E-commerce – How to win online, a MUST more than ever before
Welcome to our (nearly) fall newsletter dedicated to e-commerce.
The COVID-19 pandemic has accelerated a variety of e-commerce trends, radically changing assumptions from just a year ago; yet no holistic interpretation of these shifts existed. So, we tackled the challenge head on with custom research aimed at clarifying the new landscape.
We asked 1,000 USA respondents about their current and future intended online shopping behaviors, including subscriptions, online vs. in store shopping motivations, and purchase tendencies. We have taken a deeper look at Food and Beverage (F&B) in the USA (e-commerce projected to be 3.7% of total sales in 2020, +85% growth from LY1 ), one of the most dynamically changing categories as shoppers opt to buy more online due to COVID-19. However, most of the findings are applicable across industries and geographies.
In this part one of a two-part newsletter series we share our main learnings and seven implications for strategy. In part two later this year, we will use our dynamic models to play out some of the implications into the future.
As we designed our own study, we made a thorough review of existing reports on the topic. Our In the News section lists several that we found particularly useful.
Please feel free to reach out to us with any questions as we continue to explore the data.
Managing Director, Foresight Associates LLC
Critical time for Food and Beverage companies
E-commerce is moving at the speed of light. Catapulted by COVID-19, the channel that has been on marketers’ radar for years is now a substantial outlet for overall retail sales (2020 projection of $710B, 14.5% of all Retail Sales in the US1 ) and is positioned to become the most critical channel for brands’ long-term success.
No category will be spared. Shoppers are buying more online and are predicted to continue at the expense of in store sales in nearly every retail category. Professor Jose Luis Nueno from IESE estimates that for every one percent of market share gain online there are 10,000 store closures in US6 . As shopping becomes more convenient with simple platforms (Amazon, Instacart, Walmart, etc.) and fast delivery, it is opening the doors to categories long isolated from the e-commerce expansion.
Our research on Food and Beverage (F&B) indicates that the new habits are here to stay. Overwhelmingly respondents stated they would shop more online, irrespective of their current frequency of online shopping, and a net 10% of people that did not shop online for F&B said they would start. You do not need our dynamic stock and flow models to grasp the magnitude of the changes and implications for brands.
Investing heavily in e-commerce and building shopper loyalty online will set brands up for years to come. Companies that do not invest stand to lose big. Up to 30% of beverage sales are impulse buys3 , and data from Instacart, one of the leading online shopping companies in the USA, reveals that shoppers typically go with the first items that show up from their search (70% buy items in first row, including sponsored or recommended items2 ). Worryingly, as they shop online more, they search for items less, opting to “repeat previous purchases” instead. Add to this the rise of subscription services where consumers are locked into monthly and weekly purchases.
Our research allows us to put numbers against these dynamics: online shoppers are more likely to repeat items/brands they bought last time and there is high interest in subscription services. 27% of respondents are already subscribed to a F&B service, and 25% are very interested in subscribing.
As many brands are realizing, being late to the online party can cause lasting damage. Quoting Dan Bourgault, head of brand partnerships for Instacart: “In the e-commerce world, if you lose a twopoint share, it’s going to cost you 2x, 3x, 4x more to gain that back even if you can because the others that were ahead of you have picked up so much momentum.”
Rethinking how to market online
History provides us with many examples of brands and industries failing to keep up with changes in the consumer journey and losing out on first (or even second or third) mover advantage. Remember Borders? An international book and music retailer unable to transition to the new business environment of digital books. By the time Borders woke up to the threat, it was too late: Amazon had already cornered the market and made entry into the e-reader business nearly impossible. Blockbuster is another great example. And who still remembers Palm Inc.?
Clearly these are extreme cases, but they tell us the importance of being front runners in marketing to new consumer trends. Business literature explains these dynamics as path dependency – a phenomenon whereby what has occurred in the past persists because of resistance to change. Our research has confirmed evidence of a path dependent relationship for Food and Beverage (F&B).
No matter how you look at it, brands in the F&B industry need a new marketing model to adapt to this changing environment, win online and not succumb to path dependency.
Through our research, we have isolated five areas where online marketing cannot rely on traditional in store strategies to succeed:
Online shoppers tend to be younger professionals with higher income and children in household, potentially those that have less time on their hands juggling work and family. With the skew toward younger shoppers, demographic changes alone will drive more online shopping into the future. This also means that brands that skew young will be impacted sooner.
2) Shopping Mission
People shopping online are looking for convenience and time efficiencies. They typically purchase bigger basket sizes – $90.6 dollars vs $55.2 in store – driven by minimum charge for delivery, and a tendency to stock-up5 . However, online scores low in shoppers’ minds for providing fresh produce and quality products. The implications are that people are likely to continue to shop in store for fresh food but online will take a larger share of bulk non-perishable F&B shopping spend in the near future.
3) Path to Purchase
The online shopping experience is built on search. Shoppers search by entering specific key words or following defined category hierarchies. This cuts the chance for impulse buys, while also creating opportunities for smaller brands that are not as represented in store to own niche spaces. Compare this to the traditional in store shopping experience, which is built on browsing, and creates openings for impulse buys as shoppers pass many items while navigating the store. The trade-off is that physical space is limited, and generally larger brands can control more of the shelf and displays. The implication is that the search method of online shopping makes impulse buys harder, so linking your brand to relevant key words and categories is critical to having your brand seen. Understanding search and being top of algorithm is key to winning online.
