In today's fast-paced world, convenience is king, and eCommerce has revolutionized how we shop.
Now, instead of spending hours pushing a cart through a crowded store, we can buy everything from our go-to snacks to daily essentials from the comfort of our couch.
Consider the fact that in 2022 CPG sales accounted for approximately 10% of the total U.S. market, a significant increase from just four to five percent in 2019.
Further, the online distribution channels for CPG products are expected to grow by a whopping 8.3% CAGR from 2020 to 2027.
This rapid growth is a testament to the fact that eCommerce is no longer just an alternative sales channel but a crucial component of any successful CPG company's omnichannel strategy.
Whether you're a well-established offline CPG brand or an aspiring DTC entrepreneur, it has become essential to understand the mechanics of CPG eCommerce.
Let's decode this new normal together.
What is CPG eCommerce? A guiding definition for the industry
Simply put, CPG eCommerce is the sale of consumer packaged goods (CPG) products through online channels.
The items sold this way range from food and beverages to beauty products and household goods.
You can think of CPG eCommerce as a subcategory of omnichannel retail, which is the practice of selling through multiple distribution channels, including traditional brick-and-mortar stores.
Key components of a functioning CPG eCommerce model
Every CPG eCommerce model needs some key components to work well. These include:
Online product listings: The product listings are the first part of the eCommerce ecosystem. They provide a digital shelf for consumers to visit and browse information about the products they want to buy.
Shopping carts: Once consumers have found products they want to buy, they need somewhere to collect them. That's where shopping carts come in. They allow consumers to save the products they want, then proceed through the checkout stage of the shopping process.
Payment processing systems: Once consumers have found products they want to buy and added them to their carts, they need to be able to pay for those items. Payment processing systems allow shoppers to enter their payment information and send it securely over the web so that online retailers can complete the sale.
Order fulfillment: Once a consumer has made a purchase, they need to receive their order. That's where fulfillment comes in. It allows retailers to pack and ship items quickly and efficiently so consumers can get what they want when they want it.
Customer support and return handling: Once customers have received their order, they may need to return it or ask for support. Customer support systems allow retailers to provide the type of service to make customers happy and keep them coming for more by instilling brand loyalty.
CPG eCommerce Channels: The digital gateways to reach the modern, connected consumer
CPG brands have various options when it comes to selling their products online. In this section, we will delve into the most common CPG eCommerce channels and examples of brands that are using them successfully.
Buy online, pick up in-store (BOPIS)
BOPIS (Buy online, pick up in-store) is an increasingly popular eCommerce fulfillment option that allows customers to purchase products online and then pick them up in person at a nearby physical store.
To implement BOPIS, CPG brands need a robust eCommerce platform that can handle order management and inventory tracking across both physical and digital channels. They also need a seamless checkout process that allows customers to choose the BOPIS option and select their preferred store location.
One well-known CPG brand that has successfully implemented the BOPIS model for its stores is Target. Target has been a leader in omnichannel retailing, and BOPIS is a crucial part of its strategy.
Target's BOPIS program, known as Drive Up, allows consumers to purchase items through the Target app or website and then pick them up at a designated Drive Up parking spot outside the store. Customers receive a notification when their order is ready, and Target employees bring the items to their car.
Further, Target is also testing a Drive Up return program across its U.S. stores that allow customers to return items without entering the store.
Sell through online retail marketplaces like Amazon
Selling through online marketplace platforms like Amazon and Walmart.com is a low-friction option for CPG companies looking to embrace eCommerce.
While there are some downsides, such as the potential for increased competition and the marketplace's fees, the benefits of increased visibility and lower operational costs make it a worthwhile option for CPG brands.
Epic Provisions is an excellent example of how starting from an online marketplace like Amazon can be a launching pad for CPG companies to grow rapidly and achieve success in the competitive food industry.
Founded in 2013, the company started selling its grass-fed meat bars on Amazon. They leveraged the platform's tools and analytics to gain insights into their customers and optimize their product listings. As they started to gain traction on Amazon, they expanded to other online marketplaces and eventually to brick-and-mortar stores. In 2016, General Mills acquired Epic Provisions for a reported $100 million, citing the brand's success in the natural and organic food space as a critical driver for the acquisition.
DTC (direct-to-consumer) channels like a Shopify website
Direct-to-consumer (DTC) eCommerce is an online retail business model where a company sells its products directly to customers through its website or online platforms.
Unlike traditional retail models, no intermediaries like physical stores or online marketplaces are involved. Instead, the company takes control of the entire customer experience, from marketing to sales and delivery, to establish a direct relationship with its customers.
