P&G Leads CPG Foray into E-tailing
To Learn Basics of Emerging Channel
By Dale Buss
After a decade of false starts and indifference, the CPG community finally is re-awakening to the possibilities of e-tailing, led by a new online-sales pilot program – and a new statement of strategic commitment – by Procter & Gamble. The global giant is in the vanguard of a number of major CPG companies that are experimenting more seriously with Internet sales than perhaps ever before, an emergent trend that could have huge implications for their retail customers as well.
P&G has begun piloting an online operation it calls eStore with PFSweb Inc., an e-commerce infrastructure company. P&G’s test market is 5,000 of mostly its own employees. Meanwhile, 29 other CPG giants – including General Mills, Nestle and Novartis – are testing online sales through a startup e-tailer known as Alice.com.
“Our objective is to become experts in e-tailing CPG products so that we can go to our
e-tailing customers and say, ‘Here are the right combinations of products, and the right ways to do retail on your site, and here are all the things that you can do to drive volume,” said
Glenn Williams, a P&G director and a member of the eStore launch team.
More broadly, P&G Chief Executive Officer Bob McDonald has noted that the company still has only about $500 million a year in e-commerce sales globally through its own scattered efforts and via e-tailers, far less than 1% of its overall annual revenues of about $80 billion. And he wants to change that.
“We must be available to consumers when and where they seek to research or purchase P&G products,” McDonald said on a conference call a few months ago. “Increasingly, that’s online.”
It isn’t as if P&G – and other CPG companies – haven’t tried before. The early years of e-commerce, when Amazon and eBay were hatched, saw monumental failures in CPG e-tailing, especially among shooting-star startups such as Webvan that would home-deliver groceries. Industry players seemed largely to have lost interest in subsequent years, concluding that e-commerce simply wasn’t ready to contribute much to their business.
“No one has come up with a magic recipe for doing this, and it’s a relatively slow-moving industry anyway,” said Mark McGuire, president and co-founder of Middleton, Wis.-based Alice.com.
But the inexorable rise of market share for the Internet has given CPG companies more incentive; household-goods sales online climbed to about $10 billion last year from just $4 billion in 2003, estimates The Nielsen Co. Also altering the picture have been the advance of private labels and continued fragmentation of marketing media, McGuire said.
“A lot of CPG companies are realizing that the market has changed and that they have to change their brand leadership,” McGuire added. “It can’t just be 30-second TV commercials. Over the last couple of years, we’ve seen much more senior-level motivation at CPG companies to create brand leadership in the online venue.”
P&G was an active e-commerce experimenter during the Nineties, but then lagged along with the rest of the industry. P&G did inherit an e-commerce site called TheEssentials.com when it purchased Gillette in 2005. “But it’s not a primary marketing channel for us,” Williams explained. “Because it’s specific to Gillette categories, it’s not a broad CPG site like we’re designing with eStore.”
Now, it only makes sense for P&G to become seriously re-engaged in e-commerce. “Although Internet retail hasn’t taken off yet, this may well represent for P&G a marker, establishing a foothold in a class of trade and moving beyond the Internet bubble that burst,” said Jim Hertel, managing partner for the retail consulting firm Willard Bishop Consulting in Barrington, Ill.
“If it ever gets to be a significant deal in terms of volume, P&G wants to be there to rise with
all boats.”
P&G’s Williams said that the company “saw the need to bring some P&G discipline to the practice – the type of research we do, and the quality of our execution. It’s not there in e-commerce at this point.”
For example, Williams said, P&G wants to learn partly through eStore what is the right way
to launch a product in the e-commerce channel, and how to bundle different kinds and brands of products in ways that make sense to the consumer. “At the end of the day, is a consumer’s shopping behavior different online than in the store?” Williams said. “We don’t know that
right now.”
One potential hiccup is that nearly all of the 5,000 pilot consumers are P&G employees. And while they’re not being given an employee discount or any other special incentive for participating in the eStore or for frequency or types of purchases, it’s possible that such a “non-random” sample could skew the test results.
