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The evolving online retail story for consumer packaged goods

Brian Elliott, managing partner at Periscope® By McKinsey, outlines the way consumer habits towards buying CPG goods are changing in the online world and how businesses could take advantage.

Consumer packaged goods (CPG), once purchased almost exclusively in stores, are quickly moving into the digital realm as more and more consumers are researching and purchasing CPG products online, according to our latest survey. In all markets surveyed, the findings revealed that at least 70% of respondents are undertaking some form of online CPG shopping activity, with French (40%) and UK (39%) consumers exhibiting the greatest balance of multichannel shopping preferences followed by German (33%) and U.S. (32%) shoppers.

The survey of 2,531 consumers across the globe evaluated their current CPG purchasing behaviours as well as their future CPG shopping intentions. It uncovered insights on which channels consumers use to make different types of CPG purchases and the motivations behind their channel shopping preferences; the demographic impact on shopping channel choices; delivery preferences of consumers making CPG purchases online; and the effect of personalised recommendations on digital shopping.  Three areas of particular interest for both retailers and CPG companies in the research were:

Online Shoppers Prefer Non-Perishable Categories in CPG 
Research found that non-edible and durable food items are performing considerably better than perishable products like dairy and bread, revealing shopper hesitation about purchasing these types of products online. Also, beauty and personal care products topped the shopping list for consumers at 44%. Similarly, cleaning supplies were included in the “Top 4” product categories consumers had shopped online within the past two months. While the report findings show that cpg online shoppers lean towards non-perishable categories, online purchasing for perishables is expanding as consumers develop more trust to receive fresh goods when buying them online. Good deals for their preferred perishable goods can stimulate trial.

Discounts and Bulk Purchasing Options Drive Online Purchasing 
When asked to evaluate how their online shopping habits differ from shopping in-store, consumers in all markets said they are more likely to buy more in bulk online and are willing to spend more if they can identify discounts and offers. Shoppers are using digital channels to find the best deals. Price and free delivery were selected by consumers as the top two factors influencing their online CPG purchasing decisions with an average 53% of the vote.  The bias toward bulk purchasing occasion also further explains the bias to non-perishables mentioned above. 

Online Shines Bright for CPG in the Future 
Given the benefits of price and convenience, a significant number of respondents noted that they plan to prioritise online channels when making CPG purchases. In fact, over a quarter of U.S. (27%), French (26%) and UK (26%) consumers surveyed indicated they will predominantly be shopping online in the future, with one-fifth of German shoppers saying this will be their preferred channel. CPG companies looking to boost online purchases across more products and category selections will need to emulate the engaging experience that consumers have when visiting a physical store.

A new opportunity is beckoning

The survey shows that capturing the growing online consumer demand will require CPGs and retailers to build out their digital capabilities for strong omnichannel strategies. CPGs should focus on managing both digital stores and key account relations for digital, including assessing online channel performance, understanding how consumers shop in a category online, and identifying innovation opportunities from the online trends. It requires the same rigor that has been applied to physical stores for years.  Retailers also have an opportunity. Those that partner more closely with Top CPGs will benefit from their consumer insights, attract more investment, and get assistance in building out their own online propositions.

As respondents are motivated a lot by price and convenience when shopping online for CPG products, it is key for companies to have professional online Category Management capabilities in place to better leverage consumer insights; to appropriately curate assortment and improve digital share of visual inventory; personalize conversations; and run promotions based on insights from category pricing dynamics, that maximize returns across channels.

Achieving this will require agile execution, a rapid test and learn approach and a willingness to leverage advanced analytics to personalise offers, predict consumer needs and better understand unique channel shopping behaviours.

In general, winning companies will prioritise the following imperatives:

  • Evaluate the broader channel strategy, determining where and how to play - and with which partners
  • Automate data collection from a variety of sources and utilise centralised analytic tools to generate market-specific shopper insights and retailer-specific recommendations on how to improve online store execution (similar to how they support in-store execution today)
  • Pursue integrated decision making on pricing, promotions and assortments across the consumer’s omnichannel experience
  • Invest in omnichannel retail capabilities; attaining commercial excellence will demand new skills and more advanced channel management practices that include tailoring assortments, merchandising and promotions to the online channel
  • Make more frequent adjustments to SKU portfolios, undertaking micro-segmentation that considers in detail which channel outlets are being served and how online can be used to micro-test innovation and detect new consumer trends

As online consumer demand continues to grow in mature eCommerce markets, players will need to ensure they are positioned to take advantage of every opportunity. With online shoppers motivated by price and convenience drivers, it’s time to gain a mastery of basic and value-oriented assortments, while leveraging consumer insights to execute price and promotion to maximise returns and personalise the conversation with individual shoppers.

The full survey report, CPG Goes Omnichannel: Shoppers Grasp the Digital Opportunity, can be accessed here.