively." Fenning said that the insights in the report by the BCG-IRI-Google team will serve as a definitive "go-to resource for GMA members –- regardless of where they fall on the digital maturity continuum today.”

Describing the CPG industry as "fast approaching a tipping point, driven by a confluence of trends,” Patrick Hadlock, Boston Consulting Group partner and a co-author of the report, said: “Consumers are embracing technologies, devices, and services that make everyday tasks such as shopping, cooking, and even commuting quicker, easier, more fun and more efficient. This is fragmenting the purchasing pathway as consumers regularly switch back and forth between digital and physical channels, and they interact digitally both in and outside of stores.”

The report argues that while many companies have established a digital presence –- be it a website, digital advertising and/or social media presence –- most have yet to fully integrate digital into their operating model, build a Big Data analytical capability, pursue a multichannel (or omnichannel) strategy, or tailor their product offerings to the digital or e-commerce marketplace.

Digital Impact Greatest at Discovery Phase

According to the report, the impact of digital is felt most acutely at the early stages of the purchasing pathway. Almost 40 percent of offline shoppers and more than 30 percent of online shoppers reported that technology's impact is greatest during the discovery phase. More than a quarter of both offline and online shoppers said that its biggest impact is in the search phase. In addition, almost a quarter of in-store shoppers reported online activity as one of the three most influential factors on their purchasing pathway.

Digital channels currently have the greatest influence on purchases of home care and general food products, but are likely to expand in importance during the next five years as the market moves to the aforementioned 1-5-10 scenario.

Buckle Up for Intense Digital Grocery Disruption

Cautioning traditional retailers to brace for "a massive wave of new competitors and competitive models," courtesy of "large technology companies with deep pockets that are building disruptive digital grocery businesses to serve this category and support broader strategic goals," the report advises CPG manufacturers to participate in multiple retail models while acknowledging that "the winning models have yet to be established," but instead that numerous models will most likely prevail.

“The cost of inaction for incumbent manufacturers is ceding control of their brands, share position and margins in the fast-growing digital channel,” said fellow report co-author Jamil Satchu, a partner at IRI Global Analytics and Consulting.

“Companies that do not play in the digital game are likely looking at flat or shrinking sales," said Satchu, who warned "that brand equity is at risk as the purchasing pathway shifts online and consumers more often search for and discover brands digitally. But the experience of other sectors demonstrates that early movers often establish tough-to-trump positions and advantages.”

No 'Low Risk,' No Rewards

Accordingly, the report advises all companies to make a series of low-risk, "no regret" moves that will better prepare them for a 1-5-10 world, including:

• Developing an integrated strategy for how far the company needs to go, and how to get there
• Shifting investments to establish a digital brand presence
• Building the necessary capabilities and organization for a fast-moving digital world
• Shaping the evolution to digital with channel partners

Manufacturers also need to recast their existing capabilities, including product placement, marketing content development and supply chain management, for the digital world.

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