“But this suggests that this is only step one for P&G online,” Hertel said. “They probably can’t learn much from a test of their employees about what actual sales volumes will turn out to be. But they can learn about user interfaces, presentation – that sort of thing.”
Other reasons for the P&G pilot are a desire to figure out how to use e-commerce to leverage the company’s uniquely broad portfolio of products and brands, and to understand how to work most effectively online with retailer brands – both those that have physical as well as virtual stores, and online standalone retailers.
As some of P&G’s biggest bricks-and-mortar customers plunge deeply into online commerce these days and especially add more CPG products, including Wal-Mart and Target, the manufacturer wants to make sure it joins its retailer customers on the leading edge of
the channel.
Among retailers, Williams said, the quality of e-tailing performance still varies widely. “Some do it quite well,” he said, declining to specify them. “Others are online because they think they need to be there, but they’re not quite sure how to do it. We’re going to try to bring real-time and real-market learnings to them.”
Bishop’s Hertel said that P&G wants to become a “trusted advisor” to retailers about how to tackle e-commerce in much the same way that its leadership in category management over the last quarter century has helped ensconce P&G with brick-and-mortar operations.
P&G is at the start of a “long-term, evolving” push back into e-commerce, Williams said, “We’re running water through the pipes right now. “ In regard to e-commerce in the CPG world, he said, “There’s a vacuum of knowledge that we want to help fill.”
Market Watch
Organic Food, Beauty Items
Remain Niche Products: Study
By Rose Anthony
Although traditional retailers are expanding their selection of organic food and beauty products, there has actually been no growth in the number of consumers who buy them, according to a new study by TABS Group, a leading marketing, research and consulting firm in the consumer products industry.
According to the study, Organic Fresh Fruit had the highest purchase incidence at 26%, with Organic Fresh Vegetables close behind at 25%. Organic Dairy Products, Eggs and Milk, were cited for purchase by 17% and 16% of US adults, respectively. Frozen Organic products – Vegetables, Fruit and Ice Cream – had low purchase levels at 5-7%.
Purchase levels for organic beauty care products also had very low mainstream acceptance with stated purchase for Organic Skincare at 6% and Organic Hair Care and Cosmetics at 4%. There was no meaningful change in the household penetration of any of these categories compared to the 2008 study done by TABS Group. By contrast, non-organic products for all of the above categories have household penetration levels of well above 70%.
The study found that traditional supermarkets were the preferred outlets for these products compared to natural food stores by a margin of 39% to 27%. Although there were 50% more organic shoppers at traditional outlets than natural food outlets, there are 20-30 times more of these outlets.
Fancy Food Fest
The 35th Winter Fancy Food Show in San Francisco recently had the highest attendance of any winter show in the past five years. The three-day event at Moscone Center drew 16,780 buyers of specialty food from across the U.S. and around the world.
The show’s 1,300 exhibitors presented 80,000 specialty products from the U.S. and 45 countries, including Australia, Italy, Korea and Tunisia. There were 184 first-time exhibitors, and space was sold out for a pavilion featuring emerging food entrepreneurs. Participation was up 47 percent for the education program of 19 seminars, workshops and tours.
The show is the largest marketplace for specialty food on the West Coast. Attendees this year represented some of the most important names in retailing, including Whole Foods Market, Trader Joe’s, Costco, Amazon.com, Macy’s, numerous local and regional specialty and natural food stores, gift shops, and even Alaska Airlines. They were in search of the next hot products and the best in chocolate, cheese, olive oil, salsas, snacks and more.
FEBRUARY 2010
Mars Shakes up Candy Category
With Nutritional Labels on Packages
By Dale Buss
Mars, Inc. staked out a position as a health and nutrition trailblazer in the worldwide confectionary industry several years ago. Now the marketer of such brands as M&Ms, Snickers and Milky Way is building on that leadership with a national rollout of a new nutritional-labeling system on the packaging of all of its candy products.