Consider the example of Ava Estell, a premium skincare brand that sells products directly via its slick Shopify store. They created an all-natural range of skincare products to cater to the specific needs of darker skin tones, addressing concerns such as hyperpigmentation.
Further, they were able to significantly boost their website conversion rates with Videowise's eCommerce video platform.
You can read more about Ava Estell's DTC website's conversion optimization case study here.
The many benefits of going online for CPG brands
CPG companies have a lot to gain from going online. Below we explore some of these prime benefits in more detail.
1. Reach a wider audience
In today's digital age, reaching a wider audience is crucial for the success of any business, and consumer packaged goods (CPG) companies are no exception.
By embracing online channels, they can break free from the confines of traditional brick-and-mortar stores and open up to a global audience of potential customers.
This means they can sell their products to customers worldwide, regardless of geographical boundaries.
With a more extensive reach, the CPG industry can also leverage targeted digital marketing strategies to reach specific customer segments and tailor their products and messaging accordingly.
2. Reduce overhead costs
Selling online is a game-changer for the CPG industry when it comes to reducing overhead business costs. By eliminating/ reducing the need for physical storefronts, companies can save on expensive real estate, utilities, and maintenance costs.
Businesses can operate with a leaner organizational structure, requiring fewer employees to manage orders and inventory. Additionally, by adopting an online business model, CPG companies can streamline their supply chain and reduce transportation costs, which can be significant for those dealing with perishable goods.
These cost savings can be reinvested into the business to advance innovation, research, and product improvement. Further, brands can offer more competitive pricing to their customers, ultimately resulting in higher customer satisfaction and loyalty.
3. Leverage customer data for better decision-making
In traditional brick-and-mortar retail, collecting customer data beyond basic demographic information is often challenging.
With eCommerce, CPG companies can track customer behavior on their websites, such as the products they view, the items they purchase, and the frequency and size of their orders.
For example, with Videowise added to a Shopify store, you can track the performance of all your on-site shoppable videos.
All this data is invaluable for companies looking to gain insights into their customers' preferences, interests, and purchasing habits.
By analyzing this data, CPG companies can tailor their marketing strategies, improve their product offerings and make more informed business decisions.
4. Innovate faster and reduce time-to-market
Going online provides CPG companies with a host of innovation opportunities and enables them to bring products to market faster than ever before.
You can quickly test new products and ideas, using customer data and feedback to determine demand and fine-tune your offerings.
This agility allows companies to be more responsive to changing customer preferences and market trends and to adapt their product offerings to meet those demands quickly.
By analyzing customer behavior and preferences, CPG companies can identify gaps in the market and develop products that meet specific needs.
Digital channels also allow CPG companies to collaborate with other businesses and startups, facilitating the cross-pollination of ideas and accelerating innovation.
5. Enhance customer experience and boost loyalty
Online stores provide a convenient shopping experience, allowing customers to purchase products anytime and anywhere without physically visiting a store.
Shoppers can browse a vast range of products at their own pace, without any time constraints or pressure from sales staff.
Additionally, websites often offer personalized product recommendations based on the customer's browsing and purchase history, providing a more relevant and engaging product browsing experience.
There are many more ways the customer shopping experience is enhanced online, like the ability to easily compare prices and product specifications, read reviews from other shoppers and leave feedback about the seller or item, and pay for items using credit cards or online payment systems.
6. Run personalized subscription services
The eCommerce model makes it much easier to offer a robust subscription model to customers and tap into recurring revenue opportunities.
The internet makes it easy for customers to sign up for subscriptions online and automate billing and delivery of products. This reduces administrative costs while increasing customer satisfaction by providing a frictionless experience with minimal effort on their part.
Dollar Shave Club is an inspiring example of a CPG brand that built an incredibly successful subscription service by tapping into the power of eCommerce. The company offers high-quality razors and blades at affordable prices while providing customers a convenient way to get fresh stock delivered regularly.
Some challenges to consider when adopting CPG eCommerce
While eCommerce offers tremendous revenue growth and customer acquisition potential, it also presents a complex and rapidly evolving landscape that requires careful navigation and strategic planning.
By addressing these challenges proactively, CPG companies can build a stronger foundation for eCommerce success. Let us understand them below.
Competition from marketplace white-label products like Amazon's Solimo
As the rise of online marketplaces like Amazon continues, competition from white-label products has become a significant challenge for consumer packaged goods (CPG) companies. For example, Amazon's private-label brands, such as Solimo, have gained popularity due to their low prices and high visibility. This is a challenge for brands who want to sell in the same category.