Communications follow a similar pattern. In store advertisements communicate with a broad audience of shoppers, effectively creating spontaneous awareness of your brand and prompting shoppers to buy it even though they may have had no prior intent to do so. Online advertising opens the door to personalized communications, effectively talking directly to specific shoppers based on who they are, what they buy, etc. and appealing to their needs. Brands that can strategically communicate with different demographic and behavioral segments of shoppers with relevant messages will be at an advantage online.
Subscriptions services are well established in other categories but relatively new for F&B brands. There appears to be a strong appetite for them, with 27% already subscribed to a F&B service and 25% very interested. In our research we found a large variety and number (>150) of F&B subscription services in the US. Most of the top players are direct to consumer brands; we found few big brands in the space. Looking forward, this is an area big brands should consider as consumers are interested in these services.
Winning in e-commerce: what Food and Beverage brands can do now
Based on our learnings, here are the seven winning factors for a Food and Beverage (F&B) e-commerce strategy:
1) DO NOT WAIT – Being late to the online marketplace can have major implications to your business. Developing resources, creating platforms, and investing now will pay dividends in the future.
2) BE TOP OF ALGORITHM – Understanding the key words, categories, and adjacent spaces is paramount to winning online. If you have not yet, try searching for your brand or category of food or beverage on Amazon, Walmart, Instacart, etc. If it is not in the top few rows you are missing out on sales.
3) ADVERTISE STRATEGICALLY TO SEGMENTS – Online is a marketer’s paradise. You can create personalized advertisements based on consumers’ demographics, what they search / buy, etc. Understanding the best messaging to communicate with different shoppers is key to success.
4) TRIGGER THE IMPULSE – There are still ways to trigger impulse buys online, they are just different from a physical store – “recommended items”, “before you check out” – but the key is finding commonalities in consumer behavior and introducing your brand in spaces it has the best chance to be purchased. For example, when searching for Pepsi on Amazon, Oreo’s is a top advertised brand, implying that consumers who buy Pepsi are more likely to buy Oreo’s.
5) BE TOP OF MIND WHERE IT COUNTS – Shopper recall is even more critical online, as shoppers use key word search for the brand rather than prompted recall in store. In addition, the gatekeeper effect may be more pronounced online with one person selecting groceries for the household, creating a perfect storm for categories with high impulse buys. This can be offset with advances in social media and digital advertising. Connecting with consumers is now more personal and can lead directly to sales. Strong social and digital marketing capabilities are critical to keep connected and stay top of mind with consumers.
6) BUILD DTC CAPABILITIES – Building direct to consumer capabilities is something F&B brands should strongly consider. You can better connect with your loyal consumers, improve margins, and test out subscription models for routine purchases, which will help create loyalty and more predictable long-term sales patterns.
7) LEVERAGE DATA TO SUPPORT YOUR E-STRATEGY – There is a myriad of e-commerce data available – Industry Estimates, ePOS, Retailer Direct, Digital Shelf, Shopper Panel, Purchase Order Data, etc. With the massive scale of data, machine learning is coming to the forefront of e-commerce analytics. The ability to process massive data sets, link them together, uncover patterns, and find niche or adjacent spaces is critical in a highly competitive marketplace online. In our forthcoming webinar we will expand on these areas and will share more insights from our proprietary research.
In the News
Having gone through much of the research published so far, we have listed below those that we found particularly useful:
• Washington Post – Reveals overall consumer trends with findings on permanent shift toward online shopping including insights on innovation, new brands and eating patterns as consumer move online.
• Business Insider – E-commerce insights relating to the beverage industry from December 2017, stats and information on risk large beverage companies face as consumer move online that is still relevant and even more applicable today.
• Instacart – Article on Instacart shopper order data, containing insights on patterns and trends seen in Food and Beverage orders on their platform.
• One Space – Insights on in store vs online shopping, leveraging learnings from Global Data on difference in online shopping habits.
• IESE – Professor José Luis Nueno shares his learnings, insights and implications on the future of retail, and importance of direct to consumer capabilities as consumers shift to online shopping.
• Shopify – Covers several interesting points relating to how major food companies business models were impacted due to COVID-19, the resulting learnings and how companies are building new Direct to Consumer and Omnichannel capabilities.
- Andrew Lipsman and Cindy Liu, US E-commerce 2020, Jun 8, 2020, eMarketer Article
- Instacart, Winning the Digital Shelf — It’s All About the Customer!, Sep 29, 2017, Instacart Article
- Kate Taylor, A seismic shift that set off the retail apocalypse could hit companies like Coca-Cola and Pepsi next, Dec 8, 2017, Business Insider Article
- Iman Ghosh, How U.S. Consumers are Spending Differently During COVID-19, May 21, 2020, Visual Capitalist Article
- Neil Saunders, Online Grocery & Food Shopping Statistics, One Space Article.
- Prof. José Luis Nueno, Prof. Mike Rosenberg, Embracing Direct to Consumer in the New Reality of Retail., June 2020, IESE Video.