The privately held, $30-billion company plans to begin working with retailers on point-of-purchase (POP) ad campaigns and shopper education programs around its highlighting of “Guideline Daily Amounts” (GDAs) of calories and key cautionary nutrients on its packaging. Mars believes its program will dovetail nicely with proprietary, in-store nutritional-ranking schemes already operated by many supermarket chains.
“The consumer is our boss, and this is something that consumers have asked us for,” Hank Izzo, vice president of research and development for Mars Chocolate North America, told CPGmatters. “They want clear, transparent information, and we are giving it to them.”
Mars’ confidence in the appeal of its new labeling system in the U.S. is bolstered by the fact that it’s already fully in place and popular throughout the company’s European markets. In
fact, Mars’ executives have so much faith in the GDA scheme that they are lobbying other CPG companies and the federal government to embrace the basic idea for all food and beverage products.
Simplicity and honesty are two primary aspects of the appeal of Mars’ GDA system. It is elegantly simple. The front of the package of each Mars product bears an icon titled “What’s Inside,” that lists the number of calories and the percentage of the U.S. government-recommended daily number of calories that the package represents. On the back is a repeat of the calorie information as well as similar figures for total fat, saturated fat, sugars and sodium.
As the maker and marketer of leading candy brands, Mars arguably would have a lot to lose by so prominently and coherently displaying the bona fides of its sweet products
“Consumers were telling us that they find it very difficult to make [food] choices throughout the day and to manage a balanced, healthy lifestyle, and to get information about what’s inside the foods they ate,” Izzo explained. “The most important thing was calories, and getting help in managing their calorie intake as the day goes on.
“We also see this as something that goes back to leading the chocolate industry in creating a healthier environment, and we’re inviting others to join us because it’s the right thing to do.”
Retailer enthusiasm for and cooperation with the GDA system is important for its long-term success. Mars seems to be trying hard to make sure its approach is consonant with the independent efforts of various supermarket chains to provide useful health and nutrition information available to their customers by ranking products according to a star system, and other methods.
“We haven’t received anything but positive feedback from our [retailer] partners,” Izzo said. “Some have their own strategies and tactics [for nutritional information], but the key is doing what’s good for consumers and good for the business, and that’s where our strategies
come together.”
Also highly motivational for Mars is the possibility of becoming a Pied Piper for competitors, other food and beverage companies, and federal regulators with the GDA scheme. Mars executives want to promote uniformity of nutritional information, sure – but also, having established a standard that others subsequently adopt would help solidify its leadership in an attribute that has become increasingly important to the company.
To that end, Mars has been getting very proactive about promoting the merits of its GDA approach. It has drawn in the American Dietetic Association, for example. And Mars is promoting the system at trade shows and in meetings with competitors and other CPG players. Among them, General Mills already is using a similar GDA labeling system on the front of its cereal packaging.
“We’re also constantly there trying to talk about this and invite everyone to come along with us on this journey,” Izzo said. “The biggest opportunity is to get other consumer-goods companies to go in this direction … We believe that this is the correct option, from results we’ve had from testing with consumers.”
Also, Mars’ push is coming at a time when the Food & Drug Administration is reviewing the entire arena of front-of-package nutritional labeling to try to sort out the confusion consumers have been feeling, to figure out what’s effective, and, presumably, to come up with a one-scheme-fits-all approach that it could impose on all food and beverage manufacturers.
Mars’ GDA scheme is understood to be competing for the FDA’s favor with a handful of other approaches including, for example, the “traffic-light” nutritional rating system that has been used in the United Kingdom. So, last year Mars took out print advertisements touting the GDA system in the Washington Post and other publications read by legislators, regulators and others in the nation’s capital.
“If [regulators] are wanting to make a decision on this – which way to go – it’s important to know that some companies are moving forward on labeling,” said Marlene Machut, director of communications for Mars’ global chocolate business. “It’s important for them in the Beltway to see that companies are doing it.”