CPG companies can focus on their unique value proposition and brand differentiation to mitigate the impact of such white-label products. They can invest in building strong customer relationships by offering personalized experiences, such as loyalty programs and targeted marketing.
Building trust and credibility online
Establishing trust in the virtual world can be challenging, especially for companies that do not have a physical store footprint.
Customers may be hesitant to trust the quality and authenticity of a company's offerings without the opportunity to interact with products in person. Additionally, the rise of counterfeit products and online scams has made consumers even more cautious when shopping online.
One effective strategy is to leverage social proof by highlighting positive customer reviews and ratings. You can take this social proof strategy further by adding user-generated video reviews from your happy customers on your product landing pages. It improves trust and credibility and increases conversions by showing visitors that others with similar needs are happy with your products.
Handling customer returns and order cancellations
In a physical store, customers can inspect products and make informed purchasing decisions. However, with online shopping, customers may not always receive the exact product they were expecting, leading to a higher likelihood of returns and cancellations. This can result in additional costs for the company, including shipping, restocking fees, and potential revenue loss.
Furthermore, returns and cancellations can negatively impact customer satisfaction and brand reputation.
To mitigate these challenges, CPG companies can implement a few strategies.
Firstly, they can ensure their website provides detailed product descriptions backed by video walkthroughs and reviews. This can help set more accurate customer expectations than relying on images alone.
Secondly, they can offer flexible return and cancellation policies that are clearly communicated to customers.
Lastly, CPG companies can utilize technology solutions such as chatbots and automated returns processes to streamline the return and cancellation process and reduce costs.
Managing customer data security and privacy
With more data comes more responsibility.
CPG brands that collect customer data must ensure that the data is protected and used only for the intended purposes. They must also comply with various data privacy regulations, such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). Failure to do so can result in legal and financial penalties and damage the brand's reputation.
To mitigate these risks, CPG brands can take several steps. These include but are not limited to implementing robust security measures, being transparent with customers, training employees, and working with trusted vendors.
Optimizing shipping logistics
Optimizing shipping logistics can be daunting, as CPG companies need to ensure they can fulfill orders quickly and efficiently while minimizing costs. This can be particularly challenging for companies with large and complex supply chains, with multiple distribution centers, warehouses, and shipping routes.
One way to simplify this is to partner with a reliable eCommerce logistics company that can help manage the entire shipping process, including selecting and implementing the right technology for your business. These solutions ensure orders are fulfilled quickly and efficiently while minimizing costs.
In addition, they can provide visibility into inventory levels at every step of the supply chain so businesses can proactively manage stock levels and avoid costly out-of-stock situations.
Balancing conflicts with retail partners
Going online can lead to some challenges for CPG brands in their relationships with retail partners.
Retailers may see online sales as a threat to their brick-and-mortar business and may feel that CPG brands are trying to bypass them by selling directly to consumers online. This can lead to tension and disagreements about handling online sales with in-store sales and concerns about pricing, promotions, and marketing efforts.
Ultimately, the key to success for CPG brands looking to navigate conflicts with retail partners is to approach the situation with transparency, collaboration, and a willingness to adapt to changing market conditions.
By building solid relationships with retail partners and leveraging technology and data to inform their online sales strategies, brands can successfully expand their reach in the eCommerce marketplace while also maintaining a robust offline presence.
Conclusion: The new normal for the CPG industry is online
eCommerce has revolutionized how the consumer packaged goods (CPG) industry operates.
With the rise of online shopping, consumers have more options than ever before to purchase their daily needs.
This has resulted in a shift from the traditional brick-and-mortar model towards a more online-focused approach.
The COVID-19 pandemic only accelerated this trend, as more consumers have turned to websites and apps out of necessity and convenience.
While the shift towards eCommerce may present new challenges for CPG companies, it also offers a wealth of opportunities.
By embracing new technologies and platforms, both offline businesses and new-age retailers can reach a wider audience, offer personalized shopping experiences, and gather valuable data on consumer behavior.
Ultimately the most successful CPG brands would be the ones with a comprehensive omnichannel retail strategy centered around the digital-first customer.
However, getting your eCommerce model right is critical in that endeavor.
So why wait?
Embrace the power of eCommerce today and take your CPG business to new heights.
Learn how Videowise's eCommerce video platform can help you transform your eCommerce website into a high-converting sales channel.
Request a demo today to explore the possibilities together with our expert team!