Market Watch
Food & Drink Product Launches
Decline during ‘09 Recession
By Lynne Cooke
The economic slump took its toll on makers of food and drink last year. Product launches declined nearly 30% from 2008, according to a recent review of Mintel’s Global New Product Database (GNPD).
“In the last decade, Mintel has only tracked occasional, small declines in new product introductions for the US market, never a decline as strong as this,” said Lynn Dornblaser, new product expert at the company. “We see that a number of small companies, which typically introduce a wide range of products, have been stopping or slowing their introductions due to the economy. Additionally, some categories have simply become so over-saturated that there is little room for new products.”
Despite this declining trend, Mintel said some categories and claims found a hidden niche in which to excel. Ethical and environmental claims increased from 9% of all product launches in 2008 to 17% in 2009. Specifically in this category, the environmentally friendly packaging claim nearly tripled, growing from 3% of all products launched in 2008 to 9% in 2009.
“The increase in ethical and environmental claims is less about companies introducing new products or changing their packaging and more about manufacturers communicating with their consumers and knowing what’s important to the people who purchase their products,” said Lynn Dornblaser.
Meanwhile, in clear correlation with the recession, products boasting an economy claim have increased by 72% from 2008 to 2009.
In addition, side dishes was one of the few categories of food and drink that saw an increase in 2009, with 16% more launches than in 2008. This increase is most likely due to new products that offer convenient solutions, such as vegetable steam bags, and to more people eating in instead of going to restaurants.
Food and drink introductions with an all-natural claim decreased from 15% of all launches in 2008 to 13% in 2009. The organic claim, showed a similar decline of 12% to 10% in the
same timeframe.
“Natural and organic products, which saw large increases in 2008, took a few steps back in 2009 due to their higher price points,” said Dornblaser.
Docs OK NuVal
The American College of Preventive Medicine (ACPM), an organization of top physicians committed to preventing disease and promoting health, has endorsed the NuVal Nutritional Scoring System as an easy and effective way to help consumers learn about the foods
they buy.
NuVal gives all foods a score from 1 to 100; the higher the score, the higher the food’s overall nutrition. All NuVal scores are provided on the supermarket shelf, making it easy for consumers to compare the overall nutrition of the foods they buy at a glance.
Digital Receipts to Roll
afterBOT, a provider of digital receipts for retailers, is rolling out its QuickReceipts Connect solution March 1 following a successful pilot in 38 stores in the Phoenix marketplace in Best Buy, Dillards, Smart and Final, and other stores. The solution provides consumers online access to their electronic receipts from participating retailers via MyQuickReceipts.com.
The multi-retailer solution is designed to provide access to important customer data, enable more targeted marketing campaigns, and offer a link to a next-generation money management service to help retailers gain and retain new and existing customers.
“afterBOT’s digital receipt expertise gives retailers more advanced ways to serve and support their customers, increase loyalty and reduce shopping stress,” said Jim Nadler, vice president of marketing.
Insights from Social Media
First Insight, a company that connects retailers to the voice of the consumer, has unveiled the newest version of Virtual Customer Viewpoint (VCV). The solution allows merchants to improve product selections, forecast future item’s sales, assess price points, and evaluate the strength and applicability of attributes of particular products.
VCV leverages online consumer activities and conversations to give retailers real-time information and a strategic advantage in deciding what to sell, and where, how, and to whom they should sell it. Retailers and brands can transform investments in social media and social networks into two-way conversations with consumers.
Fancy Food Fest
The 35th Winter Fancy Food Show in San Francisco had the highest attendance of any Winter Show in the past five years. The three-day event at Moscone Center, which ended
January 19, drew 16,780 buyers of specialty food from across the U.S. and around the world.
The show’s 1,300 exhibitors presented 80,000 specialty products from the U.S. and 45 countries, including Australia, Italy, Korea and Tunisia. There were 184 first-time exhibitors, and space was sold out for a pavilion featuring emerging food entrepreneurs. Participation was up 47% for the education program of 19 seminars, workshops and tours.
